A Florida developer’s deal to acquire the former Kaufmann’s/Macy’s department store Downtown has collapsed, but the owner of the cherished Pittsburgh landmark says he has another investor lined up to take over the sputtering redevelopment.
The latest turn comes as some of the building’s apartment dwellers are upset about maintenance issues, rodent infestations and a lack of promised amenities, while a 12th floor extended-stay business has run afoul of an arrangement with the hotel now occupying the old store’s fifth and sixth floors.
And the COVID-19 pandemic has just added one more disruption to the yearslong effort to revitalize the 13-floor building on Smithfield Street that once boasted restaurants, a bookstore, a hair salon, an auditorium for employee gatherings and a famous clock where Pittsburghers would often meet.
Fontainebleau Development was viewed as somewhat of a white knight when it announced last October plans to acquire the building and take over the Kaufmann’s Grand development project — one plagued by construction delays, lawsuits and liens, and an electrical vault fire.
Michael Samschick, president and CEO of Core Realty, the building owner, confirmed Tuesday that Fontainebleau, owner of the famous Fontainebleau Miami Beach Resort, no longer is involved.
He blamed the COVID-19 pandemic and Fontainebleau’s ties to the hotel and resort industry, which has been hit hard by the economic fallout from the virus.
“Unfortunately, Fontainebleau was still working through due diligence when COVID-19 devastated the world so the timing on the closing on March 31 just could not happen,” he said.
Jack Kessler, a Buchanan Ingersoll and Rooney attorney who has been representing Fontainebleau, could not be reached for comment.
While such a loss could be devastating to the cash-starved project, Mr. Samschick said he has lined up another deep-pocketed investor to take over.
He declined to name the company but described it as “one of the leading private equity real estate investors in the country” with more than $8 billion in equity and more than $20 billion in assets.
“Everyone is working through the details, but they are investing a huge amount of money,” he said.
Mr. Samschick said the new developer will be investing in a clubhouse on the roof, adding multiple elevators, and implementing COVID-19 safety measures, including ultraviolet light and a nurse’s station.
Fontainebleau had planned to spend tens of millions of dollars to finish the work Core had started at the old Kaufmann’s store.
Fontainebleau had been actively recruiting the Target discount department store chain to occupy 25,000 square feet on the first floor. When asked about the status of talks with Target, Mr. Samschick declined comment.
As part of its investment, Fontainebleau planned to finish more than 350 parking spaces to be located within the building.
Core had completed only half of the 311 apartments that were to be part of the redevelopment. Fontainebleau intended to finish the rest.
Also part of the redevelopment is a 160-room Even Hotel, which opened last fall and is separate from the apartment and two floors of retail space and under different ownership.
Elevators and mice
Despite the pledge of a new investor, the loss of Fontainebleau may not sit well with some of the building’s residents, who have been waiting for Core to finish promised amenities while dealing with a host of maintenance issues.
Several residents said they’ve had to contend with only one working elevator, dirty hallways, mice infestations, lax security, and a lack of communication with Core since moving into the building.
They said the developer has yet to finish a rooftop pool, patio area and dog park, a theater room and other amenities that helped to sell them on living in the building.
“We signed up for the promise of a luxury rental. We’re paying luxury rental prices and we’re getting nothing for it,” said one resident, Keith McGaha.
Mr. McGaha said he and his wife were forced to take an apartment on the ninth floor when they moved in last August because the one they leased on the 11th floor wasn’t finished.
They still haven’t moved into the apartment they wanted. Mr. McGaha said there hasn’t been work in the building for months, even before the COVID-19 pandemic shut down construction for about six weeks.
The McGahas also had to deal with a mouse infestation, which has since been eradicated, and situations where guests have had to walk down nine flights of stairs because the lone elevator broke down.
“At this point, there’s obviously no money to do work on the building,” Mr. McGaha said. “The staff there is completely demoralized.”
The couple sold their Mt. Lebanon home to move Downtown only to encounter a litany of woes. “We feel duped,” he said.
The McGahas are now considering whether they can break their two-year lease to move elsewhere.
Another Kaufmann’s Grand apartment dweller and a former resident, both of whom asked not to be named, recounted similar stories.
The ex-resident broke the lease six months in after contending with flooding in the apartment, a mouse infestation and other maintenance issues. “We had no choice but to move out,” she said.
Mr. Samschick said some of the work stopped while Fontainebleau did its due diligence and when the pandemic hit.
But he maintained that Core is now in the process of ramping back up, adding to staff and shifts. It is gearing up for a “full court press” to sanitize hallways, increase security and intensify pest controls, he added.
“They should be seeing improvements in the next few weeks, for sure,” he said.
Hotel vs. rental
Churchill Living, which describes itself as “a premier provider of furnished apartments nationwide,” has been leasing units on the 12th floor for as little as $79 a night based on a minimum three-day stay.
That arrangement has caused problems with the Even Hotel.
Under a condominium agreement with Reception Hotels and Resorts, Core cannot use any of its space for hotel purposes, said Matthew Shollar, a Reception representative.
Mr. Shollar said Reception doesn’t mind 12th floor rentals of 30 days or more but objects to anything less than that.
Reception will be sending a letter to Core protesting the current situation, he noted.
Mr. Samschick said that if Churchill is not abiding by the terms of the agreement, its lease will be terminated. Churchill representatives could not be reached for comment.
Core is still facing nearly $5 million in liens that have been filed since the start of the year by 11 contractors who say they haven’t been paid for work on the Kaufmann’s Grand project.
“As part of the understanding with the new investor, all liens and any dollars owed to those who are entitled to it will get all of their dollars,” Mr. Samschick vowed.
Mark Belko: mbelko@post-gazette.com or 412-263-1262.
First Published: May 27, 2020, 9:26 a.m.