Timothy Sansone Principal Sansone Group

There are two distinct trends currently present in the St. Louis multifamily market. First, there is a dominance of low-income housing tax credit programs, which have fueled the development of garden apartment communities in the suburban growth markets such as Ashwood in St. Charles county and Legends Terrace in southwest St. Louis county.

“Multifamily development in St. Louis is difficult because of significant barriers to entry,” says Timothy Sansone, a principal with St. Louis-based Sansone Group. According to Sansone, traditional development in growth-oriented markets has reached the outer geographic limits of where renters wish to live — while still taking advantage of the employment, governmental and cultural centers offered by the renter’s metropolitan areas.

New suburban projects contain all of the features of traditional garden-style, walk-up communities, but the amenity packages have evolved substantially to include garages or covered parking, high speed internet access, valet and concierge services, and gated entrances. Suburban developments continue to occur in the growth corridors of metropolitan St. Louis, which typically includes St. Charles and far western St. Louis counties and, more recently, includes the Metro East, where Green Mount Lakes Apartments and St. Clair Village were recently built.

Other projects in the suburban market are Boulder Springs and Boulders at Katy Trail, which represent well-located, closer-in alternatives. Mallards Landing, Enclave at Winghaven and Turnberry Place represent several of the newer communities in the western reaches of the suburbs in the O’Fallon (St. Charles County) submarket.

The second trend that is currently taking place in St. Louis is the emergence of loft and high-rise apartments in reclaimed and redeveloped downtown buildings. These projects target singles, empty nesters and couples who desire to live in an urban setting, and whose living decisions are motivated by proximity to work, nightlife, or the desire to be involved in an urban renaissance.

In the downtown market, Lafayette Square and Washington Avenue represent the most dynamic areas of redevelopment at this time. These areas have a concentration of buildings ripe for redevelopment, and close proximity to other services and gathering places.

Developments in these areas include M Lofts, Lofts at Lafayette Square, Wireworks Lofts, TerraCotta Lofts, Rudman on the Park and the Merchandise Mart Apartments. If successful, these developments will help provide the impetus needed for the continued rebirth of the downtown area and, more specifically, the Washington Avenue district.

Rental ranges in the St. Louis metropolitan area are diverse, depending upon the submarket, and the age and average unit sizes of the product. For example, new suburban garden apartment communities may command average rental rates of $1.20 per square foot, consistent with their locations, amenity packages and overall quality. Larger downtown loft units may only command 75 cents per square foot, but the range may grow to $1.30 or more for the smaller units. This is because once you get past the infrastructure improvements, the cost to redevelop a smaller unit is very similar to a larger unit due to the extra space primarily being open floor area. More mature suburban communities will typically not average as much as $1 per square foot, and many of the older Class B and Class C properties may not exceed 75 cents per square foot.

Vacancy rates escalated during 2002 as many renters took advantage of the friendly interest rate environment and purchased homes. “We look for that trend to continue through 2003, but we also expect it to level out,” Sansone says. When normalized, vacancy rates may be in the 5 percent range, assuming equilibrium between supply and demand. “We see vacancy rates edging closer to the 7 percent range on average before leveling out and eventually returning to more normalized levels when interest rates increase,” Sansone says.

The Metro East is the market to watch for accelerated growth in the near future. This is due to several factors such as the market’s proximity to downtown St. Louis, Clayton, and the planned commercial development areas near St. Louis International Airport. The market also has fewer impediments to development as compared to St. Louis County, lower land costs, strengthening demographics and well-located available sites. “If there is a resurgence of commercial activity in the downtown area, Metro East residential communities will be positioned well to attract renters,” Sansone says.

The growth in the St. Louis multifamily market during the past year deserves mixed reviews. While there has been new construction, several of the new developments introduced to the market during the past year are suffering a slower-than-expected lease-up process. This may be attributed, in part, to the overall malaise in the multifamily sector today — as vacancy rates have crept up to levels not seen in recent years.

The multifamily market can only continue to grow in step with the region’s growth. “Otherwise, new development eventually becomes a zero sum game, and it cannot sustain itself,” Sansone says. “Without population growth, the new multifamily market will stagnate and eventually implode, because virtually all of the newer properties target upper-income renters. Multifamily communities serving that target market will be unable to grow rents, and asset value will stagnate or decrease.”

 

ST. LOUIS MULTIFAMILY MARKET THRIVES ON STABILITY Peter Krombach President Grubb & Ellis | Krombach Partners The St. Louis multifamily market is known for its consistency in both demand and stability. Historically, the area has never seen a significant drop in rental rates, and there have only been a handful of times when occupancies have dipped to less than 85 percent. A combination of rising rental rates and strong occupancy has created an environment where values have steadily increased for many years. This is primarily due to overall apartment construction lagging behind demand. Although there are no shortages of developers who would like to build apartments in the area, there are many barriers to entry — primarily zoning restrictions — that deter new construction and keep the market tight. Some of the trends in the market include increasing infill, condominium and loft apartment developments. By pursuing infill sites, developers can bypass some of the guesswork associated with new construction. Market elements such as nearby restaurants, retail, schools, housing and quality-of-life factors are already established. One of the larger infill developments currently under construction is Station Plaza in Kirkwood. This mixed-use development will have 206 multifamily units accompanying 24,000 square feet of retail space and 53,000 square feet of office space. Also, Conrad Properties recently started construction on the $32 million Metro Lofts. This 213-unit development will be the first major apartment project to be built in the Central West End in more than 15 years. Condominium developments also continue to be a successful niche in St. Louis, offering amenities and features directed toward a mature and upper-income market. The Hi-Pointe Lofts project was recently completed in Richmond Heights and has just six units remaining. The 72-unit Edison Brothers luxury hotel and condominium development has only 10 units remaining. Loft developments in downtown’s Washington Avenue district continue to do well. These units are targeted toward a younger and active market, looking for more affordable, modern units that are convenient to major highways and employment opportunities.

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