St. Louis—The closing of Chrysler’s Fenton plant and the acquisition of Anheuser-Busch by InBev led to mass layoffs in St. Louis. Despite a seemingly doom-and-gloom economy, however, the Gateway City’s apartment market has seen an improvement in occupancy rates over the last year.
The market is currently averaging a 92 percent occupancy rate, compared to 90 percent one year ago, according to Kenneth Aston, Jr., partner, Hendricks & Partners, St. Louis. Meanwhile, asking rents are flat, though concessions have been reduced.
Furthermore, because of the difficulty in developing any new-construction apartments in St. Louis proper, compounded with the large number of municipalities—each with its own zoning codes—throughout the county, there has been little to no deliveries in the past 25 years, Aston tells MHN. And, he adds, “construction costs are higher than the national average because St. Louis is still a pretty much a union town.”
On the transaction side, Aston notes that nearly every sale that has taken place has involved distressed property. “The C-quality assets that were acquired within the last few years, when pricing was high, are suffering—that’s where the bulk of the foreclosures have been,” he notes.
However, prices are down significantly even in the deals that don’t involve foreclosures. Aston points to one example of a Class A community, purchased five-and-a-half years ago for $37 million by a TIC (Tenancy in Common) that is now listed for $27 million. “That’s a huge haircut,” observes Aston. “It’s been priced appropriately to sell, and it’s hands down the top-rated apartment community in St. Louis.”
Despite a higher-than-average unemployment rate of 10.9 percent (as of March 2010, according to the U.S. Bureau of Labor Statistics), unemployment actually decreased month-over-month. But, “the state government is attempting to pass legislation that will devastate historic tax credit development” in a state that has “been the model program for nearly every other state with studies that have shown that the tax credit development program has been a huge stimulus in job creation,” reports Aston, which has left many wondering what the future has in store for the city.
But Aston does believe the city has hit bottom and is on its way to a recovery. “Our [market] is really cyclical. In some Southeast and Southwest markets, where you have heavy population growth, apartment developers always get ahead of demand, overbuild the market and it becomes saturated. In St. Louis, it never happens because it’s so hard to build, so you have a very steadily increasingly—not enormously—rent growth and absorption.”