Clearwater should lower public risk in Bluff apartment deal, advisors say
The developers’ slimmed-down plans call for more money from the city but a smaller return.

By Tracey McManus
Tampa Bay Times
Published: Sep 13, 2023

Earlier this year, when developers asked to scale down a voter-approved plan to build apartments on the downtown bluff, the city hired outside experts to study whether it would still be a good deal for Clearwater.

Their preliminary analysis is in, according to a new memo obtained by the Tampa Bay Times through a public records request.

Consultants from HR&A Advisors say Clearwater officials should consider reducing the city’s risk on the project, which now would require a larger up-front public investment for less in return. The firm’s final recommendation is expected soon.

The original concept pitched last summer by Gotham Organization of New York and The DeNunzio Group of Pinellas County is no longer feasible due to borrowing and insurance costs that skyrocketed, the developers say. Instead of building two 27-story towers with at least 500 apartments on the old City Hall site on Osceola Avenue, the developers in April proposed one tower with 400 units while asking for $4 million more in public subsidy.

In the memo dated Aug. 25, HR&A recommends that Clearwater make a counter offer to bring back some apartment units while also adding safeguards to protect the city’s interests.

Under the original deal, Clearwater would have received north of $24 million over 30 years from the sale of the land and tax revenue after accounting for incentives it would pay, according to HR&A. The developers’ revised terms would result in the city making between $3.8 million and $8.2 million a decade out after having to pay $22 million in subsidy upfront, according to the memo.

HR&A said its estimates for operating expenses were lower than what Gotham projected, meaning the extra $4 million in city subsidy the developers requested could be reduced.

But the developers may have also underestimated construction costs, the consultants said, meaning any savings could be negated by increases in what it takes to build the apartments.

They said a revised contract should require the developers to assume all future risk and cover any cost overruns without being able to ask the city for more money.

If the developers reduce expensive underground parking or move some offsite, they could bring back the 500 units, the consultants said.

Katie Cole, an attorney representing Gotham and DeNunzio, said the city had not shared the consultants’ draft findings as of Monday so she could not answer whether the team would be amenable to the counter offer. In a statement, city spokesperson Joelle Castelli said HR&A is expected to deliver the updated report with more detail “in the weeks ahead.” Staff will then get input from City Council members for a response to Gotham, Castelli said.

The city extended the original April deadline for the developers to commit to the deal to Oct. 31, giving both sides more time to negotiate a new agreement. Any revised contract would require City Council approval at two public hearings.

In June 2022, the council selected the Gotham and DeNunzio team over two other bidders to transform two parcels on the bluff surrounding the new Coachman Park and waterfront. The council approved a development agreement in August 2022 that included the two apartment towers for the old City Hall site and a 158-room hotel a half-block north.

Voters in November approved the tentative sale of the parcels for the hotel and apartments after city officials touted the projects as the catalysts needed to bring full-time residents and visitors downtown.

The passage of the referendum allowed the developers to begin due diligence, and in April, the team told the city that inflation had made financing for the apartments unfeasible under the current structure. They have not proposed changes to the hotel.

Instead of paying the city $15.4 million for the City Hall site by Dec. 31, 2024 as outlined in the August 2022 agreement, Gotham and DeNunzio proposed two alternatives. One is to pay $7.6 million within five years of closing, which is the appraisal price for apartments. As a second option, the developers suggested paying $15.4 million in a lump sum 10 years after closing if the city conveys the property and retains a zero interest mortgage.

HR&A advised that a new contract should require the developers to make phased payments for the land so the city doesn’t have to wait years to get revenue. They also recommend “claw back” clauses so the city could recoup any subsidy it pays in case the developers default and the project falls apart.

The August 2022 development agreement outlined the city providing $17 million of parking incentives for the apartments to have 600 spaces, all underground, in order to not block waterfront views. In its revised request, the developers are asking for $4 million more while reducing parking to 440 spaces, one level underground and one above ground.

In its memo, HR&A consultants concurred with Gotham’s estimations for rent prices and insurance rates used to rationalize their amended project. But the consultants said the developers may have been too conservative in their assumptions of operating expenses and annual returns on the property. They estimated that the developers could close their financial gap by $10 million by adjusting these numbers.

Although the consultants suggested bringing back units by saving money on parking, Gotham, according to the memo, expressed hesitancy about demand. The developers doubted Clearwater’s market could support more than 400 units in one cycle, in part because of the lack of precedent for similar developments downtown.