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Florida Developer Sues CRA Over $75M Project

Miami-based developer BH3 Management LLC filed a complaint Friday against the Community Redevelopment Association of Delray Beach, Florida, after the CRA board moved to terminate a public-private partnership. 

The partnership was formed to give land worth $19M to the developer to build a mixed-use project anchored by a Publix supermarket. The CRA argued that the developer did not meet key deadlines, but BH3 contends it should be entitled to more time because of the coronavirus pandemic and design changes requested by stakeholders.

Florida developer BH3 planned a Publix-anchored development called Fabrik in Delray Beach, Florida

BH3's projects include Icon Las Olas and Trump Hollywood, plus numerous others in New York. It beat out five other contenders in a request for proposals process and was hired by the Delray Beach CRA in 2019 to redevelop a 6-acre parcel of land in an opportunity zone on West Atlantic Avenue, just east of I-95, that the city has been seeking to redevelop for decades.

Fabrik was initially conceived to have nearly 50K SF of retail, 744 parking spaces and a grocery anchor. Plans were revised in February 2020, cutting retail to 20K SF, as well as other changes, the Delray Beach Times reported. 

According to BH3's lawsuit filed Friday in Palm Beach County Circuit Court, BH3 negotiated with all major grocery stores active in the area, but talks dragged out last spring when the coronavirus pandemic broke out and grocers were preoccupied dealing with it. BH3 eventually signed a letter of intent with Publix in October, the lawsuit says. 

"Publix would only go on the ground floor on the 600 block, and they would not allow parking structures below or above them," BH3 co-founder Greg Freedman told Bisnow Friday. "We redesigned the project based on that, because the grocer is the condition for the whole project. They wanted a grocer there for four decades, and we've been able to get one.

"We got it. But as a result of this, we don't have enough parking now to support the rest of the density and income to the project. So the apartments got reduced from 165 apartments to 64 apartments, plus five townhouses. We as developers would have wanted it to go the other way, because we'd like to build 300 apartments, not 69 apartments. But that's what it was. And that's all you can actually do there once you put Publix on the 600 block," Freedman said. 

According to the lawsuit, BH3 had also performed community outreach and found that "residents were clearly not desirous of BH3 or any developer gentrifying the neighborhood with a monstrous project that had market rate housing and would overpower the local culture and historic presence of those incumbent residences." 

BH3 said its revisions made all of the apartments affordable and the retail rents below market rate to support existing minority-owned businesses. It went from a $100M project to a $75M project, according to the Palm Beach Post. 

BH3 was supposed to have received all relevant approvals by January of this year but wanted about another year to obtain them.

CRA staff had worked amicably with BH3 in the winter, Freedman said. So the developer said he was surprised in January when the CRA determined that BH3 was in default for failing to obtain the necessary permits and refused to grant a 10-month extension.

At a Jan. 26 meeting, the lawsuit says, "the CRA Board gave BH3 very little time to make a presentation, and proceeded to, almost unanimously, vote to not approve the redesigned project and variances."

BH3 alleges it was caught unaware at the meeting.

"This was a shocking turn of events and completely unexpected," the lawsuit says. "It was apparent that something had transpired among certain of the CRA Board members ... all of a sudden, the CRA members that had been in favor no longer were."

After invoking force majeure provisions, BH3 was given 90 days — until the end of May — to get approvals. Freedman hopes a court steps in before then to determine whether the CRA acted appropriately. 

The complaint asks for declaratory and supplemental injunctive relief. It alleges breach of the purchase and sale agreement and violation of Florida’s Sunshine Laws. 

Freedman said BH3 would like to complete the project and that it will be difficult for the CRA to secure Publix as a tenant if it starts the process from scratch with a new RFP process and a new developer. He also said Delray has elections this week, so new people could soon be representing the city in the matter.