Midwest Real Estate News recently spoke with Brett Chetek, first vice president with the St. Louis office of CB Richard Ellis, about the state of the commercial real estate industry in St. Louis. Here’s what he had to say about this recovering market.
Midwest Real Estate News: What signs of recovery are you seeing in the St. Louis commercial real estate market? Brett Chetek: I’m seeing that quality properties have a lot of interest from regional, local and national investors. But there has to be an anchor like a grocery store or drug store for these properties. Those types of properties are doing well. There is a lot of demand from all types of investors for that kind of product.
MWREN: Not all projects, though, are viewed as favorably today by investors and lenders, right? Chetek: Unanchored properties, and those that don’t have national credit tenants, but instead have mom-and-pop type tenants, are still not receiving financing. You can’t get debt from institutions or banks for these kinds of properties. There is very little demand for those types of properties. But the properties anchored by grocery stores will always do well. The grocery stores bring traffic. That helps the inline tenants do well. The customers who shop at the grocery stores go to the other shops, too.
MWREN: What types of properties are selling well right now in the St. Louis area? Chetek: What is selling right now are class-A and Class-B-Plus properties. They have a lot of demand. This is especially true if it’s in a very good location and has a strong lineup of tenants with terms left on their leases. It helps, too, to have some sort of upside in the deal. There might be a little bit of vacancy. The rents might be low. Maybe there is space on the land to expand the shopping center or build a free-standing out-parcel. That’s what investors want to see: a nice property with credit tenancy and some upside in the deal. Those properties have a lot of demand in St. Louis. We are typically getting a minimum of seven or eight offers on our B-Plus, A-Minus listings.
MWREN: Has commercial activity increased much in the St. Louis area recently? Chetek: I would say that in the last year, the market has picked up considerably. When we might have had three or four offers on a property at the end of 2009, we are now having a minimum of eight offers today. The banks and the institutional lenders are back in the market and they want to make loans. Again, they want to do this on quality properties.
MWREN: What is causing this increase? Chetek: The economy is beginning to stabilize. These lenders see value in making a loan to an experienced sponsor. And even though the lenders are being somewhat picky, if there is a good property and there is an experienced sponsor who is the owner of the property, an owner that has a lot of experience, lenders see that as a good investment with little downside. However, the loans being made aren’t high-leverage. Lenders are requiring sponsors to put up a minimum of 30 percent equity cash. In 2006 and 2007, you could get an 80-percent loan plus a mezzanine piece, which would make the total loan-to-value close to 90 percent. And I would also say that these lenders, these banks and institutional lenders, are in the business to make loans. Their revenues have been down considerably in the last two years because they weren’t making loans. So now they’re back making loans again.
The LTV can’t be greater than 70 percent. You need a strong sponsor and a quality product. If you have those keys, interest rates are low. That is also what is fueling demand from investors. They can borrow money cheap. And they can get between five to 10 years fixed interest.
