Real Estate Forum - January 2013

NEWS FRONT
After Q4 Party, NYC Sales Face Cold Light of Day

NEW YORK CITY—More than 40% of the total 2012 investment sales volume for Manhattan was generated in the fourth quarter, said Cushman & Wakefield’s Steven Kohn at the firm’s Q4 media briefing. “It’s amazing what a fear of tax increases can do,” quipped Kohn, president of C&W’s Equity, Debt & Structured Finance operations. However, investors should expect minimal activity in the city’s CRE market during the first and second quarter of 2013, Barbara Byrne Denham, chief economist at Eastern Consolidated, tells Real Estate Forum.

“The high level of activity in 2012 will take away activity in the first two quarters of this year,” she says. “It’s a very volatile pattern.” Overall, she predicts volume of approximately $6 billion in this first quarter and the same amount in the second quarter.

In particular, office rental and the retail
sectors will lag, says Denham. “The office
leasing market is still not very strong
because it’s very Wall Street driven. Retail
was off the chart in the fourth quarter, but
that won’t continue because it’s the most
volatile sector.”
However, she had good news to share
too. “Retail is a growing asset class,” she
says. “And multifamily will continue to be
strong because people still feel that hous-
ing in the New York market is strong.”
Other sectors, Denham says, “will be pro-
portionate to their usual role.”
The market watcher is coming off the
release of a report on Q4, in which she
announced that the volume of commercial
property deals soared to about $12 billion at
year-end, more than double the $5.8 billion
that was transacted the previous quarter.

When Does the Law Tolerate Destruction?

When is it acceptable in the eyes of the law to order the destruction of a $2-million home? According to one recent trial court, it is the right outcome when the structure is on the wrong property with no evidence that the affected landowner was delinquent in asserting his or her rights. The house represented an investment of over $1 million and years of effort, and the slice of land on which it sat was worth a fraction of that. But unless an appellate court reverses the decision, the house will come down before anyone ever lives there.

The case strikes a delicate balance between principles of economic waste and the sanctity of private property, and draws a fine line between relative shades of innocence. Courts around the country are divided on where the presumptive burden in such circumstances should fall. Many courts start from the assumption that the law should favor an economic adjustment in which the affected land is sold—tantamount to a private regimen of eminent domain. Other courts strike the balance in the opposite direction. As long as the encroachment is not truly minimal, and there is no evidence of acquiescence or delay, the party seeking relief is entitled to a mandatory injunction of removal—the real estate equivalent of the death penalty.

The recent case of Nulman v. Four Twenty Corp. involved a home built in 2010 on a waterfront parcel in Rhode Island. Because of wetlands, the developer situated the house close to the boundary line where his parcel abutted a seven-acre public park owned by a charitable foundation. In multiple regulatory applications, the developer relied on site plans that incorporated a fatal

By Mark Freel

flaw—the boundary line on one side was wrong. When a buyer agreed to buy the house for nearly $2 million and performed a survey, it revealed that error and confirmed that the entire footprint of the house was on the wrong land. Litigation ensued, and the case went to trial solely on the question of the appropriate remedy. The question for the court was whether the trustees of the foundation were entitled to a court order that the house should be torn down.

The court’s decision ordering destruction is instructive on the law of mandatory injunctions for continuing trespass. Although it is said that hard cases make bad law, this case confirmed that in the right situation, a court will strike the balance in favor of an affected landowner, even when the trespasser is innocent and has millions of dollars at stake. And these issues are not confined to residential development. The same considerations can and do apply in commercial development.

Prudence is always the best course when planning a development of residential or commercial property. But when accidents happen—and this recent case is proof that they do—the parties must keep in mind that courts can order removal or destruction. The likelihood of such a draconian outcome will depend not only on the state in which the dispute arises, but also on equitable considerations, including the extent of the encroachment and the relative innocence of the parties.

Mark Freel is a partner in Edwards Wildman’s litigation department. Katherine Guarino, associate in Edwards Wildman’s litigation department, contributed to this article. They may be contacted at, respectively, mfreel@edwardswildman.com and kguarino@edwardswildman.com. The views expressed here are the authors’ own.