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It is only fitting, for a blog dedicated to the intersection of real estate development/ construction and the law, that the premiere post center on the historic train terminal into which passengers continue to enter the City of New York – given the structure’s association with the seminal, United States Supreme Court decision Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 124 (1978), involving the extent to which landmarking properties can constitute government “takings” meriting compensation.

Grand Central Terminal’s French Beaux-Arts design was the result of a collaboration between the architecture firms Reed & Stem and Warren & Wetmore. Completed over 10 years in 1913, it is known for its monumental main concourse containing magnificent, classical elements such as enormous windows with bronze grilles, grand, crystal chandeliers, and seemingly never-ending creamy, Caen stone; its interior ceiling, painted by French artist, Paul Cesar Helleu, depicting a night sky; and a main façade containing sculptural group by Jules Alexis with the mythological figures Mercury, Minerva, and Hercules. Hailed at its opening by a New York Times editorialist as “A Glory of the Metropolis”, for generations the structure would become a community hub and cultural symbol. In 1947,

over 65 million people – the equivalent of 40% of the U.S. population, traveled by train in and out of Grand Central Terminal. 

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​Notably, Grand Central’s original design had included a 20-story office tower to sit atop of the Main Concourse. Following disputes among Grand Central’s architects and the various leaders of the railroad companies funding the construction, a compromise was reached that provided for the construction of a structural steel frame to support a future building above the terminal.​

Train travel was lucrative after its invention in the 1800s, and its allure for passengers continued with each technological upgrade. Grand Central’s owner and operator had always been a private, for-profit company, not the public benefit corporation that it is today. 

For multiple decades, the train operations continued on this thriving business model. The late 1960s and early 1970s, however, were unkind to New York City. The city was hemorrhaging industrial firms and employees. And as the federal government’s investment in the nation’s vast, interstate highway system had proven successful, the romance and excitement of rail travel had long waned, with a continued decline in railway use. 

Meanwhile, the demolition of the original Pennsylvania Station in 1963 was a turning point in New York City’s historic preservation movement. To architectural preservationists, the horrors such as that depicted in this photo depicting the remains of the demolished Pennsylvania Station on the city’s West Side led to the formation of the city’s Landmarks Preservation Commission (LPC).

This new body made it its mission to protect New York City's architecturally, historically, and culturally significant buildings and sites by granting them landmark or historic district status, and regulating them after designation.

In 1967, Grand Central Terminal was designated as a New York City Landmark. By 1968, with the regional railroad operations losing money, Grand Central’s owner and operator, New York Central Railroad (operating primarily in the Great Lakes and Mid-Atlantic regions of the United States), joined forces (along with the bankrupt New York, New Haven and Hartford Railroad) with the former owner of Pennsylvania Station (and owner and operator of an extensive rail network southwest of the city), Penn Central Transportation Company. The latter was the only other railroad with enough capital to allow for a potentially-successful merger – to create Penn Central Transportation Company, i.e., “Penn Central”.

That year, Penn Central entered into a renewable 50-year lease with UGP Properties, Ltd., a British company, pursuant to which UGP agreed to construct a multistory office building on top of the terminal. Now Penn Central would fund the construction of the tower, in exchange for which UGP promised to pay Penn Central $1 million annually during construction, and at least $3 million annually thereafter.

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UGP and Penn Central applied to the LPC for permission to construct the office building atop the Terminal. Two separate plans, both designed by architect Marcel Breuer and both apparently satisfying the terms of the applicable zoning ordinance, were submitted to the LPC for approval. The first, Breuer I, provided for the construction of a 55-story office building, to be cantilevered above the existing facade and to rest on the roof of the Terminal. The second, Breuer II Revised, called for tearing down a portion of the Terminal that included the 42d Street facade, stripping off some of the remaining features of the Terminal's facade, and constructing a 53-story office building.

The LPC denied a certificate of no exterior effect on September 20, 1968. UGP and Penn Central then applied for a certificate of “appropriateness” as to both proposals. This type of certificate would be available if the LPC were to conclude, “focusing upon aesthetic, historical, and architectural values—that the proposed construction on the landmark site would not unduly hinder the protection, enhancement, perpetuation, and use of the landmark”. 438 U. S. 112. After four days of hearings at which over 80 witnesses testified, the LPC denied this application as to both proposals.

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UGP and Penn Central commenced an action in the Supreme Court, New York County, seeking a declaratory judgment that the Landmarks Law and the actions taken by the LPC as applied to Grand Central Terminal and its site: (a) constituted a “taking” of private property for public use without compensation in violation of the Fifth and Fourteenth Amendments of the U.S. Constitution; and (b) denied the applicants due process of law and the equal protection of the laws in violation of the Fourteenth Amendment. The Takings Clause set forth in the Fifth Amendment, and made available to the states in the Fourteenth Amendment, requires the government to provide “just compensation” if by its action it severely restricts one’s use of one’s property.

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The plaintiffs sought injunctive relief barring the city from using the Landmarks Law to impede the construction of any structure that might otherwise lawfully be constructed on the Terminal site, and damages for the "temporary taking" that occurred beginning August 2, 1967, the designation date. Significantly, the plaintiffs did not challenge the landmark designation of Grand Central Terminal in the course of the litigation, and they intended to continue utilizing the property as a railroad terminal. Economically, however, Penn Central’s assets were not generating enough income to make ends meet: in the first quarter of 1970, the company lost more than $100 million.

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The New York trial court granted relief to the plaintiffs, but the Appellate Division reversed the decision. The decision noted: “The need to preserve structures worthy of landmark status is beyond dispute; and the propriety of the landmark designation accorded Grand Central Terminal is essentially unchallenged.” Penn Cent. v. City of NY, 50 A.D.2d 265, 274 (1st Dept. 1975).

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The New York Court of Appeals affirmed the Appellate Division’s decision, concluding that there was no taking because the law did not transfer control to the city but only restricted development, and that Penn Central could still earn a reasonable return. The plaintiffs then appealed to the U.S. Supreme Court.

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The Supreme Court affirmed the decision below, reasoning that LPC’s restrictions were substantially related to the promotion of the general welfare, permitted reasonable beneficial use of the landmark site, and also afforded the plaintiffs opportunities to further enhance not only the Terminal site but other surrounding properties. This multi-factor analysis, for cases in which a regulation does not destroy or grant physical access to one’s property but nevertheless limits its use, prompting the owner’s lawsuit for compensation, has become known as the “Penn Central test”.

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​​At the time of its lawsuit, Penn Central, as a for-profit company, owned “at least eight parcels in the vicinity of the Terminal, one or two of which have been found suitable for the construction of new office buildings.” 438 U.S. at 137. This is a theme noted early in the Court’s decision, in its background recitation:

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The Terminal is one of a number of properties owned by appellant Penn Central in this area of midtown Manhattan. The others include the Barclay, Biltmore, Commodore, Roosevelt, and Waldorf-Astoria Hotels, the Pan-American Building and other office buildings along Park Avenue, and the Yale Club. At least eight of these are eligible to be recipients of development rights afforded the Terminal by virtue of landmark designation. 438 U.S. at 115.

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From this it seems that to the jurists, Penn Central could have looked elsewhere in its portfolio to find the same compensation that it was claiming it was denied.

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One may debate the viability of any additional tower near Grand Central at a time when office occupancy was decreasing. Similarly debatable is the courts’ reasoning centered on the monetary value of the TDRs, inasmuch as this option is valuable to the property owner only if there in fact exists an adjacent property to which these development rights can practically be transferred, meaning that the owner is interested in seeking same.

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In that regard, on one of Penn Central’s eight parcels sat the 28-floor Commodore Hotel. In the 1970s, there appeared to be no interest in building higher to create more office space. Instead, the Commodore Hotel offered another opportunity, as Blog post #2 explains.

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CREDITS

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Blevins, Ethan, “State courts struggle to apply Penn Central test to regulatory takings”, Pacific Legal Foundation, February 24, 2025: https://pacificlegal.org/state-courts-struggle-to-apply-penn-central-test-to-regulatory-takings/

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Groen, John M. “Takings, Original Meaning, and Applying Property Law Principles to Fix Penn Central,” Touro Law Review: Vol. 39: No. 4, Article 4 (2024).

Levy, Robert A.; Mellor, William H. “Taking Property by Regulation”, The Dirty Dozen: How Twelve Supreme Court Cases Radically

Expanded Government and Eroded Freedom, New York: Sentinel. pp. 169–180 (2008).

Menachem Z. Rosensaft, “The New York City Landmarks, Preservation Law As Applied To Radio City Music Hall”, COLUMBIA JOURNAL

OF ENVIRONMENTAL LAW [5: 316 1979]