## Facts

- The New Jersey Department of Transportation, through the Commissioner of Transportation, filed a verified condemnation complaint and declaration of taking on May 23, 2005 to acquire 1.65 acres of a 2.86‑acre parcel owned by 200 Route 17, LLC along Route 17 southbound.
- The taking included a one‑story Sears building (about 31,775 square feet) and a blacktop parking lot (about 112 spaces).
- After the taking, 200 Route 17, LLC retained about 1.21 acres of vacant land that lacked direct access to Route 17.
- The property was zoned industrial under the local ordinance, and the Sears/parking use was a nonconforming use that predated current zoning limits.
- The parties agreed that the highest and best use of the post‑taking remainder was commercial retail, but achieving that use would require significant physical renovations or improvements and multiple governmental approvals (such as site plan approval and zoning relief).
- At trial, both sides presented appraisal testimony on fair market value.
- The trial court permitted an approach that assumed the property was already improved and legally ready for the retail use, then deducted estimated renovation and approval costs to reach present value.
- The State appealed the condemnation award, arguing the valuation method overstated market value by treating redevelopment and approvals as if they were assured.
- The property owner cross‑appealed, challenging the use of the court‑rule rate for prejudgment interest.

## Issues

1. In an eminent‑domain valuation, may an appraiser treat property as though it has already been renovated and approved for its highest and best retail use and then subtract estimated improvement and approval costs to determine fair market value as of the taking?
2. After reversal and remand for a new valuation trial, should the appellate court decide the landowner’s challenge to the prejudgment interest rate used in the original judgment?

## Decision

- The Appellate Division reversed the judgment and remanded for a new trial on just compensation.
- The court held that the State must compensate the owner for the land and improvements in their present condition at the time of taking.
- The court ruled that the factfinder may consider the reasonable probability of future renovations and necessary governmental approvals to reach the highest and best use, but only with appropriate reductions for the risks and costs of achieving that use.
- The court rejected a method that effectively valued the property as if the retail conversion and approvals were already in place, subject only to deducting hypothetical costs.
- Because the matter was being retried on value, the court dismissed the owner’s cross‑appeal on prejudgment interest as premature, without prejudice.

## Legal Principles

- Just compensation in condemnation is based on fair market value as of the date of taking, measured from the property’s actual physical condition and legal status.
- Evidence of highest and best use may include a more valuable use that requires redevelopment, variances, rezoning, or other approvals, but only if such changes are reasonably probable and would affect what a willing buyer would pay.
- A valuation may account for possible future improvements and approvals, but it must reflect uncertainty, timing, and the costs and risks associated with completing the changes.
- An appraisal that assumes a fully renovated, fully approved end‑state and then simply subtracts projected costs can award the value of a finished project rather than the value of the property taken.
- When a new trial on valuation is required, related issues tied to the original award (such as prejudgment interest applied to that award) may be deferred as premature.

## Conclusion

The Appellate Division required a new condemnation valuation trial because the trial court allowed a method that treated the property as already redeveloped and approved for retail use and then backed out estimated costs, rather than valuing the property as it existed on the taking date while accounting for only the reasonably probable retail potential with proper reductions for cost, time, and risk; the court therefore reversed and remanded and dismissed the prejudgment‑interest cross‑appeal without prejudice.


New Jersey Commissioner of Transportation v. 200 Route 17, LLC, 22 A.3d 1012 (2011)