Legal battle erupts over BH3’s public-private Delray Beach project inside Opportunity Zone

Developer files lawsuit after city leaders allegedly look to scuttle deal over project revamp and delays

Miami /
Mar.March 05, 2021 06:30 PM
BH3 co-founders Daniel Lebensohn and Greg Freedman (BH3, iStock)

BH3 co-founders Daniel Lebensohn and Greg Freedman (BH3, iStock)

A public-private partnership between BH3 and the Delray Beach Community Redevelopment Agency to redevelop 6.17 acres of prime downtown land is collapsing over delays and changes to the developer’s original proposal.

Aventura-based BH3, led by principals Dan Lebensohn and Greg Freedman, sued the CRA on Friday for breach of contract, after the agency’s board began the process to scuttle the deal in late January.

“To our surprise, what was supposed to be a procedural vote to grant variances and an amendment for more time to have everything approved, the CRA board reversed course for some reason unknown to us,” Freedman told The Real Deal. “We have been asking for more time since March because of Covid. We have tried to acquiesce and work with them. When they reversed course on us, they left us no choice but to really go on offense.”

Kim Phan, the CRA’s legal advisor, said the agency declined comment, citing the pending lawsuit.

Adam Frankel, a Delray commissioner who serves as CRA vice-chairman, disputed Freedman’s characterizations. “From my perspective, BH3 promised a project that would be a true destination on West Atlantic Avenue,” Frankel said. “They sought to change that original project in a vast and material way. The fact is that BH3 has done minimal to no work in starting construction of this project, which has been a very large disappointment to all of us here in the city of Delray Beach.”

The site is within an Opportunity Zone on the 600 to 800 block of West Atlantic Avenue, where BH3 had proposed AltaWest. It would have entailed 43,000 square feet of ground-floor retail, 21,600 square feet of professional office space, a 33,000-square-foot grocery store, 165 residential units totaling 272,242 square feet, 744 parking spaces, about 45,000 square feet of public space called “Frog Alley” and up to 30 workforce housing units, the latter of which included 18 affordable housing units recently completed on an adjacent site.

Since the CRA approved a sale and purchase agreement with BH3 in April 2019, the project has changed substantially.

It is now called Fabrick, and the number of residential units were reduced to 65 apartments and four townhouses, all of which would be workforce and affordable housing, according to Freedman and documents submitted to the CRA. In addition, BH3 wants to reduce the square footage of the retail and green space, as well as build a surface parking lot instead of placing a parking structure on top of the grocery store.

According to the complaint, BH3 spent more than a year searching and holding discussions with potential grocery tenants, and signed a “non-binding, but heavily negotiated” letter of intent on Oct. 12 with a national chain. Freedman said the company is Publix.

BH3 claims that the pandemic prolonged the negotiations and responses to design and tenant requirements, because Publix was dealing with issues pertaining to its supply chain, logistics, employee health and other related factors, and the ongoing, general state of emergency.

The project’s design was revised to further reduce density and intensity after BH3 conducted outreach efforts with Delray Beach residents, who were “clearly not desirous of BH3 or any
developer gentrifying the neighborhood with a monstrous project that had market rate housing,” according to the lawsuit. Publix also required that BH3 build a surface parking lot instead of a garage.

Amid all this, BH3 faced a Jan. 18 deadline to have its site plan approved or be considered in default. So the developer sought approval to negotiate an extension and for the design changes, which the CRA board initially accepted at its Dec. 17 meeting in a 5-2 vote, the lawsuit states.

But at its Jan. 26 meeting, the CRA rejected project variances and the extension, despite BH3 offering to compensate the city by increasing its $250,000 deposit to $1 million and to pay $200,000 to the city’s parking trust fund, according to the complaint.

The lawsuit and Freedman contend the CRA should have granted the extension due to delays caused by Covid-19 and not the developer. “At the end of the day we wish we weren’t here,” Freedman said. “We think they have erred in their judgment. We look forward to that being corrected. We want to charge forward with this project.”

Frankel said the CRA went above and beyond in trying to work with BH3 to start construction. “The fact is that BH3 is trying to use Covid as an excuse, and I find that to have little to no merit,” Frankel said. “BH3 has done nothing to try and salvage this as of this time.”


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