Project-Influence Bar on “Highest and Best Use”: Assembled Redevelopment Land Cannot Inflate EDPL Just Compensation

1. Introduction

Matter of City of Albany Indus. Dev. Agency. PSC, LLC (City of Albany Indus. Dev. Agency) (Appellate Division, Third Department, Feb. 19, 2026) is an EDPL article 5 just-compensation decision arising from the City of Albany’s Liberty Square redevelopment initiative. Capitalize Albany Corporation (CAC), acting as the City’s economic development arm, sought to assemble and redevelop approximately eight acres in a blighted area. The claimant, PSC, LLC, owned 0.88 acres consisting of 11 parcels—10 leased as surface parking lots under a long-term lease, and one overgrown parcel.

After private acquisitions failed as to claimant’s parcels, CAC requested that the City of Albany Industrial Development Agency (the condemnor/respondent) exercise eminent domain. The Third Department previously upheld the condemnation determination in Matter of PSC, LLC v City of Albany Indus. Dev. Agency. Following taking in October 2022 and an advance payment of $2,650,000, claimant pursued additional compensation under EDPL article 5. Supreme Court found the highest and best use to be commercial development and awarded $5,393,000 total. The condemnor appealed, arguing commercial development was not reasonably probable “at or near” the time of taking and that Supreme Court improperly relied on project-driven land assembly.

2. Summary of the Opinion

The Third Department modified the award and reduced total just compensation to $2,660,000, holding that:

  • Claimant failed to prove commercial development was a reasonably probable highest and best use in the reasonably near future as of the taking date; the asserted redevelopment potential was speculative.
  • Supreme Court erred by treating the Liberty Square project’s land assembly as supporting near-term commercial-development probability; that reasoning impermissibly incorporated project influence.
  • With highest and best use determined to be continued surface parking (and related assemblage), valuation properly relied on the condemnor’s expert methodology, principally the income capitalization approach for income-producing leased parcels.

3. Analysis

A. Precedents Cited (and How They Shaped the Result)

1) Just compensation baseline and “highest and best use” framework

  • Matter of State of New York [KKS Props., LLC] and constitutional citations (US Const 5th Amend; NY Const, art I, § 7[a]): invoked for the foundational principle that just compensation places the owner in the financial position they would have occupied absent the taking.
  • Matter of County of Warren [Forest Enters. Mgt., Inc.] and DiGiacomo v State of New York: used to reaffirm that fair market value is measured as if put to its highest and best use on the date of appropriation—even if not then used that way. The court also relied on these cases for the evidentiary discipline required when selecting highest and best use and bounding the award within expert proof.

2) The “reasonably probable in the near future” limitation (anti-speculation rule)

  • Matter of City of New York [Rudnick]: the central limitation—an asserted highest and best use must be “reasonably probable” in the near future; purely speculative or hypothetical uses cannot support an award.
  • Matter of City of New York [Broadway Cary Corp.]: emphasized that claimant bears the burden to show the proposed use could or would occur “within the reasonably near future.”
  • J.W. Mays, Inc. v State of New York: reinforced the exclusion of speculative uplift where the record lacks concrete evidence of market probability.
  • Matter of City of Long Beach v Sun NLF Ltd. Partnership: deployed to underscore valuation as of the taking date and to reject using post-taking expectations to justify a higher use at the taking.

3) Project influence / scope-of-the-project doctrine (no enhancement from inclusion in the redevelopment plan)

  • Matter of Queens W. Dev. Corp. [Nixbot Realty Assoc.]: supplied the New York rule that a condemnee cannot receive enhanced value attributable to inclusion within the redevelopment plan—compensation is for what the owner lost, not what the condemnor gained.
  • Peter Kiewit Sons' Co. v State of New York and Latham Holding Co. v State of New York: anchored the timing principle—property must be valued as of the date of taking, not as affected by the condemnor’s plan.
  • Matter of Village of Port Chester [Bologna] and Matter of Village of Johnson City [Waldo's, Inc.]: further reflected the bar on plan-driven enhancement in redevelopment condemnations.
  • United States v Reynolds (quoting United States v Miller): provided the Supreme Court’s articulation that if property was “within the public project from the beginning,” the owner cannot claim increased value due to the project itself. The Third Department used this to directly label Supreme Court’s “now assembled” reasoning as legally improper because claimant’s parcels were in the project from inception.

4) What happens when experts appraise only their own asserted highest and best uses

  • Matter of County of Warren [Forest Enters. Mgt., Inc.] and Matter of 730 Equity Corp. v New York State Urban Dev. Corp.: controlled the remedial step—where experts value only their own highest-and-best-use theories, once the court selects the prevailing use, the award should be based on that party’s valuation evidence (with only supported adjustments).

5) Valuation methodology for income-producing property

  • Matter of Center Albany Assoc. LP v Board of Assessment Review of the City of Troy: cited for the proposition that the income capitalization approach is often the best indicator of value for income-producing property.
  • Matter of Colonie Ctr. v Town of Colonie: supported using market rent estimation (and, where appropriate, actual income) in income capitalization analysis.
  • Matter of Johnstown Comrie Assoc., LLC v Assessor for the City of Johnstown: referenced for using sales comparison where a parcel is not income-producing.
  • Matter of Eagle Cr. Land Resources, LLC [Woodstone Lake Dev., LLC]: used by contrast in addressing challenges to assumptions underpinning an income approach; here, the record did not contradict the condemnor’s assumption that lease rent approximated market rent.

B. Legal Reasoning

  1. The court framed the decisive question as probability, not possibility. Zoning permissibility and “talk” of redevelopment did not establish that commercial development was reasonably probable in the near future. The court emphasized the absence of successful proposals over decades and the continued, stable income use under a long-term parking lease.
  2. It rejected “commercial development” as an improper, speculative highest and best use on this record. Claimant’s appraiser (Bauer) opined commercial development, but conceded no commercial development had occurred on the sites in 30 years and that the lease could continue roughly 16 more years. The court also noted Bauer’s earlier (2018) valuation work for claimant reflecting far lower value ranges, which undercut the persuasiveness of the trial opinion even if not treated as a “full appraisal.”
  3. It treated Supreme Court’s reliance on project-driven assemblage as reversible legal error. Supreme Court reasoned commercial development was probable because the Liberty Square project had now assembled the necessary land. The Third Department held this improperly imported the redevelopment plan’s effects into valuation, violating the project-influence rule articulated in United States v Reynolds (and New York counterparts such as Matter of Queens W. Dev. Corp. [Nixbot Realty Assoc.]).
  4. Once “surface parking” was selected as highest and best use, the award had to track the condemnor’s proof. Because each side’s expert valued only their own asserted use, the court applied the rule from Matter of County of Warren [Forest Enters. Mgt., Inc.] and Matter of 730 Equity Corp. v New York State Urban Dev. Corp.: the valuation must be based on the prevailing-use expert evidence.
  5. The court endorsed income capitalization for the leased parking parcels and sales comparison for the non-income parcel. Lloyd’s reconciliation to a single figure ($2,660,000) was accepted as supported and adequately explained, including his treatment of the existing lease income and his weighting of approaches to reflect investor analysis.

C. Impact

  • Sharper guardrails against “redevelopment uplift” in EDPL valuation. The decision reinforces that courts may not treat the condemnor’s own project progress (e.g., land assemblage) as evidence that a higher use was likely at the taking. This is especially consequential in phased redevelopment, where assembling parcels is itself the mechanism that makes later private development plausible.
  • Higher evidentiary expectations for “highest and best use” claims based on future development. Claimants asserting a development-based highest and best use should expect to need concrete market indicia (credible proposals, feasible financing, demonstrated demand, absorption, comparable developments, or other proof of near-term probability), not merely permissive zoning and long-discussed plans.
  • Practical leverage for condemnors where existing long-term income use persists. Where property is encumbered by long-term leases supporting an ongoing income stream, courts may be more inclined to find that continued use is the highest and best use, making income capitalization the dominant valuation method.
  • Procedural consequence: “winner-takes-use” often dictates the valuation record. If each expert appraises only their preferred use, parties take on meaningful risk: losing the highest-and-best-use contest can effectively hand the valuation to the other side’s proof, absent record-supported adjustments.

4. Complex Concepts Simplified

EDPL article 5
The New York procedure for litigating the amount of just compensation after a taking (often after an advance payment has been made).
Just compensation / fair market value
The price a willing buyer would pay a willing seller as of the taking date, measured to place the owner in the same financial position as if the taking had not occurred.
Highest and best use
The most valuable reasonably probable use of the property as of the taking date, typically tested for being physically possible, legally permissible, financially feasible, and maximally productive.
“Reasonably probable in the near future”
A limiting rule: even if a use is imaginable and legal, it cannot be used to increase compensation unless evidence shows it likely would occur soon enough to affect market value at the time of taking.
Project influence / scope-of-the-project doctrine
A rule preventing owners from claiming a value increase caused by the very public project that led to condemnation—if the property was in the project from the beginning, that project-caused “uplift” is excluded from valuation.
Income capitalization approach
A valuation method that estimates value based on the income the property generates (or could generate at market rent), converted into value using a capitalization rate. Common for income-producing properties like leased parking lots.
Sales comparison approach
A valuation method that estimates value by comparing the property to recent sales of similar properties, with adjustments for differences. Often used where a parcel is not producing income.

5. Conclusion

The Third Department’s decision establishes a clear, practical application of two interlocking constraints in condemnation valuation: (1) a claimant’s proposed highest and best use must be supported by proof of near-term reasonable probability, not aspirational redevelopment narratives; and (2) courts may not use the condemnor’s redevelopment plan—especially land assembly accomplished through the project—to supply that probability or to enhance value. By re-centering valuation on the taking date and excluding project-driven uplift, the court reduced the award to $2,660,000 and reinforced that, in redevelopment condemnations, “potential” must be translated into market-proven likelihood independent of the public project itself.