Delayed developments in St. Pete Beach, Clearwater could be a bellwether for Tampa Bay's multifamily market
By Breanne Williams
Tampa Bay Business Journal
Published: Jun 29, 2023

A shifting commercial real estate market has delayed plans to transform moribund waterfront land in St. Pete Beach and downtown Clearwater into glitzy, mixed-use developments.

In St. Pete Beach, South Florida-based Ram Realty has exited its partnership with a landowner to build Corey Landing, a mixed-use development featuring 243 apartments in a seven-story building with a 5,000-square-foot restaurant and 12,000 square feet of retail and commercial space. In downtown Clearwater, developers have asked the city if they can scale down their original proposal for two publicly owned waterfront parcels next to the $84 million new Coachman Park.

Several factors are at play, from rental rates that have plateaued to a statewide insurance crisis that one market observer deemed a “deal killer.” But experts believe that Tampa Bay, which has seen explosive population growth in recent years, is in a good position to weather a market correction. The slowdown could have implications across the region’s economy; the multifamily sector has been booming for a decade, creating thousands of construction and permanent jobs and boosting tax rolls.

“The demand curve, and especially the elasticity of demand, has really reached an inflection point,” said Matthew Picket, vice president of development for Gotham Property Acquisitions, a partner in the Clearwater project. “Landlords and developers can only continue to pass off increased costs in the form of increased rents with their tenants. Tenants have raised a white flag at this point and shown that developers and landlords have hit the ceiling of what they can charge.”

Picket’s team was among the first in Pinellas County to realize the market was shifting. He told the Tampa Bay Business Journal the difference in the last few months is now there is “more of a realization” across the industry that the “current conditions are the new normal and aren’t going to improve any time soon.”

Gotham is partnered with Palm Harbor-based The DeNunzio Group on the project. DeNunzio’s portion of the project, a hotel, is still moving ahead as planned, but the multifamily portion will need to be tweaked to make it pencil out. Rising insurance costs, increased interest rates and flatlining rents have made the project no longer viable, Picket said.

‘Someone else will come in’

The approximately $100 million Corey Landing project on St. Pete Beach is facing a major delay as the landowner now has to find a new developer to step into Ram’s shoes. The approvals on the site are tied to the property, so should the landowner bring another developer on board, it can move forward again.

Mark Eilers, executive vice president with Colliers, represents the site and brought Ram into the deal. Casey Babb, executive managing director for Colliers Florida multifamily team, said, “One man’s loss is another man’s gain.”

Babb said they have been receiving many calls on the project. The fact it is a prime piece of real estate with approvals attached will attract a developer that’s ready to move it along. However, he said Ram’s exit has led to at least a 12-month delay.

“If you look at Corey Landing, Ram absolutely wanted to build that and is still trying to figure it out behind the scenes,” Babb said. “But if you’re going to the window to get a bank loan right now to build projects, it’s an 8% to 10% interest rate compared to a year and a half ago when it was 4% to 5%. It’s doubled, and insurance has gone up three to five times. That property is on the water, and the construction costs have not come down. But someone else will come in and get it done.”

A waiting game

Dustin DeNunzio of the DeNunzio Group said developers who have “good projects under agreement” are holding out hope the market corrects itself soon. While the winds have changed, he said there’s yet to be a mass relinquishing of prime development sites locally.

Babb said those who were active in the past couple of years are “now playing defense.” While there are some who are pushing the button to sell, Babb said that’s “not a trend we’ll see en masse.”

“Time is your friend right now if you’re a buyer,” Babb said. “Time is not your friend if you’re an owner that bought 12 months ago, paid a high price, and got a floating interest rate on your own. You’re overleveraged; you can only hold on for so long. The dam is going to break at some point, and there will be some properties going to market in spite of if the seller wants to sell or not. He’ll have no choice.”

Others, like Michael Regan, CBRE executive vice president, said the current challenges are a “bump in the road” as the fundamentals of Pinellas County remain strong. People still want to be here, and portions of the county — like the Skyway Marina District in St. Petersburg — are seeing solid growth.

The cycle may be ending for developments that are more expensive to build, like high-rise towers, but Regan said smaller projects — like three-story garden apartments — can still make the numbers work.

Insurance woes

Picket said until there is a change in the insurance market, he doubts there will be “any kind of meaningful development” in multifamily. He said the governor’s office will need to intervene in “some capacity” and either subsidize the costs or incentivize more providers to enter the market.

Regan called current insurance rates “a deal killer.” He said the level of uncertainty has made it “hard to move forward confidently with such a wide range of spread.”

“I’m a believer in the market correcting itself,” Regan said. “We’ve seen these blips before. In 2006 and 2007, the bar got reset for insurance. It had elevated, and it came back down. That’s what I believe will happen again. We’re not going to get the rates we had before, but we will get to something more manageable. I still think the market is healthy. The volume is just down because most people are choosing to wait the market out.”

Babb agreed that a self-correction was imminent. He said the insurance market will right itself in time, especially if the year’s storm season is quiet.

“I think we’ll bottom out later this year and into 2024, we’ll get inflation under control, and we’ll start on a new 10-year, slow and steady growth,” Babb said. “Not what we’ve seen in the past year and a half. People made a lot of money in a very frothy market, but now there are people that will lose a lot of money on the other side of it.”