Land’s Asking Price Triples : Property Rights Lesson Costly to Orange County

In a hard-fought lesson on property rights that could wind up costing taxpayers as much as $10 million, Orange County officials are negotiating to purchase 32 acres of the exclusive Nellie Gail Ranch for a new freeway at up to three times the price originally asked by the landowner.

The negotiations--which conclude a five-year battle with Presley of Southern California over the property--mark the first time the county has had to purchase prime development land for the three new freeways it has outlined for southern and eastern Orange County.

The case also appears to set a benchmark for how far the county can go in asking developers to donate land for new freeways--land that could cost millions if the county were forced to buy it.

Although Presley had originally offered to sell a freeway route through its exclusive Laguna Hills equestrian community for $2 million to $3 million, county officials confirmed Thursday that the asking price has climbed to about $10 million, primarily because the county lost a legal fight with the landowner over the property.

“When you go to court and you lose, the victor doesn’t have much mercy,” Environmental Management Agency Director Murray Storm said Thursday of the county’s five-year battle that ended a few months ago when the state Supreme Court refused to hear the case.

Although county officials say the $10-million to $11-million figure proposed by Presley is “very preliminary” and subject to negotiation, the estimate made it clear that the county’s attempts to acquire the property through the courts have cost the county dearly.

“What is obvious in any case is that we will probably end up with a number that will be a lot larger than it would have been three years ago,” Storm said.

The conflict first erupted in 1980, when it became clear that the county would need a 34-acre swath through Presley’s exclusive equestrian community in Laguna Hills for the proposed San Joaquin Hills freeway through the coastal foothills.

Presley, however, already had initial approval to build 292 homes on the 283 acres--including the proposed corridor area--that made up the last phase of its Nellie Gail Ranch development, and the county by law cannot attach new conditions, such as freeway land dedications, to tentative tract maps once they are approved.

When Presley applied to the county in 1982 for final approval of the tract map, the Board of Supervisors ruled that the tentative tract map was no longer valid and said that Presley would have to apply for a new tract map.

New Policy Adopted

Earlier that year, the board had adopted a new policy requiring developers near new freeway routes to give up land for the thoroughfares. And with a new application, Presley could have been required to donate the land--which it was offering to sell for $2 million to $3 million--free of charge.

Instead, Presley sued the county, alleging that the final tract map approval had been withheld only because the county was seeking to acquire land for the new freeway.

Officially, the county said it believed the map had legally expired, and county officials said it was critical to establish legal guidelines for when tract maps can be considered invalid. “Tentative maps were not meant to go on forever. New conditions come up, and new maps should come back for reconsideration in the light of changed circumstances,” Storm said.

Privately, however, county officials have conceded they had at least one eye on a freeway route through Presley’s land when the tract map approval was denied. “I won’t disagree that there was a relationship between the corridor and our fighting the tract map,” said one official, who asked not to be named.

In 1983, a Superior Court judge sided with Presley and ordered the county to approve plans for the final phase of the Nellie Gail Ranch. If the county wanted land for the freeway, it would have to go to court in a condemnation action and pay whatever a judge established as a fair market value, Judge Judith Ryan ruled. Late last year, a state appellate court agreed. “As far as the law is concerned, the court ordered us to proceed with approval of a map. Of course, it’s still the county’s position since the property overlays the corridor right of way that it would not be in the public interest (to allow development),” Storm said.

Accordingly, county officials are negotiating with Presley in an attempt to arrive at an acceptable sales price for the freeway land, in the hope of avoiding another protracted court battle.

Penalty of Waiting

The $10-million figure proposed as an opening bargaining amount by Presley is by no means an official appraisal, and county officials say it will probably be lowered during the course of negotiations. Nonetheless, they said, it reflects the inevitable penalty for waiting.

“We’re in an upward cycle of the development industry,” Storm said. “In 1982 (when the original $2-million to $3-million offer was proffered), the housing industry was rather depressed, so the value of the property and the imminence of deriving immediate gain from the property was not as great as it would have been now.”

Supervisors’ Chairman Thomas F. Riley, whose district includes the ranch, said: “It looks like our main interest now is trying to negotiate what is a reasonable and equitable settlement that protects the county and still provides the Presley Co. with the damages that should rightly be assessed.”

So far, the county has never had to buy any right-of-way for the three new freeways, with a combined construction cost of more than $1 billion, although it may have to purchase some land from the City of Laguna Beach for another section of the San Joaquin Hills freeway.

Part of the reason is that the county deliberately routed the Foothill and Eastern freeways--planned several years later than the San Joaquin Hills project--through undeveloped areas, Storm said. In those areas, landowners had not yet gained development approvals, and when they requested them, they were conditioned to require freeway land donations.

“Obviously, you try to avoid places where there are developed areas, if you have a choice,” Storm said. “We’re smarter now, let’s say, in being able to plan in advance for the Foothill and Eastern. Things were just a little bit ahead of us on the San Joaquin.”

49 Equestrian Lots

Terrance Barry, president of Presley of Southern California, a subsidiary of Presley Cos., said the company will lose about 49 equestrian lots if the freeway is routed through the property. In addition, the freeway will bisect the tract, and the company is in the process of proposing a new land-use for the area that would remain south of the freeway, he said.

“We are having some settlement discussions with the county, trying to see what we can work out that would recognize the location of the freeway and at the same time we could finish development of our tract,” he said.

Jeffrey Oderman, Presley’s attorney, said: “I think both sides are back talking now the way they should have been to begin with . . . . If the county wants to build a freeway through there, they have the right to do it. They just have to pay for it.”