MetroWire Media’s Mixed-Use Summit panel agreed that unique amenities and pre-planning remain key roles in the success of mixed-use developments in St. Louis.
Rebecca Randolph, senior director client development and marketing, Brinkmann Constructors, moderated the event, held on Nov. 30 at the brand-new Expo at Forest Park apartment complex on 311 DeBaliviere Ave in St. Louis, Mo.
Panelists included Matt Bukhshtaber, vice chair, CBRE, who sells Class A new and renovation projects and sees multifamily as “dynamic;” Matt Funk, VP of Preconstruction and Business Development, Brinkmann, who works with “everything multifamily;” Evan Barnett, senior vice president-brokerage, Pace Properties, whose focus is primarily retail; and Jeff Tegethoff, Tegethoff Development and operating partner, CRG, whose main focus is mixed-use and office.
The current big drivers in mixed-use projects around St. Louis, according to Bukhshtaber, are “where the jobs are located, home values and where people are going — a lot of developers are looking for (areas with) $100,000 and more in household income. People want to live, work and play here.”
St. Louis benefits from the area’s many educational and medical institutions, which Bukhshtaber said “are as recession-proof as it gets” and help create opportunities for mixed-use developments.
Funk noted that developers have to pencil in the fact that multi-use projects can be a little more expensive than single-use properties and drive up costs because so many elements can be involved in construction, installation and usage. Bukhshtaber agreed that “the math equation gets tight” when looking at the cost of a mixed-use project.
“We’re seeing more of these projects in suburban areas. People still want to live-work-play conveniently,” said Barnett.
Sometimes, a tongue-in-cheek approach is healthy: “The future success of a mixed-use project can be judged by how terrible an idea everyone else says it is," said Tegethoff.
Rents are already coming in for his first-ever built TOD in St. Louis City despite such attitudes. About half of those renters don’t have cars and chose the location because they can get to work on public transportation.
“We look at who’s going to live in our buildings,” he said. “The reality is you have to do something unique as an amenity, such as putting an apartment building next to a grocery store. We look at retail as an amenity for our residents. In a couple of Midwest markets, ‘live/work/play’ has been the wrong approach — it’s only live and play because the Midwest likes to drive.”
Funk has seen an increase in larger units with dens so residents can be flexible in an era of working at home, while Bukhshtaber is seeing more buildings with conference or meeting/socializing spaces. Tegethoff’s experience with the Wildhorse Village project has been that “we could triple our public space and still fill the building.”
Tegethoff mentioned that the term studio apartment is giving way to “eco-suites,” which are popular even though “our largest, most expensive units are renting first. The world has changed. People are living differently.”
When asked who is investing in multi-use projects, panelists expressed optimism.
“2021 was a record year for transactions: $17 billion, and 98 percent were from out of town,” said Bukhshtaber. “Investors with capital love the stability of our market. Our job force is so diversified that (any changes at) one company can’t hurt us.”
“We also have great developers that deliver very high-quality product in construction and design,” Tegethoff added. “Other markets don’t have the same quality of contractors.”
Bukshtaber noted that being in a union environment could mean higher labor costs — but also higher quality.
Trends to expect include “most mixed-use projects will include retail as an amenity above the rooftops,” Barnett predicted. “That isn’t a huge driver, but it is an important amenity to have.”
Funk noted that “the subcontractor market remains strained but is starting to recover, with a 15 percent year-over-year increase in construction costs in the past three years.” While there are still plenty of active projects, “we might start seeing pricing come down for projects that don’t start until mid-next year.”
Rising interest rates have begun to create “a lot of stress on development deals,” according to Bukhshtaber. Higher interest and cap rates create a triple whammy when costs haven’t started going down, he said.
Tegethoff said he expects to see “a lot of broken deals” and that it will be “harder and harder” to do new projects.
“I think liquidity of assets will change. Real estate is not supposed to be as liquid as it has been recently.”
Panelists agreed that the effect of including retail in mixed-use projects is unpredictable.
“The first thing to look at is amenities — a gym, convenience store and so forth,” Barnett said. “Then you can look outside the property. What uses are available, what needs to be done, such as a grocery store.”
“We try to create an experience before we even design a project,” Tegethoff said. “It’s critical to know what people want where. We’re very intentional.”
That level of foresight is very important, said Barnett. He has seen finished projects where the planned retail space sits empty because the developers didn’t plan ahead for how it would be filled.
Parking is a major consideration. “From a construction standpoint, parking is very expensive, and more uses means more parking that doesn’t generate revenue,” said Funk. “You have to get creative.”
Asked why St. Louis isn’t seeing as much office space as other places, panelists suggested that the existing density of central business districts (CBDs) is a factor.
“We just don’t need new office space in far-out areas,” Barnett said.
Development in Chesterfield will include building a new CBD that will be “a real litmus test,” said Tegethoff. His company owns about 1 percent of the landmass there and expects their projects to double the commercial value of the area.
Bukhshtaber warned that “if you put up too much mixed-use, it could complicate an exit. Buyers or funders might reject a deal if it has too much office. Retail can be done as separate pieces or single assets.”
Panelists agreed that the top mixed-use projects can be found in Chesterfield, Chouteau Landing, Downtown West, Midtown, the Olive/170 intersection, Kirkwood (which is seeing its first new development and construction in a long time), and the Fireside-Bayer campus.
“Chesterfield will be a whole new epicenter,” predicted Bukhshtaber.
Overall, “the fundamentals remain strong, with more than 1,600 new units a month putting St. Louis above the rest of the country. We’ve had double-figure rent growth for the past two years, quarter after quarter, and I expect that to continue.”
He’s also “very bullish on O’Fallon, Ill. — the pocket of investment there is deep,” although taxes in Illinois create “a big negative.”
In response to an audience question about affordable housing, Tegethoff noted that St. Louis is considered an affordable market and has not instituted requirements for affordable units in new projects the way that some other cities have done; however, the city is about to roll out a new program with incentives and tax abatements to systematize combination projects and address that concern.
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MetroWire Media would like to thank the generous event sponsors: Brinkmann Constructors, McConnell & Associates, Contegra Construction, Pace Properties, Kadean Construction and Greystone.