Earlier this year, when developers asked to scale back a voter-approved plan to build apartments downtown, the city hired outside experts to study whether that plan would still be a good deal for Clearwater.
Their preliminary analysis is in place, 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 would now require a larger upfront public investment for less. The company’s final recommendation is expected to be issued soon.
The original concept floated by Gotham in New York and DiNunzio Group in Pinellas County last summer is no longer feasible due to skyrocketing borrowing and insurance costs, developers say. Instead of building two 27-story towers with at least 500 apartments on the old City Hall site on Osceola Street, developers in April proposed a single tower with 400 units while asking for an additional $4 million in public support.
In the memo dated Aug. 25, HR&A recommended that Clearwater counter-offer to return some of the housing units while adding safeguards to protect the city’s interests.
Under the original deal, Clearwater would have received up to $24 million over 30 years from the land sale and tax revenues after accounting for the incentives it would pay, according to HR&A. The revised terms for developers would result in the city generating between $3.8 million and $8.2 million each contract after having to pay $22 million in upfront subsidies, according to the memo.
HR&A said its operating expense estimates were lower than Gotham had expected, meaning the additional $4 million in city support requested by developers could be cut.
But consultants said developers may also have underestimated construction costs, meaning any savings could be negated by increases in what it takes to build apartments.
They said the revised contract should require developers to bear all future risks and cover any cost overruns without being able to ask the city for more money.
If developers reduce the cost of underground parking or move some off-site, they could bring back the 500 units, consultants said.
Katie Cole, an attorney representing Gotham and DiNunzio, 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 a counteroffer. HR&A is expected to provide the updated report with more details “in the coming weeks,” city spokeswoman Joelle Castelli said in a statement. Staff will then get input from City Council members to respond to Gotham, Castelli said.
The city extended the original April deadline for developers to commit to the deal to Oct. 31, giving the two sides more time to negotiate a new agreement. Any revised contract would require City Council approval in two public meetings.
In June 2022, the council selected Gotham and DiNunzio over two other bidders to transform two parcels on the slope surrounding the new Coachman Park and waterfront. The council approved a development agreement in August 2022 that includes two residential 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 hotel and apartment lots after city officials described the projects as the catalysts needed to bring full-time residents and visitors downtown.
Passage of the referendum allowed developers to begin doing their due diligence, and in April, the team told the city that inflation made financing the apartments unfeasible under the current structure. They did not suggest 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 DiNunzio proposed two alternatives. The first is to pay $7.6 million within five years of closing, which is the appraisal price of the apartments. As a second option, the developers proposed a $15.4 million lump sum payment 10 years after closing if the city transferred the property and maintained a zero-interest mortgage.
HR&A advised that the new contract should require developers to make staged payments for the land, so the city doesn’t have to wait years for revenue. They also recommend “clawback” clauses, so the city can recover any subsidy it pays if developers default and the project collapses.
An August 2022 development agreement stipulated that the city provide $17 million in parking incentives for the apartments to have 600 spaces, all underground, so as not to obstruct waterfront views. In its revised application, the developers are asking for an additional $4 million while reducing parking to 440 spaces, one level underground and one level above ground.
In their memo, HR and departmental consultants agreed with Gotham’s estimates of rental rates and insurance rates used to rationalize their revised project. But consultants said the developers may have been too conservative in their assumptions about the property’s operating expenses and annual revenues. They estimate that developers could close their financial gap by $10 million by adjusting these numbers.
Although consultants suggested returning the units by saving money on parking, Gotham, according to the memo, expressed hesitation about the request. Developers have questioned the Clearwater Market’s ability to support more than 400 units in a single cycle, in part because there is no precedent for similar developments downtown.