Placing Your Eggs In One Heavily Leveraged Basket

St. Louis Mills mall in St. Louis County had big promises for the City of Hazelwood a few years ago (full story):

In the past, retail establishments have not been a major part of Hazelwood’s economy. But that’s about to change in a big way. Mall developer Mills Corp. recently broke ground for a $250 million shopping center dubbed St. Louis Mills. The 1.2 million-square-foot mall will include 12 anchor stores. Hazelwood city leaders approved $18.7 million in tax increment financing for the project.

The mall, being constructed on part of a Missouri River floodplain, will be anchored by high-end outlet stores, led by the St. Louis area’s first OFF 5th—the outlet version of Saks Fifth Avenue.

Rebecca Zoll, executive director of North County Inc., sees the Mills development as an epic event for the region, perhaps permanently changing its economic make-up and the perceptions of outsiders.

“This will bring in people from around the Midwest, and their dollars will go back into our community,” Zoll says. “There’s been some concern about how the mall will affect local business, but I think it will only help.”

First, I do believe that a mall can change “perceptions of outsiders” but certainly not in the positive. If a mall is an “epic event” the region is worse off than I previously thought. Maybe if you live in Wentzville the idea of getting in the minivan and driving in bumper to bumper traffic on the interstate to shop in generic stores around a food court this is a cool thing.

Aside from the many issues I have with indoor malls and building on a flood plain, a big concern is the financial health of the companies on which municipalities are so dependent. These great saviors of local economies are often teetering on the edge of bankruptcy.

The St. Louis Business Journal is reporting Mills Co, owner of St. Louis Mills, has fired its President. They appear to have a few issues to work out besides getting a new executive:

Mills said Aug. 11 that it would sell its stakes in three shopping centers based outside the U.S. to a Canadian real estate firm for $981 million to help pay off debt.

The company said that Ernst & Young audit reports for 2005 are likely to contain a paragraph saying “there is substantial doubt” about Mill’s ability to continue as a going concern because of deadlines for repaying $2 billion in debt.

Mills is restating its financial reports for the years 2000 through 2005 because of accounting errors, and those errors are expected to reduce net income by $210 million for 2003, 2004 and the first nine months of last year, according to a recent regulatory filing.

St. Louis Mills is among 42 properties owned by Mills Corp.

Hazelwood gave a $18.7 million TIF to a company that is now $2 billion in debt and possibly about to default. Wow, two billion. So creditors will likely take over St. Louis Mills and they will try to sell it. Just a guess but I’m betting it will sell for less than its original $250 million price tag. As long as the registers keep ringing Hazelwood should OK. If stores get a sense things will not be fine with new owners you might see some abandon ship.

Hazelwood is not alone, from a recent Post-Dispatch article:

Now Rock Hill is struggling to survive financially while banking its future on an expansive Novus development at the corner of Manchester and McKnight roads.

Local developer Novus, you may recall, was supposed to do a massive project in Sunset Hills but ran into financing issues for the project last year. From the St. Louis Business Journal:

It’s been about a year since Novus Cos.’ planned $184 million Sunset Hills lifestyle center deal fell apart. City officials and property owners within the development area are working to move on, but Novus’ Jonathan Browne apparently is not.

Browne, president of Novus, made a plea to Sunset Hills’ new mayor, John Hunzeker, June 26 to resurrect the project that has become a poster child for eminent domain reform across the country. In attendance at the one-hour meeting in the mayor’s office were Browne, Hunzeker and City Clerk Laura Rider.

All this to fight over a relatively fixed amount of sales tax revenue. The Sunset Hills project would have relocated a Famous-Barr store from Crestwood Mall (in Crestwood) to Sunset Hills. Good for one municipality but bad for the adjacent community. Some will argue the construction creates jobs but where does that money come from? The overall sales taxes collected in the region are the same yet $184 million would have been spent to get there. Well, this money comes in the form of reduced property values from other commercial properties that used to collect this sales tax, debt carried by the developer and tax incentives. At some point we must realize we cannot keep spending billions of dollars to build newer shopping developments in a region with relatively flat growth. It just doesn’t work.

– Steve

Loughborough Commons, Eminent Domain and Fairness

Today I was have a “conversation” about Loughborough Commons with another REALTOR® that lives and works in my area. Quick background, the Schnuck’s grocery store wanted to build a new building and create a big shopping center and in the process 12+ homes were bought out and razed. A single family held out — not wanting to move.

This is where our conversation turned to disagreement. We were discussing value — fair market value. He felt it was “unfair” of the family to hold out for a higher price on their family home than what was the “market” value prior to redevelopment and rezoning of the land. I countered that it was unfair they were being forced to sell something they didn’t wish to sell. Furthermore, I stated I thought it was immoral that Desco, Ald. Villa and the City of St. Louis forced this situation upon these families for an outparcel.

When a client comes to me and wants to sell their property my job is to help determine the best price for them relative to their debt, how quickly they wish to sell and what the market will bear. Some property is in more demand than others and prices generally reflect that. If you buy all the homes around me and then want mine I am going to be wise and recognize the value just went up. Developers know the “value” of that land is considerably higher than if located in an area not being targeted for redevelopment.

Developers often will offer 25% more or so above the normal residential assessed value but often this just approaches the true market value. They’ll use scare tactic arguments to suggest all development will stop if we try to curtail these practices but little evidence if offered to back up these claims.

Taking someone’s occupied personal home is unjustifiable. Sure, if it is falling in and they’ve been dragged through every housing court in town I’ll grant you an exception. But in terms of fairness I think preference should be given to home owners, not developers. I always wonder about the people that advocate for developer’s rights in such terms — how they’d feel if it were actually their home being threatened.

Fair is relative but what is fair to me is allow people to not fear their homes being taken away from them at the whim of a developer or sales tax starved municipality.

– Steve

Urban McDonald’s in Toronto a Good Model for St. Louis

While I was in Toronto last month I happened upon a very urban McDonald’s in an older part of town, not unlike South Grand — one and two story commercial street with a grid of residential units behind. In valuing the pedestrian experience, Toronto has greater restrictions on drive-thru establishments than St. Louis. Wait, what I am saying — they actually have restrictions whereas we don’t. Click here to see Toronto’s guidelines.

For those just tuning in, we are getting a new McDonald’s on South Grand. The old location, which has an admittedly funky drive-thru set up, is going to move across Grand to the former site of an old Sears store that was razed in the late 1990s. You can read through the “McDonald’s on Grand” category if you want all the detail but basically what we are getting is a highly suburban McDonald’s design — a smallish building surrounded by parking — but due to pressure pushed up to Grand. I can already hear people saying it is better than the old McDonald’s because it is new and clean. I guess I’d just like us to have some actual urban standards, not just be content with replacing one suburban design for a newer suburban design when the old one gets tired and dirty.

So, back to Toronto.

Very urban city with a great transit system, relative to St. Louis. With so many transit riders auto use appears to be considerably less than in St. Louis — at least in the city center where I spent most of my time. They have simply retained so many more of the original storefronts that we razed decades ago when we decided every business needs to have their own dedicated parking.

Architecturally speaking this McDonald’s at the corner of Dundas St. & Bathurst St. is nothing special (view map). It is how the ordinary building is placed on the site that is unique. The building occupies nearly all the width of the site along the North edge of the site (facing Dundas, shown above) with only a small sliver facing the other direction.

The public entrance faces both public streets, not the parking area behind. Neighbors and those in the area are encouraged to approach by foot rather than get in their car. Those people that are driving cars will most likely use the drive-thru window anyway so why not accommodate pedestrians with the building entrance?

Again, architecturally this is nothing spectacular. But, the location of the entrance is very important in an urban/pedestrian setting. Arranging buildings in such a manner lends credibility to the pedestrian and transit user.

The drive-thru ordering and service windows are kept to the back of the building out of view of the main intersection. The radii are a bit on the tight side by our standards but they drive the same cars we do so it should not be an issue. The ‘no parking’ area in the foreground is for when they need to bring out your order to you so as not to hold up the line. All in all a very compact and workable solution that balances the needs of auto drivers, the restaurant operator and urban/pedestrian interests along the public right-of-way.

The parking lot is actually paid parking for the entire area. This is a good use of space and enables people to get out of the idea of every business having their own free lot. Park once, conduct your business in the area on foot and then return to your car when done. Having a private parking area shared with the drive-thru traffic makes sense but the urban planning is the same if this were free parking for McDonald’s customers. This McDonald’s has a single curb cut whereas our new McDonald’s will have three.

Additional photos of this McDonald’s can be seen on Flickr.

It may well be too late to salvage the South Grand location and get an appropriate urban design for the street. However, we need to look ahead and begin working on standards to return our city to streetscapes dominated by actual storefronts rather than parking lots. Auto parking is a necessary evil but it need now be on display 24/7 — it can be minimized, shared and placed out of sight.

– Steve

Update on Recall Efforts in the City of St. Louis

With all the election stuff of late it has been easy to ignore the various recalls that are going on in the City of St. Louis, a lot of angry voters out there displeased with their aldermen. The issue is not political infighting but development practices.

Freeman Bosley Sr., 3rd Ward:

Via Antonio French on PubDef: The recall is on hold pending an August 21, 2006 court hearing. It seems the recallers are challenging the legal authority of the Board of Elections to allow the subject of the recall, in this case Freeman Bosley Sr., to obtain affidavits from people to have their names removed from the recall petition. If the judge rules in their favor they will have sufficient numbers to place the recall on the ballot. This could be huge with widespread implications for other recalls.

Bosley has been a destructive element in his ward, choosing to unnecessarily raze many buildings and ruin street patterns. New construction has been decidedly suburban in character. Frankly he just seems too out of touch with what a city should be. He seems hell bent on destroying everything that makes the ward interesting, all in the name of progress. He has had his 17 years in the spotlight, time for some fresh urban-minded thinking.

Joseph Roddy, 17th Ward:

Roddy, who’s father was alderman for many years, inherited this ward. While Roddy can brag about the millions (billions?) of dollars of investment within the ward what he cannot do is argue that it has bettered the ward from an urban & livability perspective. BJC parking garages are costly but do not improve the area.

It looks like recallroddy.com was registered in May 2006 but no active website exists.

Jennifer Florida, 15th Ward:

Back in 2001 I really liked Florida, she was very involved in saving the South Side National Bank and she wasn’t about to let politics and ‘development as usual’ allow the building to be razed for a Walgreen’s. I was very impressed and worked to help get her elected. Today I feel betrayed. Did I misjudge her or did she change? Perhaps some of both.

In talking to several of those with the Florida recall effort it sounds like they are all re-energized following the elections on Tuesdays. Volunteers worked the polls in the 15th Ward to collect signatures. Many voters were eager to sign the petition although others were not so willing with her standing nearby. With more elections in November, March and April it looks like the volunteers are determined to stick with the recall as long as it takes. When the new McDonald’s begins to rise on Grand and we see the shuttered old McDonald’s this might attract some new interest. When she tries to push through the senior housing with little public input on the site plan, land use, and such the voters may finally get fed up.

Despite what the political machine may be saying, I am not “behind” these recalls. Do I support the recall of Florida, Roddy and Bosley? Oh yeah! But I am not orchestrating these efforts. I know many of the people running the recall against Florida and have offered them my opinion on things when asked. I am hosting recallflorida.com on server space that I have but I am not creating or posting any content — that is entirely up to those doing the recall. To those working to recall Bosley and Roddy I will make the same offer to you — free blog & email hosting.

I’m also willing to talk to potential candidates for aldermen in the city’s even numbered wards, the 14 seats that are up for re-election in March 2007. This doesn’t mean I will support just anyone challenging an incumbent. On a personal level I like a number of the current aldermen but I question the urban understanding of all of them. Who knows, I might actually support an incumbent or two. I will offer an “in-kind contribution” of web & email hosting to those I chose to support. Democracy is best served when we have more than a single choice of candidates.

– Steve

Commentary on Maryland Plaza in West End Word

The new issue of the West End Word is available and it includes a commentary on Maryland Plaza by yours truly. Here is the opening paragraph:

Maryland Plaza, the continuation of Maryland Avenue between Euclid and Kingshighway, probably ranks as the most controversial street in all of St. Louis. Not even the costly and lengthy transformation of Washington Avenue a few years ago can compare. Maryland Plaza has a good 35 years worth of controversy.

Pick up a copy this week or read it online. What do you think of Maryland Plaza? Add your comments below and/or send an email to the West End Word editor.

For more images see my gallery of 40+ photos on Flickr.

– Steve