Development subsidy requests up in Clayton

From St. Louis Business Journal. Friday, February 01,2008
By Lisa R. Brown

For years, the city of Clayton has enjoyed a seemingly endless flow of commercial development without the use of public subsidies as incentives.

Those days are now over. With several hundred million dollars of commercial development on the table in Clayton's central business district, the city's development dynamics have changed dramatically. Clayton is facing stiffer competition for development investment from nearby municipalities, including the city of St. Louis, and other states.

Clayton approved tax abatement for Centene Corp's planned new headquarters in 2006. Centene ultimately changed course and, after a nationwide search, now plans to build a $250 million headquarters complex in downtown St. Louis.

Following Centene's decision, Clayton gave preliminary approval for $21.1 million in tax increment financing (TIF) in December 2007 for Mark S. Mehlman Realty's $128 million mixed-use Carondelet Village development. Clayton's Board of Aldermen also approved $2.9 million in costs to be covered by the creation of a Transportation Development District or Community Improvement District. The city is currently negotiating a redevelopment agreement with Mehlman to finalize the public-private partnership.

Pending approval by the city, the project will include 110,00 square feet of retail space, 110,000 square feet of office space, a 150-room boutique hotel, a movie theater and a 663-space parking garage. The proposed Carondelet Village, to be located south of Forsyth and immediately east of Mark S. Mehlman's Crescent condominium development, would comprise about 10 percent of Clayton's entire retail offerings.

"Things have definitely changed," said Clayton Mayor Linda Goldstein. Goldstein was elected in 2007, after serving as an alderman for eight years. "It's changed for all of the municipalities. The competitive environment has increased the use of economic incentives."

Goldstein said she believes Clayton still has an edge over other cities in attracting commercial development, given its vibrant business environment, infrastructure and restaurants. Clayton has the lowest Class A office vacancy rate in the area -- 6.5 percent -- and healthy rental rates, ranging from $24.50 to $31 per square foot, also top in the region, according to Colliers Turley Martin Tucker. Clayton's central business district has about 7 million square feet of office space and about 1 million square feet of retail space.

"We have all of this going for us, but we can't sit on our laurels and expect that to continue," Goldstein said. "It's not a static environment. We have to respond to changing times."

Goldstein views Mehlman's Carondelet Village project as a linchpin for commercial development on the east side of Clayton's central business district. "We didn't do it lightly," she said of approving TIF for the project. "It's a case-by-case consideration for subsidies. Carondelet Village brings much needed retail into our community. It will also jump-start development on the east side of town."

Another consideration for the use of subsidies is growing Clayton's economic base, Goldstein said. Much of Clayton's recent growth has been organic -- companies already located there adding employees or office space. Attracting a regional or national headquarters for a company not already in Clayton is on the city's radar, Goldstein said.

St. Louis County is helping develop incentive packages for Clayton businesses. County Executive Charlie Dooley, St. Louis County Economic Council President Denny Coleman and Goldstein have met with DHR International CEO David Hoffmann to discuss the future of DHR's growth in Clayton and are working on incentives for the executive search firm, which may include tax abatement. DHR is moving its headquarters to Clayton from Chicago.

Clayton officials won't divulge what incentives they're offering one of the region's largest companies, Brown Shoe, to stay. Brown Shoe Co. has hired St. Louis-based Clayco, architectural firm HOK and U.S. Equities Realty of Chicago to lead the development of a new headquarters facility. Brown Shoe is looking at sites in Madison, Wis., and Dallas. The company also is considering expanding in Clayton or moving elsewhere within the St. Louis area.

Brown Shoe bought two adjacent office buildings -- at 8400 Maryland Ave. and 8500 Maryland Ave. -- and adjoining surface parking lots from Sara Lee Corp. in January 2007 for $11.5 million. The properties are next door to Brown's 223,574-square-foot headquarters building. An estimated development cost or timeline for the project have not yet been made available by Brown Shoe.

"It's much more of a national competition now," Goldstein said. "We saw it with Centene and we're seeing it with Brown."

Development boom

Two new projects are in the works in Clayton -- by Apex Oil Co. and Koman Properties -- bringing the total development investment in play in the city's central business district to several hundred million dollars.

Apex Oil, headquartered at 8235 Forsyth Blvd., is talking to Clayton city officials about expanding on property it owns adjacent to its headquarters, but has not formally submitted any development plans. Koman Properties, led by President Jim Koman, has proposed a 300,000-square-foot, $120 million mixed-use building at 8027 Forsyth Blvd., where its headquarters is located.

Those two projects join several other proposed commercial projects in Clayton's central business district with a development cost that tops $100 million each.

The development arm of Sikeston, Mo.-based Montgomery Bank owns several buildings at the southeast corner of Central Avenue and Forsyth Boulevard, where it plans to build a high-rise, mixed-use tower. Joel Montgomery, one of Montgomery Bank's principals, said the company is still developing its plans for the project, estimated to cost $100 million.

"My hope is that we can at least make some progress with our planning (this year)," Montgomery said. "I doubt we'd be in a position to start development until next year or possibly the year after."

RJ York Development's $110 million Central/Maryland Hotel project at 25-45 N. Central Ave. is scheduled to break ground in 2008. The project's plans include a hotel with between 200 and 240 rooms, 40 condos, and nearly 40,000 square feet of retail space. RJ York bought a building at 25 N. Central in July 2007 for $7.35 million and one at 111 N. Central in August 2007 for $1.2 million.

Another project promising to bring new residential units to Clayton is Orchard Development Group's $150 million Trianon high-rise condo development, planned for the intersection of Forsyth Boulevard and Carondelet Avenue, at 50 Carondelet Plaza. Construction is set to begin this year, with some changes to the residential portion of the project, which originally was slated to have 300 units. The condos are priced between $300,000 for a one-bedroom unit to $1 million for a three-bedroom unit. Orchard Development plans to adjust the mix of residential units to include apartments. "We are fine-tuning it," said Jay Case, president of Chicago-based Orchard Development, although he declined to elaborate. Orchard has not yet presented modifications to the project to Clayton city officials.

Conrad Properties has two new commercial projects under way in downtown Clayton totaling $76 million in development. The development firm, led by Craig Saur has begun work on the $16 million renovaton of the Daniele Hotel at 216 North Meramec Ave. Pending approval from the city of Clayton, Conrad Properties plans to add a floor to the four story building, resulting in a total of 120 hotel rooms.

Saur said the redevelopment of the Daniele will complement another project Conrad Properties is pursuing, a $60 million office building at the northwest corner of Pershing Avenue and Meramac, across the street from the Daniele. Conrad Properties is buying four property parcels at the site and plans to raze the buildings. Conrad Properties has proposed building a new 10-story apartment tower with 125 high-end units, with monthly rents ranging between $1,600 and $3,500. Adjacent to the apartment building, Conrad Properties plans to build a four-story office building with 80,000 square feet of space. Rents in the office building will be in the mid $20 per square foot range, triple net, Saur said. A target groundbreaking date is set for Fall 2008, with a 18-month construction schedule. Upon completion in 2009, Conrad Properties will move its offices from 165 N. Meramec to the new building.