This is on top of nearly $20 million for Klause properties near library
OCEAN CITY — City Council is on the hook for another $7.2 million — in addition to nearly $20 million it paid the Klause family — for a group of lots along 16th Street that it condemned through eminent domain.
After three days of testimony, a jury determined Jan. 10 that the city must pay John Flood of Palmer Center LLC that amount for land taken during condemnation proceedings.
City Council President Pete Madden said that while it took longer than desired and cost more than anticipated, the procurement of the lots is a positive.
“For the city to have any large piece of property is a win for the city and the community,” he said.
Madden, who is an island real estate agent, said the reality is the properties are worth what the city paid.
“The appraisals checked out. The city’s in a position where it’s paying certainly fair market value,” he said. “It’s a shame we couldn’t get it sooner, but things don’t always go the way that you want them to.”
As far as what the city plans to do with the property, Madden said “there are literally hundreds of ideas that have been brought in by folks in the community” and that City Council would weigh all options.
The city took possession of the Palmer Center property and the Klause property that used to be home to Ocean City Chevrolet early in 2021.
The city paid $5.6 million for the Palmer Center lot, which is on 16th Street next to Emil Palmer Park, a large fenced-in playing field that takes up the block between Haven and Simpson avenues. However, Flood did not agree to the price and challenged it in court.
In 2022, City Council passed a resolution dealing with cleanup of the property, despite pleas from Flood. The dispute apparently arose from the cost and scope of the cleanup, which Palmer Center wanted to do on its own for a lower cost but the city believed would not be adequate.
Flood, a former city councilman who is managing partner of the Palmer Center, asked members of council to delay the resolution but they moved forward.
The resolution, later approved in the consent agenda, was for a $40,215 contract with GEI Consultants Inc. to do pre-remediation sampling at the Palmer Center site.
Information included with the council packet at the time stated GEI anticipated cleanup of the piece of land at between $900,000 and $1.5 million. The cleanup involved excavation and removal of soil contaminated by chlorinated volatile organic compound source material to 12 feet below the ground surface and more.
Solicitor Dorothy McCrosson said during a council meeting Jan. 23 that there may be an interest adjustment but that she does not expect it to be a significant amount.
“The remediation of 16th Street is virtually complete. We expect to be able to move forward with beautifying that area this spring,” McCrosson said. “We will still have issues of working with the property owner on the cost of remediation. When the money was paid into court, the property owner was entitled to withdraw those funds but some of the funds paid into court were retained in order to pay for remediation,” she said. “There likely will be negotiations, possibly litigation over the reasonable effort to remediate the site, what the costs were, that could still linger for some time.”
Klause property
City Council cast the final vote Jan. 11, 2024, to settle a years-long, $20 million saga involving the acquisition of land from Klause Enterprises.
Members unanimously approved bonding for another $9.9 million to purchase the former Chevrolet dealership and create a stretch of open space from the Ocean City Free Public Library to the Emil Palmer Field on the north side of 16th Street. That plan also involved the taking of the adjacent Palmer Center.
The funding was in addition to more than $10 million City Council previously bonded for the purchase of the property, which is bordered by 16th and 17th streets and Haven and Simpson avenues.
The total amount bonded, $19,007,400, includes the new $9.9 million plus $6,217,750 authorized by the original bond ordinance and $337,250 authorized by a supplemental bond ordinance in 2020, as well as $2,961,900 authorized by a supplemental bond ordinance in 2022.
The city acquired the land through condemnation in May 2020. At the time, it was owned by brothers Harry Klause, 75, and Jerry Klause, 72.
Through a series of missteps and official rulings, the purchase price inflated by about 300 percent. Following years of wrangling, a jury ruled unanimously Oct. 17, 2023, to grant Klause Enterprises $17,860,000 for the property.
Back in 2018, when the city first offered to buy the land, the purchase price agreed upon by the city and the Klause family was $9 million. That process was stopped when citizens group Fairness in Taxes, arguing the lots were overvalued, initiated a successful petition drive that ended up killing the deal.
A later valuation of the land put the cost at $6.9 million but the Klause family did not agree to it, arguing it could make more than $9 million by building a housing development there.
The city later moved to acquire the land via eminent domain, a process in which the sides try to arrive at a fair market price for the lots. The city had acquired the lots, but as part of the process, the court appoints impartial commissioners to arrive at the price. Meanwhile, interest on the purchase price had begun to accrue.
Since the initial purchase attempt in 2018, and especially since the COVID-19 pandemic began in 2020, real estate prices have soared nationally, and especially on this barrier island.
The city formally started condemnation proceedings with an updated offer of $6.9 million based on the actual date of taking of May 28, 2020.
But in January 2021, since the city failed to deposit payment on the taking date, a judge ruled that the date should be adjusted to Dec. 23, 2020. Based on the modified date of valuation, the value increased by more than 43 percent to $9.9 million.
Klause Enterprises challenged that valuation and in April 2022, commissioners Alan I. Gould and Daniel Kurkowski ruled the value of the Klause property was $13.02 million.
That went back to court and ended with the ruling in October that the property is worth more than $17 million.
– By CRAIG D. SCHENCK and DAVID NAHAN/Sentinel staff
