By Bill Beggs Jr.
Regional Development Execs Feel the Squeeze, Remain Optimistic
Five economic development professionals were surveyed about the regionÕs prospects. They tried to put things in context with a glance back at how things have gone up to now for their particular jurisdiction and the region in general.
In short, the City and surrounding counties have it no worse than any other area of the country when it comes to economic prospects. In fact, we have it somewhat better than many areas. For example, everyone everywhere is paying more for gas, but we're not paying nearly as much as folks on either coast. And in the current economy, commercial and residential prospects are pretty good here in the Gateway City compared to many other areas of the country, from coast-to-coast, border-to-border and in between.
To get unique perspectives on the region's development successes, and the prospects and challenges that remain for all, each development exec was posed the same five questions,
and responded in writing, to create our "virtual roundtable".
Participants:
DENNY COLEMAN
president & CEO,
St. Louis County Economic Council
RODNEY CRIM
executive director,
St. Louis Development Corp.
JOHN HERZOG
economic development coordinator,
Madison County
STEVE JOHNSON
senior vice president -
Economic Development,
St. Louis RCGA
GREG PRESTEMON
president,
Partners for Progress
(St. Charles County)
Compared with the first half of the decade, 2000 to 2006, how was the pace of
construction and development in 2007, for the region as a whole and your community in particular?
Coleman: I believe that 2007 actually maintained in some sectors, and increased in others, the amount of development and construction. In St. Louis County, we are seeing the rebuilding or expansion of two Edward Jones campuses, the expansion of Express Scripts and Pfizer, the continued increased employment at Monsanto (and their leasing of property in Maryland Heights), and many other projects throughout St. Louis County. In addition to that, we have the Highway 40 reconstruction—a major, half-billion-dollar construction project. So, I'd say that 2007 leading into 2008, has been a very good time for construction and development, and I see the same thing proceeding throughout the rest of 2008.
Crim: Even though the news we hear
in the media is not very good, St. Louis has experienced significant development over the past four years and development continues today. In calendar year 2007, for the fourth straight year, the City's Building Division issued permits for more than $1 billion in construction in 2007—the fourth straight year. We have residential, commercial and industrial new construction, as well as the historic rehabilitation of older homes and conversions of vacant and underutilized commercial buildings into condos and lofts.
In 2007, new retail development included expanding MLK Plaza at Grand and Martin Luther King with a Walgreens and other stores; completing Loughborough Commons and Maryland Plaza; and more new street-level stores and restaurants in neighborhood commercial districts and downtown. Construc-tion is expected to begin this year on downtown's first full-service grocery, a Schnucks in the State of Missouri's 9th Street Garage. "Creative" firms—advertising agencies and architectural firms—are remaking old warehouse buildings into unique new office space. The historic Syndicate Trust, a former department store that sat vacant for more than two decades, is reopening following an approximately $70-million transformation— it has 84 residential apartments, 91 condominiums and 21,500 square feet of retail space. Citywide, condominiums continue to sell steadily but the pace has slowed, particularly in the mid-priced segment where prospective buyers must sell their existing home before purchasing a new condominium.
Institutional development remains strong—Saint Louis University recently completed its research building, and Chaifetz Arena has opened. Washington University Medical Center campus and Harris Stowe University have projects under way, and Shriner's Hospital is expected to move soon from Frontenac to the Washington University Medical Center campus.
North of Highway 44 at Jefferson is the Union Club, a $12-million mixed-use development going up on the location of a vacant Aldi store. In the Central West End, a Texas developer is building an apartment complex on the old Salad Bowl site with 196 units, and 16,000 square feet of retailÑthe developer also is planning a new mid-rise apartment development across I-64 from BJC Medical Center. On the north side, the 14th Street Mall in Old North St. Louis, next to Crown Candy, work has begun on the historic rehabilitation of a number of buildings.
Construction will soon begin on the second phase of the Cochran Gardens HOPE VI development; a new Joe Edwards boutique hotel is under construction in the City part of the Delmar Loop, and the new Solae headquarters in CORTEX is nearly ready for occupancy. Construction has begun on the Roberts BrothersÕ new residential tower next to the Mayfair Hotel.
In short, a LOT of new activity continues throughout the city and downtown.
Herzog: Development from outside the region this year seems to have dropped off compared to recent years. We are, however, still seeing a steady level of companies within the region looking at expansion prospects. I would attribute this to the state of the national economy and the tendency of the region's economy to be less volatile than the national economy. We tend to be more steady and not boom-or-bust as much as other areas during business cycles.
Prestemon: The peak in residential
construction was 2005, but nobody expected that pace to continue. While that is disappointing, it is not surprising. Now we are back to the levels of the early years of this decade. In other words, we now expect that there will be somewhere between two and three thousand housing starts each year for the foreseeable future. It is a great time to buy a new home, as builders are getting very aggressive in order to attract buyers.
Though some may not care to utter the "R" word in public, few would deny that the economy has slowed. Was the Federal Reserve's move to cut a key interest rate by three-quarters of a point aggressive enough? Too little too late? At any rate, how do you think the economic climate may affect the pace of development, locally and region-wide?
Crim: In talking with our developers, they say bankers are getting more conservative in their lending practices. The developers now find themselves working with a more extensive network of investors to get developments—particularly residential developments—financed. The silver lining in the nationwide cloud over the residential market is that more City developers are turning their talents to commercial—retail, industrial, office—development. We are pleased with this shift, since commercial development is the major way in which the City rebuilds its tax base.
Herzog: I think we may continue to see a slower pace of inquiries and investments from outside the region, but hopefully we will continue to see our existing companies in the region maintain their steady growth.
Johnson: I think that the current economic climate is a two-edged sword for
St. Louis. On one hand, some of the large financial-services clients with whom we're dealing are more determined than ever to institute projects that will result in long-term operational savings. This environment of tightened lending practices, however, may also affect some deals we have pending by making them much more expensive to finance. If those finance costs go up too much, the numbers on the overall deal just won't work. I think we are also beginning to see hints of a general slowing of new
project activity overall.
Prestemon: I have never criticized the Federal Reserve in print, but there is a first time for everything. I think the Fed was way too lax in sounding alarms about the sub-prime lending practices. Since then, I guess the Fed has done all right in dropping interest rates, but I don't believe that interest rates are much of a factor once they get below seven percent or so. It is a spectacular time to buy a new home.
Coleman: I think that the Federal Reserve's action to cut a key interest rate will moderate any falling into recession or help the downturn to bottom out more quickly. Whether or not that is enough to revive the economy, we'll have to wait and see. But I don't think this has had any affect on several large scale projects throughout the County which are moving ahead despite the interest rate situation and the "recession" because the global nature of the companies that are expanding their profitability and high stock values seems to be driving their desire to continue expansion.
Mixed-use development has been one of the more successful trends in recent years, with residential-retail projects cropping up both in downtowns and
suburban areas. Is this model working? What "tweaks" to this concept, if any,
do you envision? Briefly describe one or two of the best examples of mixed-use projects in your jurisdiction.
Prestemon: Mixed-use is a trend. New urbanism is a trend. Green building is a trend. Attached housing and higher densities are trends. Cluster development is a trend. All will likely be with us for a long time to come, as the changing demographics of the area will demand different housing styles. Most people agree that resource conservation and energy savings are important and good things in themselves. Examples of just about all of these trends are embodied in new communities such as New Town in the City of St. Charles and WingHaven in O'Fallon.
Coleman: I think The Boulevard in Richmond Heights is an excellent example of a mixed-use project that is now going to be expanded with additional development around it. The announcement of the downtown Chesterfield project by Sachs Properties is another. And there are several additional
projects coming online that have been announced for downtown Clayton that will be large scale, excellently designed projects that will yield residential, office space, retail and hotel usesÑvery exciting for Clayton, Richmond Heights and Chesterfield.
Crim: The City has a great advantage as more people seek mixed-use urban lifestyles—we are, and have always been, a natural mixed-use environment. This is one of the main reasons we are seeing a new interest in City living, both in our neighborhoods and in downtown. But we also have new incarnations of mixed-use development in progress.
The $507-million Lumiere Place development is a mixed-use development on its own, with the casino, Four Seasons Hotel, the substantially reconfigured Lumi�re Place Hotel, restaurants and retailÑthe complex now employs more than 2,000 people and is generating significant new tax revenues for the City. But this is just the first step in a major new mixed-use initiative that will double Pinnacle's investment in the area north of Laclede's Landing—the company's commitment to mixed-use development was very important in the City's selecting Pinnacle.
The Highlands, on the old Arena site just south of Forest Park, is a different kind of mixed-use example, combining two residential towers, a hotel, a restaurant, two completed office buildings, and another one soon to be constructed that will house a financial services company new to the City.
House-hunters from Wachovia Securities, formed last year by the $6.8 billion merger with A.G. Edwards, are exploring offerings region-wide. Is there enough housing stock, and variety of options, available for these soon-to-be St. Louisans? There will be other such corporate relocations in the near or long term. Are our communities prepared?
Herzog: There are a lot of housing opportunities in Madison County and the region and given the slowdown in housing nationally, the Wachovia Securities merger is a great opportunity for our county and the region to weather the national housing
problem nicely. I am looking forward to our region's real-estate community and RCGA working cooperatively to aggressively market the wonderful housing options and opportunities available throughout the region on both sides of the Mississippi River.
Coleman: Yes—I believe so. There are many opportunities throughout the region particularly the St. Louis County area where construction plus infill housing continues to be very strong.
Crim: Our goal in the City is to have every kind of home imaginable for anyone who wants to live here—with the recent development of residential lofts, we are now the only place in the region where those who want a unique and adaptively reused space can get one, in an up-and-coming mixed-use environment. We are also the only place in the region where you can buy an historic mansion or high-rise condominium with Forest Park as your front lawn.
The nice thing about St. Louis is that we have the widest variety of housing offerings in the region. If you want new, weÕve got it. If you want historic, we've got that too. If you want a towering condo overlooking the city, we've got that too. We've also got a wide variety of homes, existing and new, in established neighborhoods, and we've got some with great details in neighborhoods like Old North St. Louis that are just beginning to catch on. And for those who prefer to rent, we've got a unique range of affordable-to-luxury apartment offerings.
Our neighborhoods are prepared and looking forward to welcoming new citizens of the St. Louis region, as residents and as visitors. In two of our recent downtown condominium developments, more than 75 percent of the purchasers were new to the City—and more than a third of these "new to the City" purchasers came from other parts of the country—California, New York, Chicago. Many people moving here from other big cities are looking for downtown living, and we didn't have that until very recently.
Prestemon: Of course. I would venture to say that all of the Missouri counties with which I am most familiar are accommodating styles and price points that will be attractive to the relocating people. Whether a new resident wants a downtown loft or an executive mansion or a traditional suburban home, the region offers no end of options. Housing continues to be a great value, especially compared to the stratospheric prices of the coasts. Did I mention that it is a great time to buy a new home?
Has there been enough office space and/or industrial space to keep up with demand? Will there be enough to carry the region and/or your community through 2008? What trend do you foresee through the end of the decade?
Coleman: I think industrial has kept up with demand, and I think we have a very good pace of construction and occupancy and yet still room for expansion. However, we do need more office space, particularly large blocks of space. But with the projects that are coming online in Clayton, Chesterfield, Creve Coeur, Richmond Heights and in NorthPark, I believe we're very well positioned for new growth through 2008 and beyond.
Crim: It is too-well-kept a secret, but the City of St. Louis has the lowest industrial vacancy rate of any area in the region. And the market for our industrial and warehouse space is growing as more businesses discover the advantages of locating on the City's north riverfront, with its great multi-modal transportation access. A number of developers are responding to this new interest. Although more and more of our historic buildings are being occupied by new office businesses, our biggest need is for new Class A office space. We have identified a number of potential sites and are working with several developers and the RCGA to attract more office businesses to the City. We've had some good nibbles and we're hard at work reeling them in. We'll keep you posted on our progress.
Herzog: My impression is that there
is currently enough warehouse and office space to keep up with demand through 2008. As that space is absorbed, additionally spec space will be built in order to keep the St. Louis region on the short lists of national and regional site-location firms.
Johnson: I believe we're in pretty good shape for industrial opportunities, but significantly under-represented with large blocks of Class A office space. The clients we deal with typically require existing space that can be delivered quickly. Trying to find 100,000 to 150,000 square feet of Class A office space in St. Louis right now is pretty challenging. And for our clients, anything that delays a project—like the availability of space—can result in St. Louis being eliminated from the competition. We're hopeful that some of the announced plans for spec space will quickly become a reality.
Prestemon: The CTMT folks recently issued an interesting report in which they showed that net absorption of office space has been highest in St. Charles County, even higher than that of St. Louis County and City. That is the first time it has happened and has even fueled a modest amount of "spec" office construction, mostly along I-64. There is a lot of industrial land "product" that is coming on line with the anticipated opening of the Premier 370 Business Park. |
