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Patricia Ghiglino and her lawyers should have known the city couldn’t afford to play fair.
Director of a nonprofit sculpture center near the Navy Yard in Southeast D.C., Ghiglino owned roughly 9,600 square feet of land that sits right in the footprint of a baseball-stadium site the city envisions for the Anacostia waterfront. In order to pave the way for D.C.’s next great entertainment destination, District officials planned to condemn her land and give her $1.8 million in compensation. In mid-November, Ghiglino and her counsel sat down with representatives of the District government at the John A. Wilson Building to negotiate for more money.
Dale Cooter, one of Ghiglino’s lawyers, says that this “settlement meeting,” as it was billed, had little chance of ending in smiles and handshakes across the table. The city’s point man in the room was Stephen Green, director of development in the Office of the Deputy Mayor for Planning and Economic Development and an old buddy of Mayor Anthony A. Williams’ from Yale University. Green bears a reputation as a hard-nosed negotiator, and he made it clear to Ghiglino’s people that the city wouldn’t stray far, if at all, from its original offer.
“The city’s approach was obnoxious; they essentially declared themselves all-seeing and all-powerful,” says Cooter. “We’re experienced in cases like this, and measured against our experience, their performance was laughable.”
In a typical condemnation case, the government puts forth an offer and the appraisal on which it’s based, then the landowner counters with his own if he disagrees. But in this case, the city wouldn’t allow Ghiglino and her lawyers to see its math. According to Cooter, the District’s lawyers would show them a copy of the appraisal only if they signed an agreement saying they wouldn’t use the document against the city in court—a condition no breathing trial lawyer would let his client bind herself to.
In other words, District officials had come up with a value for the property—but as to whether their appraisal was sound and legitimate, Ghiglino would just have to take the city’s word on it. “They refused to [show] any backup for their number,” says Cooter. Green says he was willing to discuss the figures and rationale underlying the appraisal, but the District’s lawyers had decided the city shouldn’t offer up any documentation. “The lawyers believed it would jeopardize the District’s position if…[landowners] had the benefit of seeing [our appraisal] without us seeing theirs,” he explains.
The meeting appeared to mark an about-face on the transparent process for acquiring stadium land that city officials had assured landowners.
Still, Green urged Ghiglino to take the offer that was on the table. “Patricia, let’s keep the lawyers out of this,” he said.
The meeting reached an impasse.
Fifteen of the 23 landowners on the stadium site are still fighting the city for more money than they’ve been offered for their holdings. Ghiglino, who ran her sculpture center out of a one-time warehouse, is an anomaly among the property owners involved in the lawsuit: Many are businessmen and lawyers involved in real-estate joint ventures, investors who years ago saw untapped potential in a swath of commercially zoned land located so close to the U.S. Capitol.
D.C. officials have ample cause to lowball people like Ghiglino. Ever since Major League Baseball (MLB) chose to relocate the Montreal Expos to D.C., in September 2004, Williams has tried to minimize the project’s costs in order to placate a council loath to throw taxpayer dollars at a congressionally sanctioned monopoly. Natwar Gandhi, the city’s chief financial officer, first pegged the land-acquisition costs for the site east of South Capitol Street at $77 million—a gross underestimation that was crucial in securing the D.C. Council’s support for the project. Indeed, the city’s offers to landowners just months later totaled $98 million.
After a long-running seesaw act on baseball, the council approved the stadium lease agreement with MLB in the early hours of Feb. 8, after attaching a public-spending cap to the project. Under the legislation, private parties or the federal government would have to cover all cost overruns—except those pertaining to land acquisition.
On that particular tab, the city should prepare to be gouged. According to lawyers and appraisers familiar with the case, land costs will undoubtedly climb well above the $98 million the city offered. By the end of litigation, some say the land tally alone will ultimately soar past the original cap of $165 million that the council set on land, environmental remediation, and stadium infrastructure costs altogether.
“There’s no question about it,” says Stephen Best, registered agent for one landowner.
“The actual costs will be 100 percent more…than what was estimated by Gandhi,” predicts Cooter.
“I’ve heard figures…that lead me to believe it will be $100 million over,” says Roy Goldberg, a lawyer for a waste-transfer station on the stadium site.
On one hand, the District has done what any ambitious yet short-sighted governing body does—underestimate the costs of a grand public project. On the other hand, the condemned parties have done what any self-interested and savvy landowner does—assign a significantly higher value to one’s own spit of land. Even though their tax assessments may be just a fraction of the appraisals they’ve commissioned, the landowners on the whole insist their fight isn’t about greed. It’s about determining a fair market value for their land, through court proceedings if necessary.
Landowners contesting the city’s offers feel that they’re due anywhere from two to five times as much as what the District has offered, and many believe that the city’s early estimates for land acquisition were set artificially low in order to create the illusion of an attractive stadium deal.
Representatives of five landowners say they were hamstrung in their negotiations with the District by city officials’ unwillingness to share their appraisals, which were commissioned by the city’s Office of Property Management (OPM). The fact that many appraisals haven’t been disclosed to property owners was a surprise to Williams, who was asked briefly about the issue after a Feb. 13 ribbon-cutting ceremony.
“I can’t believe that that’s true,” he said.
Green maintains that the allegations of a secretive appraisal process are unfair. “We did talk everyone through the methodology—I was more than happy to do that,” he says. “I would need an appraisal from them. I need them to come in with a different number to show that what our [appraiser] did was incorrect.” Green says that he showed landowners and their lawyers some but not all of the comparable sales the city considered in its appraisals.
At-Large Councilmember David Catania, a longtime critic of the city’s land-acquisition efforts, says he asked that the appraisals be released to the council but was turned down. “We were told we couldn’t have them,” says Catania. “We’ve never seen any underlying documentation” for the OPM numbers.
“I don’t think they’ve shown anybody their calculations,” says Stephen A. Saltzburg, a lawyer for one of the property owners. “If you’ve got good numbers, you want to say, ‘Here’s how we got there.’ If it’s reasonable, you’d think some landowners might be persuaded. None have been. No one has any idea what [the city] did, and that fuels the idea that whatever was done was juggled to come up with the right number.”
Whatever the city did will likely come to light in court, where a series of costly jury trials could determine how much money the landowners are entitled to.
The bind the city finds itself in stems from the original cost study that Gandhi presented last spring. Council legislation ordered his office to estimate the land and infrastructure price tag of the Anacostia River site; if it had come in at more than $165 million, the mayor and the city’s Sports and Entertainment Commission would have had to find another site. The council’s cap, though, was essentially toothless. It merely asked for an estimate on the costs and held no one accountable if the actual price swelled infinitely beyond it. Councilmembers instead put their faith in Gandhi’s nominal independence from a baseball-boosting mayor and his strong track record as CFO.
After a study was carried out by consulting firm Deloitte & Touche, Gandhi pegged the total costs at an eyebrow-raising $161.4 million, just a hair under the cap. The study estimated the land costs would come to $77 million.
The Deloitte study, though, appears to include some inherent flaws. For one thing, many of the comparable land sales used in the March 2005 report were outdated and irrelevant to the neighborhood. Nearly a third of the sales considered took place in 2000; more than half took place before February 2002. A number of the transactions had happened in the boom-resistant New York Avenue corridor rather than near the Anacostia Waterfront.
The study also failed to provide a separate appraisal for each parcel of land, as the council had mandated. The report included a telling disclaimer: “Although this study contains many elements of an appraisal as an interim step of the analysis, this report and study may not be relied upon as an appraisal of the market value.”
Citing such fallible data in a letter to Gandhi, Catania blasted the study as “a complete contrivance.”
“They absolutely played games,” Catania says. “They fought all kinds of disclosures.”
Maryann Young, a spokesperson for the CFO’s office, says Gandhi will not address allegations such as Catania’s that the Deloitte study included artificially low numbers. “We’re certainly not going to respond to that,” she says. “And secondarily, that’s a legal tussle now. It’s between the District and the landowners. We’re honestly not in that loop.”
Local appraisers don’t hold the Deloitte study in the highest regard. “They had an agenda,” says one, who spoke on condition of anonymity. “The city had to hire a big-name [firm]; otherwise the press would be all over them for hiring local guys like us who might actually know something. They got a huge fee [of $466,000] that was unjustified….We would’ve been happy to do that for half the price, and our numbers would’ve been better.”
Roughly a half-year after it was released, the Deloitte study proved to be an obsolete lowball. The OPM hired an outside appraiser, Ryland Mitchell of the Columbia, Md.–based real-estate consulting firm Lipman, Frizzell & Mitchell, who assigned the private property on the site a value of $98 million—more than a quarter over the original estimate. Mitchell has done work for the District before, and his appraisals served as the foundation for the city’s offers to landowners.
These subsequent numbers put forth by the city were still just a fraction of the values bandied about among the landowning investors and their appraisers. And with good reason: Weighed against comparable land sales near the Navy Yard in recent years, the city’s offers seem closer to 2002 averages than those of 2004 or 2005, according to a property-sales spreadsheet released by Catania’s office. It’s a difference great enough to make prolonged wrangling worthwhile for landowners.
“It doesn’t cost us anything to litigate, because their offer is so absurd that it’s worth litigating,” says registered agent Best, whose client owns a mere 3,200-square-foot lot. “The risk is that they may not get [a stadium], the whole thing collapses, and we’re back at square one—which my client would be perfectly happy with.”
Jon Gerstenfeld’s joint venture owns more than 67,000 square feet within the stadium site along 1st and O Streets SE. Gerstenfeld is president of SJG Properties, a development firm that helped bring Whole Foods to Logan Circle. He says Mitchell’s roughly $11 million appraisal of his stadium-site lot came up short by more than half. “Some time ago,” Gerstenfeld says, the property lured a $28 million offer from “one of the major developers in Washington,” which was looking into building an office-and-condominium building. (He declined to name the developer.)
Gerstenfeld says he can go to court with the signed offer, which, looking back, he wishes he’d accepted. “I just thought [the area] was an overlooked, underrated part of the city,” he says. “I wish I hadn’t been so right.”
Appraiser William C. Harvey has evaluated lands on behalf of both governments and private landowners in previous condemnation cases. In the stadium case, he appraised the property of Ken Wyban, the one landowner who lived on the site. After an initial estimate of $696,000 in the Deloitte study, the city offered Wyban $1.2 million for his Federal-style home and three lots; Harvey estimated the property to be worth almost double that figure—$2.2 million.
Harvey attributes the city’s low numbers to the sales data its consultants considered applicable. The Deloitte study did not include any sales that closed after October 2004, roughly when officials announced the stadium site. On the surface, this would appear to make sense, given that under eminent-domain law the project for which the land is being seized should not factor into the landowner’s compensation. But commercial land deals do not close overnight. The cutoff line for relevant sales appears to have ruled out deals that might have been proposed or even contracted years before the stadium site was named—and land values can make considerable leaps during a year or two of a boom.
“Just because an announcement is made [for the site] doesn’t mean all the transactions after that are tainted,” says Harvey. He maintains that the OPM’s latest appraisals would have used a cutoff line similar to Deloitte’s. “Based upon my investigation, there would appear to be a similar [cutoff] line in the city’s second set of appraisals….Those deals settled after the announcement are legitimate data in my view, but that’s not the view the city has taken. I think we’re likely to see a third set of appraisals”—which, Harvey says, will probably be higher.
Mitchell, the city’s appraiser, referred questions from a reporter to a city lawyer in the Office of the Attorney General.
If there is a third round of appraisals, landowners hope they’ll be able to see more than just the number at the top of the page. The city’s apparent decision to withhold the appraisals from challenging parties runs counter to earlier statements by the OPM. In an official letter dated Feb. 3, 2005, agency director Carol J. Mitten assured one landowner that the city would share its math with him as one of the very first steps of the process. “In the event that the District elects to proceed,” she wrote, “OPM will share the results of its property appraisal with you and make an offer to purchase your property.”
In an April 26 follow-up letter to the same landowner’s counsel, Mitten echoed her earlier assurance of transparent dealings: “If, after your client reviews the District’s offer and appraisal, they wish to counter the District’s offer, we will ask them to present documents and facts that support their counteroffer. If they intend to base any potential counteroffer on another appraisal of the Property, we recommend that they engage an appraiser as soon as possible, as the District will need their counteroffer and supporting documentation shortly after the District presents its offer and appraisal to them.”
The landowner has never seen that appraisal. “They’ve been reluctant to part with anything,” he says. Had the District been more open, he says, he would have preferred to settle and avoid the costs of a legal fight.
“When we wrote the original letters to property owners, it was our intention to share as much information as possible with them,” Mitten explained in an e-mail to a reporter. “We were later advised that…it would be disadvantageous to the District to share our appraisal reports without an exchange of like information from the property owners.”
Appraisers say that eminent-domain proceedings that include full disclosure by both sides don’t typically lead to widespread litigation. “In those cases, everybody benefits but the lawyers,” Harvey says. “In the city’s situation, nobody benefits but the lawyers.”
To assist in its tussle with landowners, the city has retained D.C. litigating powerhouse Venable, a firm whose chair was recently crowned the most expensive lawyer in America by the National Law Journal. It is unclear how much the firm will assist the District’s Office of the Attorney General, but attorneys involved in the suit say the city’s price for a single jury trial—let alone a handful—could run into seven figures. The Deloitte study estimated just $2.5 million for the whole of the city’s legal fees in land acquisition.
The city’s ultimate legal tab, some say, will be traced to the misguided attempt to shoehorn early cost estimates underneath the council cap. A more accurate cost study than Deloitte’s, they insist, would have pushed the tab above $165 million and ruled the South Capitol Street SE site unavailable.
“The city is way over budget in many areas in this,” says one stadium-site property owner who works in real estate. He spoke on condition of anonymity. “You’ve got the mayor and the Sports and Entertainment Commission with their fingers in the dike, so the last thing you want to say is the land might cost more, or settle with one of the landowners and set some type of precedent for land value that would blow the top off of this….A denial game is being played by the mayor’s staff on what the land values will come in as.”
And when playing a finance-based denial game, it helps to have some accounting tricks at one’s disposal. To soften the political blow when land costs swell beyond previous estimates, Williams announced on Feb. 3 that the city’s overruns would be absorbed by the Anacostia Waterfront Corporation, the quasi-private coalition created by Williams to oversee redevelopment of the riverfront.
“The corporation is the District government,” says Catania. “It’s just a different pocket in the same suit.”
According to a letter from the corporation to the mayor and council, the corporation plans to cover the extra land costs by selling to private developers the air rights above the stadium area—valuable commodities that were originally planned to someday fill city coffers, not make up ground for flawed cost projections.
With council’s approval of the stadium lease, the denial game is no longer imperative. But it could still be four years or more before the city has completely settled with landowners and a final cost becomes public—a great political benefit to stadium boosters who have pushed for the Anacostia River site from the beginning.
“Mind you, none of these people will be around—the mayor, Nat Gandhi—by the time the chickens come home to roost,” says Catania. “What they will have—they’ll be able to memorialize their own legacy as to what they did [with baseball]. But they completely shirked their responsibilities to the city.”
In the end, the District could be a victim of its own good fortune in recent years. “With what’s happened with real estate, irrespective of the stadium, square-footage values have gone way up,” says Jonathan Goldberg, a real-estate lawyer whose joint venture invested in a roughly 2,700-square-foot lot at the stadium site about 15 years ago. “I just don’t think they were realistic in the acquisition costs. The court case will bear that out one way or another.”
The larger share of litigation is probably yet to be seen. In the meantime, landowners and their attorneys are looking forward to obtaining the city’s appraisals through the discovery process in D.C. Superior Court. While the fight will be costly, they expect the dealings to be considerably more transparent as documents become public.
“That’s what everybody [says to] themselves: God knows what the final cost of this land will be,” says the landowner who works in real estate. “Well, God does know. And so do we.” CP