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I would assume that there is existing legal precedent for what happens when an eminent domain confiscation happens.
The city confiscated the land five years ago and these people continued living there while contesting it. Based on other comments I've seen it appears that the owners were not paying property taxes over the last five years.
As wrong as I think the SCOTUS decision in Kelo was, this rent claim doesn't seem unreasonable. The city was deprived of income for five years while the tenants (wrongly, officially; rightly, in my opinion) contested the action. If I were the city and wanted to handle it as nicely as possible I'd offer them the option to either pay 5 years of property taxes or 5 years of market rent, whichever is cheaper.
The other issues is that the developer wants to pay compensation at 2000 rather than 2005 rates. And again I can see both sides (and you know that if the market had dropped, the homeowners would have wanted 2000 rather than 2005 rates). It seems to me that in cases of contested eminent domain, the compensation money should be put into escrow at the time of contestation and then the money goes to the appropriate recipient at the conclusion of the battle.
It really sucks, and it derives from what I think was a horrible decision by the Supreme Court, but based on that decision I have to side with the city and developer on the two new issues.
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