Dispute deepens between Lerner, Virginia over land for Tysons Metro

By Jonathan O'Connell
Monday, August 23, 2010

Tysons Corner developers spent more than a decade lobbying for Metrorail to be extended there, but with construction now underway, real estate magnate Theodore N. Lerner is locked in a nearly two-year legal battle with the state over the value of some of his land needed for the project.

The two sides were so far apart on an agreement for the land in 2008 that the state was forced to claim the property by eminent domain to start construction in time, paying $24 million.

Since then, things have worsened. According to court filings, Lerner finds the deal unsatisfactory and damaging to his company's redevelopment plans. And the state now thinks it paid too much and is attempting to get some of its money back. Barring an agreement, the case will go before a jury Nov. 1.

The second-easternmost Tysons Metro station is slated for the corner of Chain Bridge Road and Tysons Boulevard, right on the doorstep of land where Lerner Enterprises developed Tysons Galleria shopping mall, the Ritz-Carlton and office buildings leased to high-end legal and financial firms.

The Rockville-based company has been moving to capitalize further on Metro. It plans six more office buildings, two condominium towers and a hotel. A pedestrian walkway could allow Metro riders to walk directly from the station to the new Lerner development.

At the same time, Lerner Enterprises, through subsidiary Tysons II Land, was one of 21 landowners that failed to come to an agreement with the Virginia Department of Transportation and the Metropolitan Washington Airports Authority on properties needed for the new tracks, stations and construction area, prompting the state's use of eminent domain.

"They all knew that this was coming, and in fact most of them clamored for it to come," said Brian Costello, who leads land acquisition in Northern Virginia for the transportation department. "The business community really wanted this Metrorail facility. Their thinking was that it would be of enormous benefit to them. Of course, now that it's here, they want every dollar that they can get."

Company officials did not return phone calls requesting comment. In legal filings by his attorneys, Lerner argues that the takings cause "damage" to his redevelopment plans because some of the easements run onto land pegged for development. Lerner Enterprises had negotiated in good faith, according to filings, over the station, its name and its connection to the Lerner property with the state, but the department "either refused or was unable to negotiate in good faith by consistently referring Lerner representatives to other bureaucratic government agencies for decisions on these matters. They did not respond."

In March 2008, with negotiations faltering, the state permanently took about 75,000 square feet of Lerner property -- a football field and a half's worth -- and more temporarily for construction staging. Construction is underway, with the station scheduled to open in 2013.

To further deepen disagreement, state and airport authority officials, after seeing the collapse of the commercial real estate market, now think they may have made too sweet of an offer. A second appraisal of the Lerner land in November 2008 -- two months after Lehman Brothers filed for bankruptcy -- put the value at only $11.8 million, less than half the initial price. Costello said an initial appraisal proved inappropriate after the "rapid decline of the real estate market."

Now the state will likely have to rely on a jury to get some of its money back. "We will have to chase them, but we have the statutory right to collect that money," Costello said.

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