Lingering Effects of the Housing Crash on Right of Way Acquisition

Posted: 6/20/2016

By the middle of 2006, residential real estate values had jumped significantly over the previous seven year period, with some years showing double digit appreciation. Developers were quickly filling the demand with new and shiny developments around the Chicago Metropolitan outer ring, gobbling up farm land at a record pace. Urban infill and redevelopment parcels provided new residential development in villages and cities in the inner urban ring and the City of Chicago. Commercial developments followed the residential boom and new commercial corridors popped up everywhere. Every conceivable big box retailer was in on the action and the frenzy brought new retail establishments that were never seen before in Illinois. Every corner had a new Walgreens and a Starbucks. Money was cheap and easy, everything was “all good.”

As we approached 2007, a crack in the dam started to leak and was exposed. By the end of 2007, the housing bubble had popped and real estate values of homes started a quick steep descent followed by commercial real estate mirroring the “follow the leader” trend that occurred on the way up. Investment banks and insurance companies failed when everyone thought they were “too big to fail.” Retail banks closed their doors in never before seen numbers.

Governmental agencies continued with their infrastructure improvement programs building and widening roadways, replacing bridges, and expanding airports.

In the wake of the real estate crash, the business of appraising and acquiring real estate became more complicated. Property owners, while aware of the crash, had a hard time dealing with the values being assigned to their property. Many owners felt they were being taken advantage of by the acquiring agency as they were moving on the project at this particular time to buy low, even though the project was in the planning stage well before the downturn.

As the acquisition process moved into the negotiating phase, a number of issues prolonged the acquisition time line that were never concerns in prior years. Many property owners were upside down on their mortgage, with the value of the real estate substantially below the current market value. For the acquiring agency to clear title and purchase the right of way, lien holders sign a release of their position on the loan that entitle the owner to receive proceeds from the acquisition. This would typically be a rubber stamp approval by the bank holding the mortgage, but with loan values often higher than home values, lenders can now take as long as 4–5 months to process a mortgage release as they scrutinize the acquisition.

Foreclosures of residential properties and commercial properties also pose a problem. Banks, now being the owner after repossessing a property, are not as accessible and lack knowledge of the property to engage in a negotiation further delaying the process. Bankruptcies also create similar problems, as the court will have the final say on any agreement to sell any part of the asset.

The real estate market hit bottom in 2012 and has slowly started to pick up speed as we move thorough 2016. Developers are starting to purchase green-field sites with most of the inventory left from the crash being spoken for. Teardowns within the developed villages and cities are occurring again. Commercial real estate has been slower to recover, partly due to the changing purchasing habits and more reliance on the internet as opposed to brick and mortar retail stores. By 2017 things should be “all good” again.