REGIONAL MARKETS: SOUTH CENTRAL
APARTMENT FINANCE TODAY • NOVEMBER/DECEMBER 2007
A Steady Course
Slowing construction and job growth should put
some wind in St. Louis’ sails.
By Dana Enfinger
The nation’s Midwestern
cities, including St. Louis,
are among the markets
showing the most momentum
in the multifamily
sector. Why? The singlefamily
sector here generally
didn’t get overbuilt to
the degree seen elsewhere.
“The shadow market competition
from single-family rentals, so common
in much of the nation, isn’t
showing up in the Midwest,” said
Greg Willett, vice president of
research and analysis for M/PF
YieldStar, a real estate research firm
based in Carrollton, Texas. And
developers working in the market
have a response for those who argue
that St. Louis hasn’t exactly witnessed
blazing job growth.
“[St. Louis’] economy isn’t fast
growing, but it hasn’t seen the
expansion pace cool to the degree
noted in most places.” said Willett.
Riverboat casino being built
The leisure and hospitality sector
is expanding rapidly here due to the
gaming industry. In South St. Louis,
apartment owners will likely get a
boost from the construction and
operation of Pinnacle’s new River
City Hotel and Casino. Two thousand
permanent positions are expected to
open up when the riverboat casino is
completed next year.
St. Louis is expected to receive
the attention of out-of-state
investors looking for favorable cap
rates. In the third quarter of 2007,
cap rates here were in the low 7 percent
range.
“St. Louis is not a land of
extremes,” said Sam Chandan, chief
economist with Reis, Inc., a New
York City-based real estate research
firm. “It’s a very stable market. The
apartment market has seen gains,
only muted, but they are gains.”
Demand is up,
construction down
Tightening conditions are expected
to improve St. Louis’ apartment
climate in 2008, reports real estate brokerage firm Marcus & Millichap.
Many homeowners with
adjustable-rate mortgages are facing
foreclosure and are expected to seek
rental housing. And even though
demand is increasing, developers
have been slow to add more units to
the market, setting the stage for
healthy rent increases.
Developers are expected to deliver
550 units in 2007, a modest
increase of 0.5 percent compared to
2006.
St. Louis experienced fairly strong
construction activity for the past five
years, noted Chandan, although that
was likely because of low land prices.
The largest project delivered so
far this year was the 266-unit
O’Fallon Lakes Apartments in the St.
Charles County submarket. That was
a $25 million affordable housing
development built by Gundaker
Commercial Group.
In 2007, rents are forecast to
increase at the highest rate in five
years. Asking rents are expected to
finish the year at $719, and effective
rents are forecast to reach $680 by
year-end. Those numbers would represent
annual gains of 2.7 percent
and 3.3 percent, respectively, according
to Marcus & Millichap.
Class A properties witnessed a 1.7
percent gain in asking rents in the
third quarter of 2007.
In the Class B and C sector, where
competition with the for-sale market
is minimal, apartment owners
recorded a 2.3 percent asking rent
gain in the third quarter of 2007.
More buyers are expected to target
Class B and C assets located around
the airport submarket in St. Louis,
where there are few housing options
for local workers.
“This isn’t a market that’s going to
make headlines,” said Chandan. “For
a lot of investors looking for a steady
market, that’s not a bad thing.”
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