Downtown Clearwater developers ask city to scale down $400 million mixed-use project because it is no longer financially viable
By Breanne Williams
Tampa Bay Business Journal
Published: Apr 19, 2023

The developers of a $400 million mixed-use project in downtown Clearwater say the market has changed so dramatically that they can no longer proceed with their original plans — and that the development must be scaled down to move forward.

New York-based Gotham Property Acquisitions and Palm Harbor-based The DeNunzio Group were selected by the city to redevelop two city-owned, waterfront parcels next to Coachman Park.

City leaders, along with voters via a referendum in November, approved the developers’ plans, which called for a 13-story, 158-key hotel with retail and restaurant space, a 1,000-person conference center and a 4,000-square-foot rooftop bar on the site of the former Harborview Center. At the former city hall site, plans were for up to 600 apartments in two residential towers and 40,000 square feet of commercial space.

But those plans are no longer viable, Matthew Picket, vice president of development for Gotham, told the Tampa Bay Business Journal, citing increased insurance costs, flatlining rents and skyrocketing interest rates. Instead, the developers have brought forth a new proposal for the city hall site, which city council will discuss Thursday:

Instead of two residential towers, the team would build one tower. They also intend to reduce the total units from 600 to 400 and the retail space to 15,000 square feet.

Rather than go three levels below grade to build a 600-space parking garage, they will do one level and have some options above ground, totaling 440 parking spaces. The parking ratio would increase by 10%.

The team also is proposing to defer the purchase or reduce the price of the city hall site. Picket said there are two options: to reduce the purchase price to $7.6 million, which will be paid no later than five years after closing, or to retain the original purchase price of $15.4 million but defer the payment for 10 years at no interest.

Under the adjusted proposal, the overall project timeline would be moved up by two and a half years.

When the team first did its estimates in July, the cost to build the apartments was estimated to be $583,000 per unit. Now, Picket said if the city agrees to the changes, they are “very much prepared” to move forward and spend anywhere from $6 million to $7 million on predevelopment to get the city hall site “shovel ready.”

“When the referendum successfully passed, we were given a 60-day due diligence period,” Picket said. “During that period, we got an updated hard cost estimate, updated operating expenses, ran updated numbers, did onsite due diligence, including geotechnical borings and a third-party report that was subsequently produced. Essentially, you add all this up, and the numbers trended in the wrong direction in a big way from the time we initially ran our numbers and submitted the RFP in June 2022 up until we concluded our due diligence in early January.”

Picket said before their due diligence was up, they told the city they were not able to move forward on the city hall site in light of escalating costs. They asked the city to “work together creatively” to figure out how to make the project viable.

“Right now, our conversations have really been limited to speaking with city officials who presumably speak with the council members. It’s hard to really know where any of them stand at this point on our proposal,” he said. “We are hopeful that they will understand issues we face are systemic and are not specific to the development team.

Dustin DeNunzio of The DeNunzio Group said his group is taking the lead on the hotel while Gotham leads the residential project. He said they have stressed to the city that they are “proceeding quickly and diligently” on the Harborview site and that everything is on track. They want to “show in good faith” that the team wants to make these projects happen in Clearwater.

The hotel is more feasible in the current market than the residential project, largely due to the robust tourism in Clearwater Beach, DeNunzio said.

“These projects are really synergistic together,” DeNunzio said. “Us putting in 20,000 square feet of ground-level retail in Harborview when there’s already a lot of vacant retail in Clearwater is a risky thing. Retailers are banking on us having 400 new residences, which will be 600 to 800 new residents, that will frequent those shops when there are no events and concerts [happening] downtown. The collaboration between the two projects is really what’s going to be dynamic down there.”

DeNunzio said it’s hard to say what will happen until they receive feedback from the city. They will need to ensure the Harborview project can still obtain financing, which he said will be significantly harder “absent a dense amount of residential going in next door.” He said the projects are “hinged together.”

Picket said they are asking the city to work with the team to make the project financially viable. He said he doesn’t believe another project or development team “will deliver a better package” than what they are proposing.

“What we shouldn’t lose sight of is how tremendously impactful and how big of an investment this project still is overall by historic standards in downtown Clearwater,” Picket said. “We’re talking collectively between the two projects more than $100 million of private equity and a more than $330 million investment overall. It’s important to make sure everyone recognizes we are achieving the objectives we set out to achieve when we submitted this RFP.”