The San Jose Redevelopment Agency has signed a purchase agreement to acquire the first 13 acres of a proposed $50 million redevelopment in East San Jose, a development that has already sparked controversy between existing owners and the city.

The $13.6 million acquisition is a significant milestone for developers who are proposing to revitalize a 26-acre retail center at Story and King roads that caters to the area's predominantly Hispanic population.

The land is nearly all of a 16-acre site that the agency hopes to acquire on the intersection's southeast corner. The former owner -- East Gate Properties LLC in San Jose -- approached the agency looking to sell, RDA executives say.

Still ahead of the RDA is acquisition of the remaining three acres of the same parcel and the purchase of 10 acres across King Road, the so-called Tropicana Center site. The proposed acquisition of the Tropicana site has excited much greater political heat for the agency and vociferous resistance from center merchants and one of its owners.

At issue is whether the agency will have to use its condemnation power to acquire the remaining land -- the most controversial aspect of the project to date. Similar deals involving local government and its use of eminent domain across California and the nation are receiving growing scrutiny as an increasingly conservative federal and state judiciary is giving property owners a more sympathetic hearing.

On its face, the selected developer, Blake Hunt Ventures of Walnut Creek, seems an unlikely company to do a project in East San Jose. The principals, who formed their company in November 2000, have done extensive high-density, retail-driven redevelopment work in Walnut Creek, an affluent community some 50 miles north of San Jose. They're developing another $50 million theater and retail center in Redwood City, another affluent Bay Area community. They're also doing a 300,000-square-foot mixed-use development at the Bay Meadows Race Track in San Mateo, working with real estate behemoth Equity Office Properties of Chicago.

Still, company President L. Gerald Hunt says he has become intrigued by the challenge of reaching the Bay Area's burgeoning Hispanic population. He traveled to central Mexico to research colors and architectural styles. The Northern California Latino community is largely from central Mexico, RDA research shows.

In addition, while he won't say which retailers he has spoken to about coming into the area, he notes that merchants who have been successful selling to new U.S. immigrants understand that they will do best if they offer credit. He also knows from surveys of the area's residents that they want a tenant mix that includes traditional Mexican products now being sold in the area, leavened with more traditional American fare.

Mr. Hunt says he hopes to pull customers from the entire Bay Area.

"Highway 101 and 680 both dump right into this site," he says. "We want people to feel they're entering a special place. The buildings need to pop."

Mr. Hunt says the area holds vast potential for retailers who offer a product mix that would satisfy the surrounding population. In 2000, retailers in the Story Road market area lost more than $300 million in sales to the local population when the area's 130,000 people left to find desired products such as family apparel, gifts, hardware and home furnishings in stores outside the vicinity, according to RDA research.

The Blake Hunt deal and redevelopment of the corners arguably wouldn't happen without the intervention of the San Jose Redevelopment Agency. The agency is subsidizing the redevelopment by as much as $36 million. But a number of court rulings are circumscribing the vast powers that government has enjoyed to further development it prefers.

In an opinion that many legal experts expect to be taken up by the U.S. Supreme Court, the Illinois Supreme Court ruled in June that an economic development agency could not take land from one property owner and sell it to another just to aid the buyer's business.

The Connecticut Supreme Court took briefs July 1 in a case in which a city condemned land for development without having established plans for its use. A case involving the taking of ancestral farm lands for the expansion of a Nissan manufacturing plant was settled in favor of the farm owner after the Mississippi Supreme Court accepted the case for a review.

A ruling by another state's supreme court does not directly affect California law, but if a case is heard by the U.S. Supreme Court, any ruling would be binding for all states. And the current court has tended to side with property owners.

"The trend at the U.S Supreme Court has been to favor the land owner and the developer," says Margaret Jane Radin, a Stanford University law professor.

Closer to home, cases have been working their way through the courts. Most notable was a ruling in U.S. District Court that might have implications for the Tropicana redevelopment project.

In that case, Judge Stephen W. Wilson ruled that Lancaster, Calif., could not use its powers of eminent domain to condemn a 99 Cents Store in order to make way for a larger Costco store that would have generated greater sales taxes.

"The evidence is clear beyond dispute that Lancaster's condemnation efforts rest on nothing more than the desire to achieve the naked transfer of property from one private party to another," the judge wrote in his ruling.

The Cypress City Council gave eminent domain critics one of their best opportunities in years when it voted unanimously to condemn the Cottonwood Christian Center so that it could be replaced by a Costco.

Critics are raising not only the usual eminent domain questions but are also saying that the Cypress City Council may also be interfering with the free exercise of religion guaranteed by the U.S. Constitution.

"They [the city council members] want a property that earns taxes," says Dana Berliner, senior attorney at the Institute for Justice, a Washington, D.C.-based foundation that provides legal assistance to property owners fighting eminent domain cases in which it finds no public purpose. "They just decided they'd earn more in property taxes with a Costco."

The Institute for Justice also is taking a closer look at the Strong Neighborhoods Initiative in San Jose. Property owners have been calling the Institute for advice, Ms. Berliner says.

The creation of the city's Strategic Neighborhood Initiative, which puts redevelopment dollars into neighborhoods outside the downtown core, has many property owners concerned because the dollars come with the power of eminent domain.

Letters sent to property owners in the initiative areas, which comprise about a third of the city, warn that the redevelopment agency could take private property if necessary to advance the goals of the initiative.

"Eminent domain was not required for the Strategic Neighborhood Initiative," says Lorraine Wallace, a downtown property owner. "To extend that to every piece of property just frightens property owners."