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Springs Utilities goes to court over disputed values of water pipeline property


SDS pipes lay east of the city before 2010 installation. - PAM ZUBECK
  • Pam Zubeck
  • SDS pipes lay east of the city before 2010 installation.

A week before the long-awaited Southern Delivery System is slated to begin delivering water from Pueblo Reservoir, the city is in court over how much is due for land the pipeline crosses northeast of Fountain.

At a trial that was to begin Tuesday, April 19, a panel of three court-appointed commissioners will determine just compensation for landowner and developer Leroy Landhuis, whose property lies in the pipeline's path.

Colorado Springs Utilities contends the 18.5 acres directly affected are worth $141,100 — the amount paid into an account in February 2014 to obtain possession to build the pipeline.

Landhuis claims the project has impacted 580 acres of a 1,400-acre subdivision planned for 6,800 homes. About 1,350 homes have been built so far, and he contends the disruption will cost him more than $39 million.

That figure rivals the combined $53.3 million Utilities has paid for about 300 tracts needed for the entire pipeline through Pueblo and El Paso counties to the new Edward Bailey Water Treatment Plant at Colorado Highway 94 and Marksheffel Road.

But it's not the only lingering case involving right-of-way acquisition for the $825 million project.

At issue is property owned by Lorson LLC, controlled by Landhuis and located near Fontaine Boulevard, where SDS extends from the south, having burrowed beneath Interstate 25 before heading north to the treatment plant.

Landhuis bought the property between 1985 and 2004 for about $9.3 million, or $6,600 per acre, according to court documents. Landhuis says in a court filing he's spent more than $50 million subdividing and improving the property, obtaining rezoning for residential use, creating several metro districts to fund infrastructure, securing financing of $36 million for improvements, master-planning the site area and selling lots to builders.

The acreage in question, he argues in court records, "when aggregated on an acre basis, yield $100,000 to $125,000 per acre for unfinished lots and $200,000 to $300,000 per acre for finished lots."

But those values are now reduced, Landhuis alleges, because SDS cuts through the property in such a way that he can't maximize profits on about 580 acres due to the mile-long, 60-foot-wide easement under which the pipeline is buried.

Landhuis won a judge's ruling to allow an appraiser's testimony that damages should be based on "the way the land is being sold in the marketplace," which is developable lots.

Springs Utilities says no plats have been filed where the pipeline crosses the property, and the city should pay only for the 7.5 acres of land used for the pipeline itself and 11 acres for temporary easements used in construction. The city argues that raw, undeveloped, unsubdivided land shouldn't be valued based on it being developed, citing a Colorado Supreme Court decision saying it's improper to consider undeveloped land "as though a subdivision thereon is an accomplished fact."

SDS program director John Fredell says, in response to Landhuis' concerns, Utilities narrowed the easement from 100 feet to 60 feet and altered the design to accommodate the subdivision, including burying the line deeper below sanitary and storm-sewer lines, costing an extra $500,000. He also notes a $28,000 engineering study, funded by Utilities and conducted by Landhuis' engineer, concluded the SDS line would be built under those facilities "reducing the impacts."

But Landhuis counters in a court filing, saying "the property is already entitled, platting is a certainty, and sales of the Subject Property occur on a per lot basis as has occurred already."

So far, the largest amount paid by Utilities for SDS land is $11.8 million to the State Land Board for 1,128 acres for the Upper Williams Creek Reservoir east of the city. Next highest is $7.5 million paid to Norris Properties and T-Cross Ranches for 791 acres, also for the reservoir — a component of SDS's second phase, to be built from 2020 to 2024.

Last summer, Utilities paid $7.1 million to Walker Ranches in Pueblo County for disruption caused by the pipeline crossing the ranch. A jury in May had awarded $5.8 million, triggering both sides to appeal, leading to the settlement.

It's worth noting that Denver attorney Donald Ostrander, who represented Walker Ranches, also represents Lorson LLC. Ostrander didn't return a phone call seeking comment.

The commissioners — a landowner can opt for a jury, a judge or a panel of commissioners — include real estate professional James Berger and retired District Judges Steve Pelican and Kirk Samelson.

Utilities faces another trial in late May regarding just compensation for 121 acres used for the pipeline and a pump station in Banning Lewis Ranch. The city already has paid $117,500, or $802 per acre, into an account to take possession pending a value finding. But Banning Lewis Holdings LLC, an entity controlled by the region's biggest developer, David Jenkins who owns Nor'wood Development Group, contends the land is worth more.

Jenkins says in court filings he wants to make his case based on other amounts paid in the vicinity, such as:

• $4,490,000, or $11,816 per acre, paid by the federal government to CS 2005 Investments LLC for 380 acres for a veterans cemetery south of Drennan Road and east of Marksheffel Road;

• $274,000, or $18,326 per acre, paid by Golden West Power Partners of West Palm Beach, Florida, to Bogie Motorsports LLC for about 15 acres north of Garrett Road and east of Meridian Road for a wind-farm;

• $11.8 million, or $10,500 per acre, paid by Utilities to the State Land Board for 1,128 acres for a reservoir.

The case will be heard by three commissioners yet to be named.

Jenkins reportedly has an appraisal showing he's due from $4.1 million to $6.4 million for the 121 acres, which, ironically, were used for a project originally billed as necessary to serve Banning Lewis Ranch, though Utilities has since termed the project a boon to redundancy in the city's water system.

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