Market forces $400 million development to scale down

In order to remain financially viable, developers behind the proposed mixed-use redevelopment of two city-owned sites along the downtown Clearwater waterfront must reduce the “visionary” project’s scope. 

During its April 20 meeting, the Clearwater City Council agreed to extend New York City-based Gotham Property Acquisitions and Palm Harbor-based The DeNunzio Group’s due diligence period until Aug. 31. The additional time would also allow city officials to conduct market research with the help of an independent firm.

Council members selected the two companies to redevelop the former 2.6-acre City Hall and 1.43-acre Harborview sites in July 2022. Voters approved the project – known as The Bluffs – in a ballot referendum last November.

However, soaring construction, insurance and interest costs have rendered plans to build two 27-story residential towers totaling 600 units at the City Hall site unfeasible. Matthew Picket, vice president of development and acquisitions for Gotham, told the Catalyst that his company could no longer offset increases through rent hikes.

“The rental market across the … area since initially submitting our RFP (request for proposals) has best-case flatlined,” Picket said. “In most cases, declined.”

Voters approved the original plans through a ballot referendum in November 2022.

Realizing an $80 million funding gap, Gotham sought to reduce the residential project to one tower with 400 units. Retail space would shrink from 40,000 to 15,000 square feet.

While the parking garage would now only extend one level below ground rather than three, the developer plans to add above-ground parking to create 440 spaces. The parking ratio would increase by 10% due to the unit reduction.

Gotham also proposed two new purchasing arrangements: The city could reduce the City Hall site’s price tag from $15.4 million to $7.6 million, to be paid within five years of closing, or keep the agreed-upon amount but defer payments for 10 years – with no interest.

“Even in more established markets like St. Petersburg and Tampa, a 400-unit high-rise development is still a massive development,” Picket said. “We’re still talking about an overall capitalization between the two sides in excess of $300 million, including a private equity investment in excess of $100 million to capitalize this project.

“The objective of this RFP was to revitalize the downtown and hopefully spur further development. And if this project is successful … it’s still having the intended effect.”

The DeNunzio Group is overseeing seeing plans for the former Harborview Center site. President Dustin DeNunzio said the “much smaller project” would still feature a 13-story, 158-key hotel with retail and restaurant space, a rooftop bar and a conference center.

He believes the city’s robust hospitality and tourism market would support the hotel. DeNunzio also expects the adjacent Imagine Clearwater – Coachman Park’s $84 million redevelopment opening in July – to increase the area’s allure to visitors.

“That’s a big deal,” he added. “We’ll be getting dollars and income day one, where there’s a lease-up period for the residential portion of things.”

In addition, he noted that the project’s expansive scope was a previous concern to some residents. Clearwater officials echoed both sentiments during their discussion.

Councilmember David Albritton said the residential project was still “great” at 400 units and doesn’t believe the city could find a better proposal “at this point.” He added that moving forward would “show that we can actually do something in Clearwater rather than just talking about it.”

Interim Mayor Brian Aungst Sr. relayed that he gathered industry feedback before the meeting and heard that any developer nationwide would encounter the same problems due to extraordinary market impacts. He also noted that Hurricane Ian was a “200-year storm” that caused insurance rates to soar, and those factors were beyond Gotham’s control.

“For nearly two decades, the city has struggled to revitalize downtown Clearwater as it faces challenges and unprecedented private property buyers with little to no expressed plans for the sites,” Aungst said. “We all agreed on a visionary project that will seamlessly blend Imagine Clearwater and benefit every single resident.”

He added that expanding the due diligence period is a “wise investment” for all stakeholders.

A rendering of a sun deck at the former Harborview Center site.

Councilmember Kathleen Beckman doesn’t believe residents would push back against reducing the project’s density. However, she expressed concern about changing plans previously approved through a ballot referendum without another vote, and the precedent that would create.

She explained that the developers could still receive over $17 million from the city’s parking fund for fewer spaces, and officials might increase subsidies after the due diligence period to make the long-awaited project work.

“That’s what I’m afraid of,” Beckman said. “So, I’m going to be hawking on the numbers. And I think we need to be glaringly transparent with taxpayers about what that means financially.”

The council agreed to extend the due diligence period until Aug. 31. City attorney David Margolis said that would give officials time to “work through what is admittedly a complex transaction.”

DeNunzio still expects the hotel to break ground by December 2024. Picket said the design process for the residential tower is now on hold, and he plans to break ground on the former City Hall site by March 2025.