With the February opening of a $270 million convention center hotel complex, downtown St. Louis has received nearly $1.4 billion in public and private investment since 1998 — the largest investment ever in the city over such a brief period.
The 1,083-room complex, the Marriott Renaissance Grand Hotel and St. Louis Suites, is the first of several projects that Historic Restoration Inc. has undertaken downtown. The New Orleans-based development firm also recently completed the $47 million conversion of the historic Merchandise Mart into 213 apartments, which local real estate execs are watching as a barometer of the downtown residential market.
Now, HRI is turning its attention to Cupples Station, a historic warehouse complex where it's planning a $37 million, 188-unit apartment complex. Tom Leonhard, president and COO of HRI, believes there is demand for up to 5,000 new apartments — a far larger market than in New Orleans, where the company redeveloped much of the downtown warehouse district into 1,500 residential units and several hotels.
Bank of America and McCormack Baron & Associates, co-developers of the Cupples site, did have plans to redevelop part of the turn-of-the-century warehouse complex into office space — but with a downtown's Class-A vacancy at 14.7 %, those plans are on hold.
Founded by the late Edward Boettner and Pres Kabacoff in 1982, HRI's mission is the renewal of cities through the adaptive reuse of historic buildings or new construction in historic neighborhoods in partnership with the public, private and nonprofit sectors.
The company's first project, the rehabilitation of the Federal Fibre Mills into luxury apartments, led to the transformation of New Orleans' Warehouse District and propelled the transition of residents moving back into the heart of the city.
Luring suburban residents back to the city also is at the heart of the St. Louis effort to rejuvenate downtown, giving HRI a partner committed to Kabacoff's vision. Kabacoff came to St. Louis in 1997 to check out redevelopment possibilities on the recommendation of Sidney Barthelemy, former mayor of New Orleans.
On a five-mile run through downtown, he saw opportunity in the abundance of old, architecturally significant buildings. Now, nightclubs on Washington Avenue and Laclede's Landing attract a young, late-night crowd, and St. Louis' professional sports teams — the Cardinals, Blues and Rams — draw devoted fans from throughout the region downtown.
HRI's timing may be excellent — it is completing its projects just when money is likely to run out. Back in 1998, lawmakers approved a 25% tax credit for developers who restored historic buildings. “Those dollars would have had to come in additional equity, and for projects of this magnitude it would have been very difficult to come up with that money,” says Ron Silverman, senior vice president and regional manager of HRI's St. Louis office. But with Missouri facing a $1 billion budget shortfall this year, the credit may be capped at $5 million.
HRI is not the only firm interested in downtown redevelopment. DESCO Group and DFC Group are close to a $72 million deal to redevelop the Old Post Office building, a project in the heart of the central business district that city officials and civic leaders view as critical to the revitalization of downtown.
The project is expected to attract as many as 1,000 students a day downtown when Webster University, its anchor tenant, starts holding classes in the building. Gundaker Commercial Group wants to spend up to $30 million to convert a former Dillard's store to either apartments or a hotel.
In addition, the St. Louis Cardinals plan to build a $325 million ballpark south of Busch Stadium. The Cardinals will pay more than $14 million a year in rent in a 29-year lease and contribute $50 million for construction. The team also will be an anchor tenant in an office building to be built near the ballpark as part of a two-block, $60 million “Ballpark Village,” and contribute the land on which the stadium will sit.
That could push the total redevelopment investment to more than $2 billion. “Assuming the start of a new ballpark, the start of the Old Post Office and its tremendous catalytic effect on surrounding blocks as well as several other contemplated deals, we could come close to $2 billion by the end of this year,” says Tom Reeves, executive director of Downtown Now!, a public-private partnership that focuses on developing the revitalization plans for downtown St. Louis.
Show Me Hospitality
Despite the new convention center, St. Louis has lost several conventions as a result of a shortage of downtown hotel rooms. But with the addition of the Renaissance Grand and St. Louis Suites, that's about to change. In all, 1,240 new rooms have come on line downtown this year, giving the St. Louis market a total of nearly 27,000 hotel rooms, according to Gary Andreas, a partner at the St. Louis hospitality consulting firm Tellatin, Andreas & Short. He adds that the region's average room rate is in the low $70's, while the average downtown rate is between $105 and $107. “We're starting to get an increased number of rooms where we need them — namely downtown,” he explains.
Other downtown projects include a new Hampton Inn, which will add 180 rooms, and the $17 million renovation of the Marriott Pavilion. Developer Charles Drury has started work again on the renovation of the historic Merchant's Laclede Building into a 240-room hotel after delaying the project because of the Sept. 11 terrorist attacks. The only major hotel project under way outside of downtown is Drury's 289-room Drury Plaza Hotel in suburban Chesterfield.
The St. Louis hotel market has remained relatively flat in 2002, with occupancy up slightly to 65.9% last year from 65.4% in 2001. “We did not have enough growth and demand to absorb the new rooms that came on line, but in terms of rooms sold we held our own,” Andreas says. “The downturn in occupancy started in June 2001. Sept. 11 aggravated the slide as opposed to causing it.”
Multifamily Remains Stable
The St. Louis apartment market also has remained relatively flat, according to Keith Kramer of the consulting firm Keith M. Kramer Associates Inc. Occupancy in July 2002 was 95.2%, compared with 96% in July 2001. “The factors affecting the apartment market have remained the sluggish economy and uncertainty surrounding job layoffs,” Kramer says.
In addition to the Merchandise Mart, another major city project is Conrad Properties' $32 million Metro Lofts, a 213-unit apartment community in the Central West End targeting middle-income residents. It's the neighborhood's first major new apartment complex in 15 years.
Outside the city of St. Louis, major developments include Mills Properties' Boulders at Katy Trail, a $26 million, 240-unit apartment development slated to open in May and The Mullenix Cos.' $8 million, 93-unit luxury apartment complex. Both projects are in St. Charles County — one of the fastest-growing counties in the United States. “The eastern portion of St. Charles County appears to be doing relatively well,” Kramer says. “Overall occupancy is 93%, and we're seeing strong rental increases in that market of about 4%.”
St. Louis Office Blues
Space available for sublease continues to be a significant factor in the St. Louis office market. The amount of sublease space more than tripled between the end of 2000 and the middle of 2002, according to Colliers Turley Martin Tucker. By the end of second-quarter of 2002, nearly 1.8 million sq. ft. of sublease space was available. That amount dropped to 1.3 million sq. ft. by the end of the year.
With nearly 400,000 sq. ft. available, west St. Louis County has the most sublease space available of any submarket, says Burt Follman, chairman and CEO of Follman Properties-ONCOR International. About 127,000 sq. ft. of that has been available since 2000. That's when Mallinckrodt, a healthcare manufacturing and distributing company purchased by Tyco International in 2000, left the Atrium in Chesterfield, Follman explains.
Overall vacancy for the region climbed to 14.2% by the end of 2002, up from 12.7% at the end of 2001, while the average lease rate dropped to $20.16 from $21.28, reports Colliers Turley Martin Tucker.
The St. Louis region encompasses two central business districts: downtown and Clayton. The downtown office market has been hurt by large tenants relocating to Clayton, which has performed well relative to the other submarkets, Follman says.
More than 825,000 sq. ft. in three new office buildings came on line in 2001. When the 274,688 sq. ft. Shaw Park Plaza and 245,000 sq. ft. Forsyth Centre opened within one month of each other, it more than tripled the vacancy rate from 3% in 2000 to 10.1%. Today, the $52 million Shaw Park Plaza is 65% occupied; and the $35 million Forsyth Centre is 82% occupied. THF Realty's $61 million Plaza in Clayton opened about seven months later, with 70% of its 307,000 sq. ft. leased. Today, the building is 99% occupied.
The vacancy rate in Class-A buildings in Clayton decreased from 14.3% at the beginning of 2002 to 13.4% at the end of the year. That compares with a regional vacancy rate of 14%, down from 14.2% at the beginning of the year. “You've got to keep it in perspective,” Follman says. “Generally speaking, Clayton is definitely soft, but there is some limited activity. Two of the three new buildings have done very well.”
While more prospective tenants are touring buildings, it's not yet resulting in signed leases, says Keith Zeff, vice president of research at Colliers Turley Martin Tucker. The number of build-to-suit projects for major corporations is likely to drive the vacancy rate up.
CitiMortgage will leave a 270,000 sq. ft. building vacant when it moves to its new $85 million, 551,000 sq. ft. facility in St. Charles County, and Magellan Behavioral Health vacated 250,000 sq. ft. when it moved into its new $40 million, 285,000 sq. ft. national service center.
Other major developments that came on line last year include the 144,000 sq. ft. One Chesterfield Place, which had no pre-leasing; and CityPlace Three, a 230,000 sq. ft. building that achieved 90,000 sq. ft. of pre-leasing before construction started.
A tremendous transportation infrastructure has catapulted southwest Illinois into the forefront of the St. Louis region's distribution activity. Of the 3.3 million sq. ft. of industrial space constructed in 41 buildings last year, 911,000 sq. ft. was in Illinois, primarily in TRiSTAR Business Communities' 2,300-acre Gateway Commerce Center in Pontoon Beach. So far, more than 2.8 million sq. ft. of bulk distribution space has been built at Gateway. Total buildout is expected to top 25 million sq. ft.
Tax incentives in Illinois have attracted large space users needing to expand or consolidate facilities previously located in Missouri, says Toby Martin, senior vice president of Colliers Turley Martin Tucker. Martin's concern is that incentives offered in Illinois will lure some of the region's larger tenants from the city of St. Louis or western suburbs, creating large blocks of vacancy in those submarkets. Ideally, the incentives will draw new tenants to the region, Martin said.
Unilever is building a 1.2 million sq. ft. distribution center in southwest Illinois; and Hershey Foods Corp. is scouting the area for a site to build a 1.1 million sq. ft. distribution center. Gateway Commerce Center is rumored to be among the top contenders for Hershey's facility.
“Gateway is still winning a lot of the big business,” Zeff says. “It's another gain for the East side and a loss on the West.”
The last three quarters of 2002 recorded positive absorption, Zeff says. Occupancy increased by nearly 1.5 million sq. ft. in the last nine months to offset a sizable loss in the first three months and end the year with a net gain of 585,000 sq. ft. — a huge turnaround from 2001 when absorption was negative 2.6 million sq. ft. The 214 million sq. ft. industrial market ended the year with a vacancy rate of 7.4%, up from 6.8% in 2001.
“We just have so much space to absorb that the users now believe they can write any kind of deal they like,” Martin says. “As long as you've got that general vacuum cleaner at Gateway and the weak economy, it's going to be hard to gobble up the rest of the vacant space.”
Retailers Flock to St. Louis
The redevelopment of existing shopping centers has attracted more than two dozen new retailers to the St. Louis market.
New additions include Recreational Equipment Inc. (REI), Orvis, Whole Foods and Viking Culinary Center, all of which leased space in Pace Properties' 200,000 sq. ft. Brentwood Square in St. Louis County's central corridor, says Joe Ciapciak, managing partner at Pace. Nordstrom's, Galyan's, Cold Water Creek, Apple Computer, Lladro and Adrian Vittadini entered the market after the redevelopment of Westfield Corp.'s Westfield Shoppingtown West County in southwestern St. Louis County.
The Cheesecake Factory and Z Gallerie also recently opened their first St. Louis-area stores at the St. Louis Galleria, which was recently listed for sale, while the upscale Frontenac Plaza attracted Tiffany & Co., Sur La Table and Cole Haan to the region. “We are either ahead of the curve or behind the curve, but we are on a different pattern than a lot of cities right now,” Ciapciak says. “We've never had the big peaks that a lot of our competing markets have had, but our valleys aren't as low either.”
Arlington, Va.-based Mills Corp. will introduce its entertainment destination concept to the area when it opens the 1.2 million sq. ft. St. Louis Mills in north St. Louis County in the third quarter. Tenants already committed to space in the development include Off 5th, the Saks Fifth Avenue outlet store; a 23,000 sq. ft. Off Broadway Shoes store; and a 31,250 sq. ft. Bed Bath & Beyond.
The Boulevard-Saint Louis, a Main Street-style project being developed by Pace Properties, also is attracting another group of new tenants.
The project will feature 225,000 sq. ft. of retail space near the St. Louis Galleria. Pace is working on deals with Crate & Barrel, Margin's Little Italy restaurant, Ann Taylor Loft and P.F. Chang's. More than 300 residential units, about 500,000 sq. ft. of two Class-A office buildings and three public plazas will complete the mix. Construction is expected to begin by mid-year.
Big-box retail also is thriving. THF Realty is spending about $60 million to develop 800,000 sq. ft. of retail space with 15 restaurant sites on 200 acres in the community of Wentzville in St. Charles County. THF has completed the first phase of the project, which includes a 140,000 sq. ft. Wal-Mart and 30,000 sq. ft. of shops that are 100% leased.
“We bought all this ground because we want to control our destiny,” says THF President Michael Staenberg, who estimates that of the roughly 80 million sq. ft. of retail space in the region, just 2% is vacant. “We try to tie up all the ground around our developments because we'd rather compete with ourselves.”
At 1.9 million sq. ft., the retail component of THF's Chesterfield Commons will be the largest power strip center in the country when it is completed in 2005. Sam's Club, Wal-Mart, Target and Lowe's Home Improvement anchor the center. The project also will include 800,000 sq. ft. of office, restaurant, entertainment and industrial space, bringing the total size of the development to 2 million sq. ft.
“St. Louis has only two power centers,” Staenberg says. “In other communities there are usually three or four. We have a lot more neighborhood centers here.”
Margaret Jackson is a St. Louis-based writer.
ST. LOUIS-BY THE NUMBERS
Metro area: 2.6 million
Source: 2000 Census
UNEMPLOYMENT RATE: 5.1%
Boeing Integrated Defense Systems
The May Department Stores Co.
Source: St. Louis Business Journal
METRO AREA STATS:
12.7% vacancy, Dec. 31, 2001
14.2% vacancy, Dec. 31, 2002
Rent per sq. ft.: $20.16 Dec. 31, 2002
Source: Colliers Turley Martin Tucker
4% vacancy, July 2001
4.8% vacancy, July 2002
Rent per unit: $603 2002
Source: Keith M. Kramer Associates Inc.
6.9% vacancy, 4Q 2001
6.5% vacancy, 4Q 2002
Rent per sq. ft: $13.98 2002
Source: Reis Inc.
6.8% vacancy, Dec. 31, 2001
7.4% vacancy, Dec. 31, 2002
Rent per sq. ft.: $4.36 Dec. 31, 2002
Source: Colliers Turley Martin Tucker
65.4% occupancy, 2001
65.9% occupancy, 2002
Source: Tellatin, Andreas & Short
MAJOR PROJECTS UNDER CONSTRUCTION:
Marriott Renaissance Grand Hotel and St. Louis Suites,
a 1,083-room convention center hotel complex
Cost: $270 million
Developer: Historic Restoration Inc.
Completion: February 2003
a mixed-used development that includes a 1.9 million sq. ft. power strip center and 800,000 sq. ft. of office, industrial and restaurant space
Cost: $200 million
Developer: THF Realty
The Boulevard-Saint Louis,
a mixed-use project with 225,000 sq. ft. of retail space and 500,000 sq. ft. of office space
Cost: $230 million
Developer: Pace Properties
Boulders at Katy Trail,
a 240-unit apartment development
Cost: $26 million
Developer: Mills Properties
Completion: May 2003
St. Louis Mills,
a 1.2 million sq. ft. entertainment complex
Cost: $250 million
Developer: The Mills Corp.
Completion: Third-quarter 2003
Unilever Distribution Center,
a 1.2 million sq. ft. distribution center in southwestern Illinois
Cost: $28.8 million
Completion: March 2003