For Rent: Downtown St Louis
In the past two months we’ve seen the collapse of John Steffen’s over-extended Pyramid Companies and now we have changes to a few high profile downtown projects by other developers. Blue Urban’s stunningly orange GEW project at Washington And Jefferson has switched from for sale units to rental units. The Lawrence Group’s Park Pacific remake of the former Union Pacific building has also gone rental with buyers getting their deposits returned. These adjustments are a good thing in the long term.
A number of downtown projects have been rentals for years such as the Merchandise Mart and more recently several floors of the Marquette, among many others. However the developers usually figure out the mix well in advance of announcing their project. Still the demand for rental units appears strong and by going rental it allows these buildings to get done. I think we’ll see some of Pyramid’s foreclosed projects go rental so the investors can complete the projects and recoup their investments.
By switching all these units to rentals it takes that many potential condos off the market, a very good thing. By going rental we’ll still get these buildings renovated and occupied. People are people whether they own or rent. They still have to buy groceries & other goods.  With fewer new condos coming online we’ll see a renewed interest in existing units that are on the market. Many renters eventually become buyers.
As long as we continue to renovate old buildings and add new residents we’ll be fine downtown.
Downtown loft renovation experienced the same thing albeit on a much smaller scale in the mid to late 80’s. I’m afraid these things run in cycles and we are at the very beginning of the worst part of the cycle.
Look for things to decrease and flatten out in roughly about 10 years and then a small increase after that. Look to the coasts in 10 years and see what’s hot and the same thing will follow into St Louis within a few years.
I’m not sure I agree. Yes, taking some condos off the market is a good thing, IF the goal is to maintain market values, the old law of supply and demand. But the same law holds true for the rental side of the equation – increasing supply, especially an abnormal, higher-than-market-driven-increase, will result in lower rents across the board. That’s good for tenants, at least in the short term, but not so good for landlords. If rents don’t cover costs, the first thing to go is maintenance, followed by lower standards for the tenants a landlord will accept. And without good maintenance and good tenants, you don’t have an attractive property.
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“Going rental” is NOT a revenue-neutral decision for a developer, it’s a way to salvage a project that’s too far along to stop. And no, if a project isn’t going to be profitable, you won’t “still get these buildings renovated and occupied” – they’ll just sit there as shells until the market turns around. Like the rest of the country, we’re facing a reduction in demand for real estate of all types. The difference, with bigger projects, is that it takes longer to get them started and it takes longer to get them stopped. Even when things do start to improve, it’ll probably take several years, unfortunately, for any new for-sale projects to be announced downtown.
…however, reality is often the perception of such, and with a downtown residential population demographically more skewed to the type that will actually WALK THE STREETS, and DRINK AT THE BARS, and visibly more present, this may just be a good thing for the downtown ‘neighborhood’.
I have to completely disagree with b as well. The phenomenon we have seen in the last several years is no blip out of the norm. It is only the beginning. I was reading an article the other day that talked about generations and demographics. It described how the combination of the baby Boomer generation becoming empty nesters w/ the first generation to be brought up in suburban hell coming of age (and ready to abandon the burbs where they grew up) is largely responsible for the Back to the City and Downtown Loft movements that have been occurring nation wide. It mentioned that the number of Boomers becoming empty nesters will continue to rise and peak in about 2015, and continue well past then. By the time the Boomers recede, people of our generation will start to replace them. Combine this with the facts that the percentages of non-traditional households, who tend to live in urban areas is also increasing, with the fact that peak oil is occurring as predicted, and urban living is not going to be flattening or declining in the near future. What we are seeing now is an adjustment to a real estate market that was increasing way beyond normal levels, not just Downtown, but everywhere. When the adjustment subsides, the market will go back to normal. When the 5 year Federal Historic Tax Credit holding period ends on the many buildings now going rental, look for some of them to go condo.
John W., I find your stereotype of loft owners as less likely than renters to be street walkers and/or bar regulars as personally offensive. ; )
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Margie
Huh?
Vanishing, like I said, we are at the beginning of the downslide. Perhaps in 3-5 years it will have leveled off and the start back on the upswing. However, it will take a similar resurgence in mid level markets for this to happen.
If recent (30 years) history has proven anything, it’s taught us that any shifts begin on the coasts and work towards the middle states. In this downtown resurgence case, it will be a combination of of coastal shifts and mid-market downtown scenarios.
Personally, I would look for a 10-20% reduction in downtown loft sales prices over the next 1-2 years and probably flattening after that. A much more important indicator of downtown will be retail. Especially Tuesday afternoon/evening retail on any given day.
Jim Z is entirely correct however with rents/maintenance. Downtown could quickly develop into a landslide if maintenance is substandard.
Good stuff. Besides, even if people would prefer that downtown be a neighborhood of home owners, there is still an opportunity for the rental units to be condo-ed out a few years down the line when the market improves (which for some of the higher end buildings that have been forced to switch from condo to rental, seem pretty likely).