Sowing Seeds for Growth With Value-Added Acquisitions in St. Louis

Joseph Hill from our Block Hawley office, located in St. Louis, weighs in on the investment outlook for the St. Louis area.

In 2011, private Real Estate Investment Trusts (REITS) and well capitalized private investors began sowing seeds for the future by acquiring investment grade industrial assets at as low as 50% of replacement cost. The wheels were set in motion back in 2009 when the public REITS started offering major rent concessions in order to boost portfolio occupancy for the sake of damage control on Wall Street. It was widely believed that these extremely low rates would be very short-term, but they remained low longer than expected.


Those hardest hit were the private investors whose pre-recession pro formas did not account for a 50% drop in Class A rental rates. Class B and C properties lost their niche as the low cost option, and several of these owners have been forced to sell. Some of the Class B tenants have chosen to upgrade faclities with better functionality and increased efficiencies at minimal additional cost. 

McDonnell Pointe - Two 57,000 sq. ft. 1st generation office /warehouse
buildings, acquired by Colony Realty Partners

While a quick turn-around is not expected in the near future, there is ample opportunity for landlords to increase rental rates without competition from new product. Investors who have recently purchased quality real estate at the new cost basis are looking at upside potential of 20% or more as marked fundamentals return. The market will continue to flush our distressed properties as notes mature and more equity is required to re-tenant vacancies. Because St. Louis is mostly off the radar for the larger public REITS, private investors who have the cash to carry vacancy and fund tenant improvements will continue to carry vacancy and fund tenant improvements will continue to build their portfolios in 2012. Also, finance-able users have a great opportunity to buy and lock in low interest rates.


In summary, the industrial market seems to have found a solid bottom over the last three years. Tenants should give some consideration to owning, if possible. Cash investors are taking advantage of the limited opportunities now. Rents will be going up over the next couple of years, offering easy update potential to investors and a hedge against inevitable inflation. The timing is right to invest in functional, low cost, low management industrial real estate.



Contributing Author:

Joseph Hill
Vice President
Block Real Estate Services
LinkedIn










Block Hawley, St. Louis
Block Real Estate Services, LLC