CITY HIGHLIGHT, NOVEMBER 2007

ST. LOUIS CITY HIGHLIGHTS
Ted Martin, J. Patrick Reilly, Ted Greenberg and Jeff Kaiser

St. Louis Retail Market

The St. Louis retail sector is still the darling of the industry. The metropolitan area has experienced an average of 3 million to 5 million square feet of growth, which is impressive for a market of 3 million residents. Much of the new development is fueled by residential growth, which has slowed down of late due to the troubles in the financial market. Even with this slowdown in residential development, the retail sector is still going strong, and there continues to be aggressive investment activity.

Pace Properties is developing Manchester Highlands, a 521,000-square-foot center on Manchester Road and Highway 141 in Richmond Heights, Missouri, just west of St. Louis.

New retail developments are concentrated in the suburban areas that are currently experiencing the most growth, including the St. Charles/Wentzville submarket and Metro East, which encompasses Illinois bedroom communities such as Edwardsville, Belleville and O’Fallon. Many of these emerging residential and retail corridors have been opened up by infrastructure work, which has rendered the communities more suited for the construction of shopping centers. In Edwardsville, the 227,000-square-foot Dierbergs-Edwardsville Crossing is underway, and will be anchored by a Dierbergs supermarket. NAI Desco is working on Belleville Commons on Illinois Route 15 in Belleville. Located at the highway’s intersection with Frank Scott Parkway, the 410,000-square-foot development’s first phase is anchored by The Home Depot and Target, which opened in October. Additional tenants include PetsMart, OfficeMax and Famous Footwear.

St. Louis continues to expand westward, as well. For the next several years, as major construction occurs along the heavily traveled Interstate 64/Highway 40 corridor, many residents of the western suburbs will find themselves having difficulty making their way eastward into the city. This presents a prime opportunity for developers to bring new retail product into the western suburbs of St. Louis County.

Town and Country Crossing

Emerald Development is bringing Town and Country Crossing to Clayton Road and Highway 141 in Town and Country, Missouri. The 310,000-square-foot center is anchored by a Whole Foods Market and Target. Pace Properties has assembled a large parcel that was once occupied by a car dealership, and is developing Manchester Highlands, a 521,000-square-foot center on Manchester Road and Highway 141. The project broke ground in the fall, and is expected to open late next year. Signed tenants include, Wal-Mart Supercenter, Costco, Bed, Bath & Beyond and Best Buy.

Development of the 170,000-square-foot infill project Fountain Plaza is underway in Ellisville, Missouri, from Foundation Commercial.

At the intersection of Clayton and Clarkson roads in Ellisville, Missouri, Foundation Commercial is developing the 170,000-square-foot Fountain Plaza. The infill development will be anchored by Lifetime Fitness and Straub’s, a regional grocer. Along Interstate 64/Highway 40 at Hanley Road in Richmond Heights, Missouri, Michelson Commercial Realty & Development is developing Hadley Center, a 290,000-square-foot mixed-use center. The project will feature parcels for multi-tenant and/or junior box retailers; 110,000 square feet of shops and restaurants; a hotel; an office building; and a collection of single- and multifamily developments.

Michelson Commercial is bringing the 290,000-square-foot Hadley Center to the Highway 40 corridor in Richmond Heights, Missouri, just west of St. Louis.

The retail sector is still driving St. Louis’ commercial real estate market, and the suburban development boom is going strong. Expect continued activity in both the eastern and western suburbs, as well as increased infill development closer to the city proper.

— Ted Martin is a vice president and principal in the St. Louis office of Colliers Turley Martin Tucker.

Development in Full swing in and around St. Louis

The St. Louis metropolitan market is buzzing with retail development in virtually every submarket, especially in the growing bedroom communities east of the city in Illinois and in the western suburbs around the Highway 40 corridor. The surge in development is due in part to the continued rise in the suburban population, and a number of developers are making their presence felt in various submarkets.

Cissell Mueller Companies, a locally based development, brokerage and construction firm, is currently developing a variety of retail-oriented projects across the metro area. In St. Peters, Missouri, the company is building the 18-acre, $50 million Crescent Pointe at the Mills for developer Dmyterko & Wright Partners. The project will feature 80,000 square feet of retail space for lease, additional outlots for sale or built-to-suit, several restaurants, and the Splash Universe Hotel & Water Park. The waterpark will feature a 130-room hotel with a conference center, as well as a salon and day spa. The project is expected to be complete by summer or fall of next year.

Cissell Mueller is developing Greenmount Plaza, a 14,000-square-foot center located at Green Mount Road and Highway 161 in Belleville, Illinois

On the eastern edge of Belleville,  Illinois — one of the growing Metro East suburbs — THF Realty is developing the $90 million, 450,000-square-foot Green Mount Commons at Green Mount Road and Highway 161. The project will bring the first Wal-Mart Supercenter and Lowe’s Home Improvement Warehouse stores to the market. As developer, Cissell Mueller is bringing the $4 million, 14,000-square-foot Greenmount Plaza shopping center to a nearby site at the intersection of Highway 161 and Greenmount Road.

The Desco Group is working on another project in Belleville, the $90 million Belleville Crossing. The 125-acre project will bring the first Home Depot and Target to the growing market, and is expected to total 600,000 square feet when fully built out.

THF is following the rooftops and moving further from the city center with its retail developments, including Arnold Commons. The 325,800-square-foot center is located in Jefferson County, Missouri, just south of St. Louis, and is slated to open next spring with Lowe’s, Dierbergs and Office Depot on board. In Wentzville, Missouri, 40 miles south of the city, the company is doubling the size of its Wentzville Crossroads Marketplace shopping center. The center is expanding to 768,000 square feet, including the addition of the area’s first Target.

The Crescent in Clayton, Missouri.

In Clayton, Missouri, developers are working to establish the city as an alternative downtown location to St. Louis proper. The Crescent, a nine-story, 72-unit condominium project from Mark S. Mehlman Realty, will include ground-floor space for retail and restaurant tenants, and is expected to help redefine the Clayton market.

Development to the west of the city is not confined to Clayton, as Chesterfield continues to grow into a complete city. Sachs Properties, the company behind the original Chesterfield master-planned development 40 years ago, is now building Downtown Chesterfield. The pedestrian-oriented project is located within the 1,500-acre Chesterfield Village, around which Chesterfield was incorporated in 1989. Phase I of Downtown Chesterfield will include two Class A office buildings totaling approximately 250,000 square feet and four retail buildings featuring 26,000 square feet of pedestrian-oriented shops on a 20-acre site featuring two large lakes. The project was designed by HOK.

St. Louis proper is getting in on the fun as well, as there are significant changes underway within the city limits. Since 2000, more than $4 billion has been invested downtown, and more than 3,000 condos and lofts have been added. Just this year, more than 1,300 residential units have been added to the downtown market.

In September, Centene Corporation, a large office user with offices in suburban St. Louis, announced that it was relocating downtown. Centene, with its development partners, formed BW Development Group for the construction of a new $250 million corporate headquarters facility on two blocks at the corner of Broadway and Walnut streets within the Cordish Company’s Ballpark Village.

The first phase of Centene’s plan calls for the development of approximately 700,000 square feet of office space with street-level retail and 1,450 parking spaces. Phase II could include up to 550,000 square feet of additional construction. The move could bring as many as 1,200 jobs downtown over the next 3 to 5 years.

On the retail front, one of the nation’s biggest retail developers is investing in downtown St. Louis. Chicago-based General Growth Properties recently became the manager of the $400 million Mercantile Exchange development, a mixed-use development spanning six blocks downtown. Locally based developer Pyramid Companies is developing the project, in partnership with Spinnaker Real Estate Partners of South Norwalk, Connecticut. The development plan calls for 160,000 square feet of retail, 525,000 square feet of office, a 216-room hotel, 175 condos and 120 apartment units.

The project will be created through the redevelopment of a number of existing buildings, including the vacant Mercantile Library building; the former Dillard’s building; the 25-story St. Louis Centre and One City Centre, which will be renamed the Concord; and the Macy’s, formerly Railway Exchange building.

The first building to get underway for the Mercantile Exchange will be the Dillards building. The 580,000-square-foot property will be renamed the Laurel, and will house the hotel and apartments, as well as 74 condos. The Concord will house the project’s additional condo units.

The entire project is expected to take 5 years, but Pyramid is hoping to have residential units available by the end of 2008, with significant completions within 3 years.

Pyramid’s CEO John Steffan must have seen St. Louis’ rebirth coming, as the company has made it its business over the last few years to acquire and redevelop a number of prime downtown buildings.

Pyramid handled the $53 million renovation of the Paul Brown Lofts at Olive and Ninth streets; the $24 million Bankers Lofts at 1619 Washington Avenue; and the $24 million Lofts at 2020 Washington Avenue.

Big box retailers are also seeing the potential downtown. The Desco Group is developing Loughborough Commons along Interstate 55 at 952 Loughborough Avenue. The center is anchored by the city’s first Lowe’s and Schnuck’s, which will be bring the first new grocery store to the city in almost 2 decades. Additional tenants include OfficeMax, St. Louis Bread Co., Qdoba, Starbucks Coffee and Great Clips.

St. Louis Industrial Market

J. Patrick Reilly, Senior Director, Gateway Commercial

As the fourth quarter of 2007 unfolds, practitioners in the St. Louis industrial real estate community are scanning the horizon for an anticipated influx of distribution users. A phalanx of developers with significant land positions, along with many newly constructed speculative warehouses, stand ready to introduce prospective tenants to the positive facets that the St. Louis market offers their operations.

Those factors mirror many of the ideals recited by logistics executives and site selection consultants across the business spectrum — the availability of quality labor, proximity to population centers and quality transportation infrastructure. National and local developers have sought to capitalize on these factors in recent years, building and planning on a scale unprecedented in St. Louis.

Approximately 1.6 million square feet of industrial space has been delivered in the metro market year-to-date, with another 1 million square feet under construction. In 2006, 3.1 million square feet was brought to the market; compare this output to the region’s 5-year market average of 1.3 million square feet. The average building size for this new supply for 2006 and 2007 is 76 percent larger than the 5-year average. Measure these statistics against average annual net absorption of 950,000 square feet over the last 5 years, and it becomes clear that the supply stakes have been raised to compete with other major U.S. distribution hubs.

Duke Realty Corporation recently completed the development of Lindbergh Distribution Center, a 528,000-square-foot spec building in St. Louis County.

Some of the best known names in industrial development are betting on St. Louis in this competition, including Duke Realty Corporation, Trammell Crow Company, Panattoni, and First Industrial Realty Trust. Duke has begun development of its 500-acre Premier 370 business park in suburban St. Charles County, and recently completed Lindbergh Distribution Center, a 528,000-square-foot speculative building in St. Louis County. Trammell Crow’s Westway I and Westway III, speculative buildings of 479,220 and 579,204 square feet, respectively, are finished and open within the Gateway Commerce Center development in Madison County. Trammell Crow controls a total of 1,200 acres for development in that park. In Madison County, Panattoni has completed Lakeview Commerce Center II, a 540,000-square-foot building in Lakeview Commerce Center, where the company controls a total of 600 acres. First Industrial closed in August 2006 on 122 acres for a prospective industrial development at Howard Bend in Maryland Heights, Missouri.

Expanding the user base necessary to support this scale of development brings formidable challenges, as evidenced by negative net absorption of 550,000 square feet through the first three quarters of 2007. However, positive high-level indicators, such as a steady stream of inquiries by site selection consultants conducting multi-city comparison studies, and increased interest from national clients of large brokerage firms like Cushman & Wakefield and CB Richard Ellis, point toward increasing demand for St. Louis locations. As St. Louis stretches through its growing pains as a major distribution hub, it would seem appropriate for this historically fanatic baseball city to lift the mantra from the film, Field of Dreams; “If you build it, they will come.”

— J. Patrick Reilly is a senior director with St. Louis-based Gateway Commercial.

St. Louis Multifamily Market

At present new rental apartment development in St. Louis is minimal, the majority of new multifamily development is for condominiums. Apartment construction is still taking place in a few locations, primarily in the downtown area, with most activity driven by available historic and other tax credits. Buildings along Washington Avenue are still attractive and substantial ongoing construction is evident in the area. The latest large project announcement is from John Steffan of The Pyramid Companies. Steffan is one of the largest downtown housing developers and is undertaking the redevelopment of the old Dillard’s building as the first phase of the $400 million Mercantile Exchange development. The Bottle District and Ballpark Village are also emerging development districts that promise additional new condominium and rental unit construction.

One new substantial ground-up luxury apartment development is located at 3946 Lindell, just west of St. Louis University. Plano, Texas-based Hepfner, Smith Airhart and Day is developing the project, which is one of the few large, non-garden-style apartment developments to be unveiled in St. Louis in the past year. Looking to leverage the attractiveness of the Central West End, the adjacent Grand Entertainment District and nearby St. Louis University, this 200-unit project will likely have a significant impact on the submarket.

The Central West End continues to be a hot spot for condominium development. The Chase Park Plaza, a well-known landmark, is being converted to luxury units by developer Jim Smith. Smith indicates pre-sales have been strong and has already achieved sales prices in excess of $500 per square foot. The building offers amenities that cannot be matched anywhere else in the city, including movie theatres, several restaurants, a luxury hotel, a high-end grocery across the street, and beautiful views of Forest Park and the entire city.

Conrad Properties is developing 4545 Lindell, a $28 million, 34-unit condo tower in St. Louis’ Central West End .

Another new building completed recently in the Central West End is the OPUS Corporation’s Park East Tower, which encompasses 89 units and is essentially sold out.  On the heels of that project’s success, the developers are hard at work on adjacent residential developments. Not far away from Park East, Conrad Properties recently completed 4545 Lindell, a ground-up, $28 million building featuring 34 condo units ranging in price from $375 to $425 dollars per square foot. Sales have been slow so far, but the developer anticipates rising demand in step with the buildings recent completion. Just on the east end of the Cortex development corridor along Forest Park Avenue, the 128-unit Metro Lofts development is approximately 40 percent pre-sold or reserved. The project comes from local developers Bill and Brian Bruce.

Bruce Mills and his son Kirk are planning a new development on the corner of West Pine and Euclid. Mills has a number of ongoing condominium developments in the St. Louis area and is one of the largest multifamily developers in the region. The Mills’ current development, McKnight Crossing @ Tilles Park, is located off McKnight Road in Rock Hill and is one of the hottest selling products in the area. The units will sell in the $200,000 to $300,000 per-unit price point, which seems to be the hottest-selling price point for the St. Louis area.

Clayton continues to be the other hot spot for condominium construction, with prices reaching into the $350 to $450 per square foot range and spurring the construction of new units. Mark S. Mehlman Realty has found great success with The Crescent, with more than 60 percent of the units sold. Completion of the nine-story condominium project is anticipated for the middle of next year. Cornerstone Properties’ Forest Court Commons, which is located off of Wydown Boulevard in Clayton, is nearly sold out with 12 of the 14 units taken. The firm is also about to begin The Providence in Webster, an 18-unit luxury development in Webster Groves, a market that has not seen any new condominium construction in the last few years. The project began pre-sales at the end of October.

Overall, the condominium market remains strong, but many of the price points are seeing slowing sales, just as the single family markets are slowing. Well-priced units and premium locations continue to attract buyers.

— Ted Greenberg is a vice president in the St. Louis office of CB Richard Ellis.

St. Louis Office Market

The St. Louis office market consists of approximately 45 million square feet of office product, 13 million square feet of which is located in the downtown central business district and 7 million square feet of which is situated in the Clayton/mid-county submarket, with the balance located in the suburban submarkets. Overall vacancy at the end of the third quarter of the year stood at 14.4 percent, which is actually 0.47 percent higher than it was 1 year ago. Demand, while positive, has declined — total absorption has measured 454,052 square feet through the third quarter compared to the 811,896 square feet absorbed through the third quarter of 2006.

The overall average asking lease rate for the St. Louis metro area as of the third quarter is $18.98 full-service gross per square foot, almost a 1 percent improvement over the first quarter rate of $18.80 per square foot. The mid-county submarket has the highest average asking lease rate at $22.59 per square foot, while the downtown submarket displays the lowest average rental rate, $16.51 per square foot.

New office development continues to proceed with caution. Currently, there is only 271,600 square feet of new office space under construction in the market. However, large blocks of space — 25,000 square feet or greater — continue to be in limited supply in the most desirable submarkets, such as Clayton and West County. This lack of supply for large blocks will likely serve to catalyze future development.

Clayton has no less than three office projects in the conceptual stage. Tony Novelly’s recent purchase of the former U.S. Title Building on Forsyth allows for the opportunity of a third tower adjacent to his existing holdings. Koman Properties is marketing the northeast corner of Brentwood Boulevard and Forsyth for a new office tower, and Montgomery Bank has assembled an attractive parcel at the southeast corner of Forsyth and Central with plans for a major mixed-use tower.  Any one of these projects could proceed with the signing of a large tenant.

The West County submarket, and in particular the Interstate 64/Highway 40 corridor, still has desirable sites for office development. Lester Miller has plans to construct an office building on land that he acquired from Duke Realty Corporation on the south side of I-64’s Maryville exit. Duke has the ability to construct another office building next to the Savvis headquarters in Town and Country, Missouri, which the company recently sold for $27.7 million to Digital Realty Trust. And in Chesterfield, Sachs Properties has the land to construct multiple buildings as part of its master plan for the area. Once again, look for one or more of these projects to break ground upon the signing of a pre-lease tenant.

— Jeff Kaiser, vice president, and Don Weis, first vice president, work in the St. Louis office of CB Richard Ellis.


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