BB& T Restricts Loans to Developers

Bank Opposes Eminent Domain

BB&T Corp., a North Carolina-based financial services company with a substantial Washington area presence, said it will not lend money to private real estate development projects that rely on local governments to seize land from reluctant sellers.

The bank and legal analysts said they believe BB&T is the first major financial institution to announce such a policy since the U.S. Supreme Court ruled in June that using "eminent domain" powers for privately owned projects did not violate the Constitution. The court ruling in Kelo v. City of New London sparked public opposition and efforts in Congress and 41 states to put new limits on local governments' power to condemn private land.

Now BB&T, the nation's ninth-largest financial services company in terms of assets, has waded into the debate. "Our number one concern is a philosophical and principle-based one," chief credit officer W. Kendall Chalk said in an interview. "We do a large amount of commercial lending. . . . There is the potential for abuse of eminent domain."

BB&T's home state of North Carolina already has strict limits on the use of eminent domain, but Chalk said the new policy was sparked by a mixed-use development project in another jurisdiction that he would not identify. BB&T operates in 11 Southeast states and the District. The bank has about 250 branches in the Washington and Baltimore areas.

Spokesmen for several other major banks, including Bank of America Corp. and SunTrust Banks Inc., said they had no plans for similar policies. Wachovia Corp. said it does not comment on its lending policies.

Property-rights groups praised BB&T's decision. "It's tremendous that BB&T is willing to lead the country in saying no to eminent domain abuse," said Dana Berliner, a senior attorney with the Institute for Justice, which represented landowner Susette Kelo in the Supreme Court case. "It's the right thing to do, and it's a sensible business decision. These projects are so universally hated that they get held up in court and some of them fail."

The New London, Conn., project that was the subject of Kelo's case is a cautionary example, Berliner said.

The city won the case by a 5 to 4 vote, but the decision inflamed property owners around the country.

Justice Sandra Day O'Connor articulated those fears in a dissent: "The specter of condemnation hangs over all property. Nothing is to prevent the State from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory."

Even after the decision, when the city's New London Development Corp. tried to remove Kelo and give her cottage to a developer to build a hotel and condominiums, Connecticut Gov. M. Jodi Rell stepped in and demanded that the eviction notice be rescinded. Kelo is still in the house, and no development has begun.

The U.S. House of Representatives has passed a bill that would prohibit the use of federal money for privately owned projects such as the ones BB&T will not finance, and legislation is pending in the Senate. Forty-one states have taken up the issue, Berliner said.

Chalk said he expected the new policy to have "almost no economic" impact. BB&T does not oppose the use of eminent domain for traditional public projects such as road construction or publicly owned facilities, he said.

A study by the Institute for Justice identified 10,000 controversies that involved government efforts to take private land to further privately owned economic development projects. But other analysts said the numbers are much smaller, perhaps several hundred a year.

Columbia University law professor Thomas W. Merrill said the BB&T's policy's main impact would probably be on the bank's public image. "They're not really forgoing a lot of income. It's grandstanding to a particular audience," he said. "Other banks based in congested places like New York may not want to take such a public stand. I don't think you would want to alienate the anti-sprawl redevelopment crowd."

BB&T shares closed at $39.30 yesterday, down 9 cents.