STL Develops

I recently attended a meeting of the Urban Land Institute’s Young Leaders Group  in Grand Center.  If you don’t know Grand Center  by name, it is the area around The Fox Theater.  The two speakers were Ken Christian Director, Real Estate Development Grand Center, Inc and Steve Smith President at The Lawrence Group.  The discussion was a very interesting overview of what is happening in Grand Center, followed by a case study of Steve Smith’s entrepreneurial endeavours in the center. 

            The area is a center for the arts with  12,000 theatre seats within 4 blocks and 12 galleries and museums.  The physical beauty of the architecture and the location of the district make it interesting in terms of real estate investment.  Grand Center is located between downtown St. Louis and the Central West End.  The neighborhoods between Grand Center and Downtown as well as the area between Grand Center and the Central West End have been suffering from disinvestment for years.  I asked the presenters about Grand Center’s role in these areas and they indicated they felt the private market would invest in and rehabilitate these areas.  I feel they are correct, especially given that Saint Louis University is an anchor in the area, the coretex life sciences  district is adjecent, Washington University is near the Central West End, and people are moving back to the city.  Look for the area between the Central West End and Downtown to experience substantial development in the next decade.  The city government should be actively planning and setting zoning to ensure that existing residents are included in the coming redevelopment.  We’ll see.

St. Louis

I recently had a friend of my cousin’s move to St. Louis.  As I took him around town, helping him find his new home, we were talking about how he got here.  He mentioned that he had an opportunity to move to Minneapolis or St. Louis and chose the job here in St. Louis.  He said “Your cousin Lauren said that she would move to Minneapolis, but not St. Louis.”  This got me thinking, why would someone want to move to St. Louis?

The reasons that I hear most people say is, the cost of living is great, it’s a good place to raise a family, and its easy to get around.  These reasons are reasonable and make sense, although they are not the most exciting.  In response to why not move to St. Louis many point to the negatives of St. Louis such as, no airport hub, loss large company headquarters, high crime rates, and racism.  There is certainly some truth to these criticisms, although there is room to debate all of them. My opinion is, St. Louisans tend to view St. Louis through one of two extreme lenses. We are over critical or feel like St. Louis is great and can do no wrong. 

We need to work towards balance. I think we need to look at our short comings honestly and openly.  Then create a vision for the future and work towards this goal.  We need a succinct community vision to rally around.  No matter what your politics, we can all agree that Obama’s slogans of “Yes we Can” and “Change we can believe in” were extremely effective.  In St. Louis our last rallying slogan was “St. Louis is perfectly centered and remarkably connected.”  The slogan has some truth to it, but it is basically promoting where we are.  In order to really get people enthused about St. Louis, our slogan needs to have an element of vision, where we are going.  Young people in the community and those outside, like my cousin, can get excited about a place like St. Louis if they see it is going in a positive direction.  St. Louis does have a tremendous amount of positive momentum, with the bio-tech industry, great rivers greenway, historic rehabilitation, and we still are number 6 in the United States for fortune 500 company head quarters.  We just need to come up with an honest and visionary plan that the whole community can rally around.  What are our shortcomings? What would an ideal St. Louis look and feel like?

I want to start off by saying that I believe the United States is an amazing place to live.  After traveling to 10 different countries in Europe, North America, and the Middle East, I think the US is actually one of the least prejudice places I have been in the world.  However, we do have a history of institutionalized racism, and I think it is important to remind ourselves of this from time to time.  In fact, even after years of studying this, I’m still amazed at information I find.  Looking at our history is important to understand why our region looks the way it does and plan for a stronger future.  The implications of public policy decisions in the past affect all people in St. Louis.  Public Policies have particularly influenced housing decisions greatly, and were as much or more a reason for flight from cities as the racial motivations that many attribute to this phenomenon.  So I’ll explain briefly why I think government policy made moving to the suburbs financially appealing, and how this was racially motivated, but even non-racist people would have been induced to move.

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.

While we’ve all seen the doom and gloom news reports about the state of the real estate market , it is a fact that St. Louis is really better off than most metropolitan areas according to Forbes . While I can tell you as a real estate professional that this year has been slow, we are actually doing better than most cities. St. Louis developers have struggled as evidenced by the shut down of Taylor Morley and Pyramid Companies, as well as the public troubles of Saaman Realty. However, St. Louis has a reasonably low inventory of vacant new construction compared to cities in the West and South that have thousands of speculative neighborhoods sitting empty, especially in the city and near by suburbs. Downtown St. Louis has been overbuilt, but developers have responded. Properties originally planned to be condos or lofts are being developed as rental housing, like The Lawrence Groups Park Pacific development, or commercial space. Also, projects that were proposed have been cancelled or put on hold like Pyramids COs Leather Trades Build. If you buy a property today are you going to be able to sell it for a huge profit next year of the year after? Probably not. But I do think that St. Louis property values will begin to rise significantly sooner than most of the country. Right now prices are favorable and interest rates are low, so I think that there are definitely some great long term deals to be made.