It comes down to question what the tax payers will get for their money? Will they get a more efficient transportation system that better meets the public transportation need in the region, or will Metro squander their hard earned money? The state recently completed an audit of Metro focusing on its handling of the cross county extension. The Audit finds that metro mismanaged the recently completed cross county expansion and questions several additional compensations that were paid to staff members. You can read the full report in order to see what the state auditor found as well as Metro’s response to the findings. It is important to note that the report is critical of some of metro’s spending and the management of the cross county extension, but not Metro’s overall handling of the regions public transportation system.

I am willing to forgive a company for making a mistake, and clearly management of the cross county expansion was mistake. I believe partially because it was an extremely large project for Metro to take on with little experience. Also, they were allegedly pressured to use local companies when larger companies from out state, with more experience could have been used. The fact remains that demand for public transportation is up and Metro is losing a significant amount of funds unrelated to cost overruns and wasted spending. According to Metro’s website the reduced revenue includes:

• Federal subsidies, peaking at $22 million annually, were phased out by 1999.

• State of Missouri subsidies were reduced from $3.5 million in 2001 to $1.4 million today.

• Regional leaders elected to build the Shrewsbury I-44 MetroLink Branch with local funds to speed construction. Metro must commit $37 million annually in Prop M funds to pay back the bonds.

• St. Louis County reduced its appropriation to Metro by nearly $10 million to meet non-transit obligations in 2009.

• $10 million in federal startup funds for the Shrewsbury I-44 MetroLink Branch will expire in Fiscal Year 2010.

• Municipal TIF projects have diverted up to $8 million annually from 1/2 cent transportation fund

If we are going to be a progressive region, we simply need a strong transportation system. If we want to just stick with the old and continue to spend money on roads and reduce spending on public transportation, we are going to be left behind once again. This attitude of ignoring population trends, which suggest the future population increase will be in urban areas as urban sprawl is beginning to reverse, is akin to those who decided St. Louis should stick to reliance on the river and not paying to lay railroad tracks that would have linked us with New York. You may remember Chicago decided to try the new technology and lay the rail road tracks. St. Louis needs to begin to think progressively and fund public transportation, while making sure to keep pressure on Metro to perform.

The reason this is so important, is that many people claim that the suburbanization of America was a result of personal choice, and therefore unavoidable and “just the way it is.”  However, this is not true, the federal government clearly influenced this phenomenon, as explained in City Politics: Private Power and Public Policy by Dennis R. Judd and Todd Swanstrom were the data for this post comes from unless otherwise noted.  The housing market in the United States prior to 1934 was basically completely market driven, banks in essence loaned money to consumers and typically charged high down payments, often 30%-50%, and had short amortization terms, often 6-10 years.  FHA insurance insured loans given by banks that followed certain criteria and allowed consumers to use 20% down payment and amortize the loan over 25 or 30 years.  This program overwhelmingly benefited the suburbs, between 1935 and 1975 over 75% of the of the FHA insured mortgages insured new housing.  About 33% of all homes bought in the 1950’s were VA or FHA insured.  You may say, so just because people moved to suburbs with their loans, doesn’t mean there was anything malicious going on?  Well Examine this excerpt from the 1938 FHA underwriting manual:

“Areas surrounding a location are [to be] investigated to determine whether incompatible racial and social groups are present, for the purpose of making a prediction regarding the probability of the location being invaded by such groups.  If a neighborhood is to retain stability, it is necessary that properties shall continue to be occupied by the same social and racial classes.  A change in social or racial occupancy generally contributes to instability and a decline in values.”

Notice the word “invaded”, if certain incompatible groups move into a white area it is considered an invasion by the FHA.  Here are the definitions of invade from Websters Dictionary online:

1: to enter for conquest or plunder

2: to encroach upon : infringe

3 a: to spread over or into as if invading : permeate <doubts invade his mind> b: to affect injuriously and progressively <gangrene invades healthy tissue>

Is it really fair to say that when someone moves into a neighborhood, they are invading.  So far none of this really shocked me, what shocked me was the ranking of favorable races that was submitted by Homer Hoyt in 1933 when he was an FHA advisor advisor.  He later became the principal housing economist for the FHA from 1934-1940 which obviously includes the period when the 1938 underwriting manual was written.  In his report Hoyt said:

“While the ranking may be scientifically wrong from the standpoint of inherent racial characteristics, it registers an opinion or prejudice that is reflected in land values; it is the ranking of races and nationalities with respect to their beneficial effect upon land values; Those having the most favorable effect come first in the list and those exerting the most detrimental effect appear last:

1. English, Germans, Scotch, Irish, Scandinavians

2. North Italians

3. Bohemians or Czechoslovakians

4. Poles

5. Lithuanians

6. Greeks

7. Russian Jews of lower class

8. South Italians

9. Negroes

10. Mexicans”

Apparently, which part of Italy you come from matters, probably because those from the south have darker skin color.  I think the above information is substantial evidence that the federal government intentionally promoted segregation and provided “favorable” groups with much more favorable financing which allowed these people to greatly benefit from the greatest engine of wealth building for the average American, home equity.

This is a neighborhood that I am very familiar with and it is one of my favorites for many of the reasons mentioned in the article.  The homes are beautiful and the neighborhood becomes more vibrant each year as more people move in and businesses open.  One of the great features of this neighborhood is the diversity of the people.  There is a mix of income levels and races in the neighborhood, which gives it a good feel.  The article mentions that homes could be bought for $125,000, but this would most likely be an unlivable home.  Victorian homes that are livable cost $200,000 and above with a nicely restored home costing $300,000 and up.  This neighborhood is still rough in some parts, as there are some bad land lords who don’t screen their tenants well.  However, I think the Shaw neighborhood is well on its way to revival and I don’t see it turning for the worse.  The new Biotech corridor along Forest Park Parkway is nearby, and this neighborhood provides great housing stock for future employees of this corridor.  This is a neighborhood that I personally am interested in investing in, and there are some great investment opportunities here.

The longer a person spends commuting the less time they have to participate in family, civic obligations, and leisure. People used to move their home search further from the city center until they could afford the house they wished. Now people are beginning to more heavily consider time spent in the car and money spent on gas.  It appears there is statistical evidence that sprawl is slowing.  Americans are starting families later in life and the overall population is aging.  These two groups of people tend to enjoy urban living.  Is the 50+ year trend of sprawling development patterns over?

The Tower Grove South Neighborhood has two smaller neighborhoods within it, The Tower Grove Heights Neighborhood and the Grand Oak Hill Neighborhood. The Tower Grove Heights Neighborhood borders Grand Ave on the east, Tower Grove Park on the north, Utah Place on the south, and Gustine on the west. This is the most desirable area in Tower Grove South. Much of the housing stock is large, especially on Utah Place, which is a divided street with landscaping in the middle. In general as you move West and South in the neighborhood the housing stock becomes smaller and there are a higher number of multi-family housing.

One of the great features of Tower Grove South is the fact that there is a variety of housing stock. Near grand Ave and Tower Grove Park the houses are generally larger. As you move west from Grand and South from the park the housing gets smaller. In the days before cars rich people lived near the major streets and poorer people lived further away. After the advent of the car many of the rich and middle class people have moved further from the poor to the suburbs. Tower Grove South is well positioned to be a well integrated (economically) community because of the variety of housing.

There are two major business districts in Tower Grove South. The Grand South Grand Business District is on the Eastern border and contains a large variety of shops and restaurants. This area is being considered for a major renovation as part of the federal great streets initiative. The Morgan Ford Business District is growing quickly. In 2005 many of the buildings on Morganford, just south of Arsenal were boarded up. In the last few years roughly twelve new businesses have opened and the area is thriving.

I think Tower Grove South is one of the best neighborhoods to invest in because it is already stable, but still has room to grow. There are other neighborhoods that have a much bigger upside, but also have far greater risk.

After reading the report and looking closely at the metro numbers its clear that St. Louis has higher than national average vacancy rates for office, industrial, retail, and multi-family properties.  On the surface this would suggest that St. Louis is not a good place to invest in commercial properties at the present time.  However, money is made in real estate when a property is purchased.  High vacancy rates mean that owners are feeling a pinch currently, and investor activity has slowed.  This translates to a situation where supply is increasing, because owners are willing to sell while demand is decreasing, as investors wait to see what happens in the market and look for favorable financing.  This means there should be some good value purchases available for the savvy investor. 

If your reading this with a critical eye, as any good investor should be, you may be saying something like, “Howard, of course you can buy property cheaper when vacancies are up and buyers are limited, that’s because the two ways to generate cash flow in real estate, leasing and sales, are dried up.  How do you make money with the property?  The answer is that you need anticipate the market.  This is accomplished by gathering information about historical trends, current market, and indicators of future growth. 

Real Estate, like most markets, is cyclical, and we are in a down market.  Also, we are in an election year, where historically the economy has done better than average.  This would indicate that there is a possibility next year will be even worse than this year in the economy.  Also, the United States is currently at war.  Historically the US has been hit with inflation pressures in the years following a war.  There is a good chance that inflation pressures over the next few years as the US begins to withdraw from Irag coupled with high energy and food costs will force the fed to increase interest rates, which can translate to higher lending rates.

The sub-prime fallout in today’s market is helping push prices down for residential housing.  In an article  in the St. Louis Post Dispatch “Chris Krehmeyer president and chief executive of Beyond Housing, says he expects foreclosures to remain high until at least next year.”  That means that there will be some foreclosure bargains over the next year.  During the real estate boom, many home buyers who typically could not attain financing were able to borrow money to buy a home.  These types of borrowers will not be able to borrow money as lenders tighten lending guidelines.  This reduces the number of buyers in the market and decreases demand for housing purchases.   However, this increases demand for rental housing.  These buyers who historically have rented are going back to the rental market.  During the housing boom developers were building speculative housing and buying developable land for future development.  They built more housing than there was demand for, and now many of these neighborhoods are sitting empty.  However, housing construction has decreased substantially.  As these developers struggle to pay their loans and foreclsure rates increase, banks are being squeezed.  This will continue to put pressure on banks to tighten commercial lending criteria and increase fees.  Look for investment capital to continue to get more expensive and difficult to secure.

 I’ve outlined the major housing specific forces that are in play in St. Louis currently.  One non-housing specific force that is important to consider is the economic environment in the metropolitan area.  The outlook looks good for the St. Louis region. Site Selection Magazine ranked St. Louis #3 for overall economic health in the country.  They site the large number of corporate facility projects in 2007 and many slated for the next few years.   Overall, it seems like the current favorable interest rates combined with depressed housing prices makes it a great time to find good prices on real estate in St. Louis.  There is a good chance that rates will rise in the next couple of years.  The economic strength and job growth in the area, makes it likely that demand for commercial space will increase.  This will begin to push prices up and make a nice return for those who bought property at the current low prices and with favorable mortgage terms.

I’m happy to see that our elected officials in Missouri came together for a plan to build this bridge. The federal government has pledged $239 million dollars for the project, which would have expired if there was no agreed upon plan. The original plan was for a signature bridge, an architectural gem, that would have been a regional identifying landmark. The Golden Gate Bridge in San Francisco is an example of a signature bridge. While this type of bridge would have been ideal, it would have cost double the amount of this project.

It appears the current proposed bridge will effectively link Missouri and Illinois commuters and allow the Illinois side of the region to continue to grow. It is important for Illinois to be able to expand, in order to keep St. Louis CIty as the center of the region. If St. Louis is going to be a world-class city again, Downtown St. Louis will need to be strong. A strong Downtown has been linked to a strong overall region. St. Louis has expanded predominantly to the West, Wentzville is 42 miles from Downtown St. Louis. In Illinois Pocahontas is 42 miles east of St. Louis. If you’ve even heard of Pocahontas, IL you know there is a tremendous amount of developable land between St. Louis and Pocahontas. Clearly demand for land in Illiinois will continue to rise. It is essential that this area be linked to St. Louis, and this new bridge will help accomplish this.

Hopefully, when detailed plans are released they will show that this bridge is will also be linked to North St. Louis. Previous plans showed the bridge linking with Highway 70, with an exit at Cass Ave. The exit was planned to be landscaped and provide opportunity for businesses to form that could access the increased customer base the highway would provide. This would help develop that portion of North St. Louis.