Private Buyers Seek Value-Add Plays in St. Louis

St. Louis--Healthy job growth and a lack of new construction have pushed vacancies down in St. Louis, according to Marcus & Millichap.

St. Louis—Healthy job growth and a lack of new construction have pushed vacancies down in St. Louis, according to Marcus & Millichap Real Estate Investment Services.

The St. Louis unemployment rate was 9.5 percent as of November 2010, up 0.2 percent from the month prior, according to the Bureau of Labor Statistics. However, St. Louis employers hired 9,200 workers during the first three quarters of 2010, following the loss of 41,600 jobs in 2009, according to the firm’s latest report.

Vacancies decreased 120 basis points last year to 8 percent, reports David N. Gaines, senior associate-National Multi Housing Group in Marcus & Millichap’s Chicago office. He predicts that vacancy will continue to improve this year by 130 bps.

Class A vacancies currently average 160 bps less than at the end of 2009, and as of the third quarter 2010, eight of the metro’s 10 submarkets had recorded increases in Class A occupancy. Meanwhile, Class B and C assets saw a 100 bp decrease in 2010, to 8.5 percent, Gaines tells MHN.

Just 50 units were added to the existing stock this past year, following the delivery of 270 units in 2009. Two developments, comprising 300 units, are slated for delivery in the second half of 2011, but the planning pipeline is comprised of 1,600 units, primarily in St. Louis City North and St. Louis City South.

Asking and effective rents grew by 1.1 percent. Class A asking rents saw a 2 percent increase during the first three quarters of 2010, while Class B and C products cut their asking rents by 0.3 percent, Gaines points out.

Apartments in the Maryland Heights/ Northwest County submarket continue to experience the highest concessions in the area, at an average of 37 days of free rent, as Class B and C assets have experienced vacancies in the 10 percent range, according to Marcus & Millichap’s report.

With fundamentals on the mend, sales velocity increased 26 percent from the third quarter of 2009 to the third quarter of 2010. Gaines adds, though, that median price fell 17 percent, to $47,500 per unit, mainly due to the volume of distressed sales. Stabilized assets are currently trading at mid-8 caps.

According to Gaines, private buyers will continue to seek smaller REO properties (fewer than 100 units) primarily near downtown. He adds that investors are focusing on the value-add play in the St. Louis City North and St. Louis City South submarkets.