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Commercial Real Estate
Business Observer Friday, Feb. 15, 2019 1 month ago

New York's Red Apple Group planning a "destination block" in St. Petersburg

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Developer unveils plans for 50-story, mixed-use tower on pivotal downtown site
by: Kevin McQuaid Commercial Real Estate Editor

Red Apple Group Chairman and CEO John Catsimatidis had some strong feelings about the company’s first-ever real estate project outside its New York City base.

“My mandate from Mr. Catsimatidis was we had to build something architecturally interesting, something that would be accretive to the community,” Red Apple Executive Vice President Robert Zorn told an Urban Land Institute gathering in Tampa late last month.

“Oh, and he said there has to be a good ROI, it has to make money.”

Faced with those criteria, Red Apple — which owns an oil refinery and operates more than 400 gas and convenience stations in the Northeast, along with Manhattan’s largest grocery chain, Gristedes Supermarkets — hired Miami architectural firm Arquitectonica to design a signature building for a 2.23-acre tract in downtown St. Petersburg.

The 400 block of the city’s Central Avenue — considered by many a potential epicenter of the city — had housed offices dating to the 1920s and a parking garage, both of which had been vacant for years. Red Apple acquired the site in April 2017 for $16.5 million.

The result is a planned 50-story, curved tower containing ground-floor retail, a 200-plus room Marriott Autograph hotel and more than 300 upscale condominiums priced at about $500,000 and above, though exact pricing has yet to be determined.

If current design schemes reach fruition, the building would be the tallest in St. Petersburg and among the tallest along the Gulf Coast of Florida. The city’s tallest structure to date is the 41-story One St. Petersburg condo tower and Hyatt Place Hotel, which was completed by West Palm Beach-based The Kolter Group last year.

“We’re looking to create a destination block, where the retail space activates the sidewalk, and the hotel becomes a place people want to be, visitors and locals alike,” Zorn told the ULI attendees during the group’s annual “Emerging Trends in Real Estate” event.

“And we want very much to feed into the existing arts community here,” Zorn adds. “We think we can turn this block into the central part of the city.”

The decision to develop both the boutique retail space along Central Avenue and a four-star hotel came, in part, as a result of meetings last year between Red Apple officials and St. Petersburg Mayor Rick Kriseman.

Those meetings “drove the hotel, especially the type and quality of the hotel we’re planning,” Zorn says.

The lodging property also is being designed to contain “spectacular banquet space,” Zorn says, in a subsequent conversation with the Business Observer.

In addition to boutique shops, Red Apple plans to install at least one restaurant on the building’s ground floor with outdoor seating, to further activate the street life in the area.

Zorn says Red Apple hopes to begin constructing its tower in the first quarter of next year, with delivery in the latter half of 2022.

Wendy Giffin, a director at commercial real estate brokerage firm Cushman & Wakefield whose work focuses on St. Petersburg and has worked with Red Apple, says the developer’s mix of uses will be a welcome addition to downtown.

“They want to make an impact, and they’ve been very conscientious and astute,” Giffin says of Red Apple’s plan. “I think their plan is fantastic. They’ve placed the building appropriately on the site, so it doesn’t affect surrounding uses, and I like the curves of the design and the mix in the building. Plus, they’ll have some beautiful views to the waterfront.”

Giffin notes that while other hotels have been proposed for downtown St. Petersburg, including a131-room Tru by Hilton and a 92-room boutique hospitality offering that will be called the Galaxy Hotel, the Marriott Autograph that Red Apple is proposing will fill a more upscale niche that is currently lacking.

“There’s will be a higher-end hotel, and there’s a definite need for that,” she says. “The city needs a variety of price points to truly be successful.”

“We’re looking to create a destination block, where the retail space activates the sidewalk, and the hotel becomes a place people want to be, visitors and locals alike." — Red Apple Group Executive Vice President Robert Zorn.

The condo market downtown, meanwhile, has also shown significant strength in the past year. Several of the units in One St. Petersburg have recently sold in excess of their original prices.

“One (St. Petersburg) showed there’s clearly demand for more condos downtown,” Giffin says. “The 400 block of Central is such a critical block. If there’s any location to go big downtown, that’s the intersection. Fourth street and Central Avenue really is ground zero for downtown.”

In somewhat of a surprise, however, Red Apple’s tower isn’t expected to contain any significant office space. Catsimatidis, who has family ties to the area, had said prior to closing on the land that an office component would be seriously considered for the site.

Amid steady demand and a dearth of new construction, downtown St. Petersburg’s office vacancy rate has fallen to less than 6%.

While the decline has been dramatic and asking rental rates are now at historically high levels — between $28 per square foot and $36 per square foot — they are not high enough to justify new construction in comparison with costs and potential returns on new residential product.

“With construction costs, a developer would need to get around $45 per square foot in rents for new office space,” Giffin says.

Condominiums, too, could be a more lucrative sector, especially if Zorn’s prediction that affluent residents of high-tax states like New York and Connecticut will begin to migrate increasingly to zero income tax states like Florida.”

“Florida becomes a very logical place to be in that scenario,” Zorn says.

Although the St. Petersburg site will be Red Apple’s first project outside of New York, the company has been developing properties for decades.

In Brooklyn, the company has built a trio of mixed-use projects containing shops and residential units since 2010. Combined, The Andrea, The Giovanni and The Margo contain 528 apartments and 45,000 square feet of retail space.

Most recently, the company in 2017 completed a 33-story tower at 86 Fleet Place, also in Brooklyn, which contains 440 residential units.

But its focus now is squarely on St. Petersburg.

“St. Petersburg has, in our view, good government, and changing demographics that are skewing younger,” Zorn says. “Downtown is not overbuilt, especially in sectors like hotels and condominiums. And we’re less concerned with the cyclicality of real estate in Florida. We feel like we have the wind at our backs.”

 

 

 

 

 

 

 

 

 

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