St. Louis opens checkbook to keep employers downtown
ST. LOUIS — In its bid to keep jobs downtown, the city of St. Louis has been writing a lot of checks lately.
In the weakest real estate market in decades, with many strong employers mulling a move, the city has made an aggressive bid in the past year or two to keep them put.
City Hall has won more than it has lost, and downtown’s job base has stayed relatively stable in the recession, at about 88,000. But its approach has some observers warning that opening the checkbook too often could set a difficult precedent and produce more demands down the road.
Just in the past few months, the city has ponied up to try to keep three law firms and a coal company downtown:
— Peabody Energy’s lease in the Gateway One building on Seventh Street runs out in 2012. To keep it there, the city is offering its landlord $10 million in tax credits to help fund improvements.
— The city is kicking in one-third of the cost of a $29 million face-lift for the old One City Center building, which will help keep law firms Lewis Rice Fingers and Sandberg Phoenix and Von Gontard downtown. Each firm is also getting a forgivable loan if they stay five years.
— The Board of Aldermen recently approved earnings and property tax breaks for law firm Polsinelli Shughart to move into new space at 100 South Fourth Street and bring in 80 jobs from Clayton.
St. Louis officials say they are not thrilled about the incentives. But with 22 percent vacancy among high-quality space downtown, an aging stock of office buildings and tough competition from cities such as Clayton and Chesterfield, they say they have little choice.
"We’re competing against places that are offering incentives, too," said Barbara Geisman, the city’s deputy mayor for development. "We’ve got to do what we’ve got to do right now to keep downtown healthy."
But incentives can set a tricky precedent, said Bob Lewis, president at Development Strategies, an economic development consulting firm in St. Louis. If a company sees someone else get a break, he notes, it will seek one, too. Soon the breaks become standard fare.
"Once those kind of incentives are in place, they’re very hard to get rid of," Lewis said. "I wouldn’t blame any downtown employer looking at these deals and saying ‘What’s in it for me?’"
The tax money that funds the incentives could be better used on other things — such as neighborhood development or job generation, said Jeff Ordower, an activist with Missourians Organizing for Reform and Empowerment, a newly formed progressive group.
It’s not really City Hall’s fault, Ordower said. They need the jobs and hold few cards against companies that can play one city against another.
"Peabody says they’re thinking of moving, and the city responds with tax credits," he said. "It’s reactive. It’s not proactive planning. More than anything else the city’s not willing to say no."
The Peabody deal would be between the city’s development agency and the California investment group that owns the Gateway One building. In January, the St. Louis Development Corp. offered $10 million in federal tax credits for improvements if Peabody stays. Those credits would be sold to raise money, probably about $2 million, Geisman said, to help fund a $10 million renovation.
The deal isn’t closed yet.
Negotiations are ongoing, said Peabody spokeswoman Meg Gallagher. In an e-mail, she stressed that Peabody had been downtown for a half-century and was "committed to this region."
"At the same time, it is just good sense for us to evaluate opportunities for St. Louis office space with our lease nearing its end," Gallagher wrote.
Losing the headquarters of a Fortune 500 company such as Peabody would be a blow, Geisman said, and not just because of the jobs no teletrack payday loans. It could also hurt downtown’s image as a business center.
"We think it’s very important to downtown’s image that we keep a business like Peabody," Geisman said.
The city has lost headquarters before — to mergers. But losing one because it moves to Clayton would sting.
The city has fresh memories of that kind of sting.
Since 2007, Centene Corp. and law firms Armstrong Teasdale and Husch Blackwell Sanders have chosen Clayton over St. Louis, the latter two moving hundreds of employees out of downtown and Centene pulling out of the stalled Ballpark Village project in favor of building a new tower in Clayton.
But it has won its share of law firm fights, too.
The same week Armstrong Teasdale declared its move, Thompson Coburn, the region’s biggest firm, announced plans to stay downtown; it received $700,000 in loans and tax breaks, and the state agreed to build a garage next door. Polsinelli Shughart also backed out of Ballpark Village but chose to expand elsewhere downtown and move 80 staffers in from Clayton. This month, Polsinelli Shughart received a package of tax breaks to help pay for the $3.6 million expansion.
Meanwhile, Lewis Rice Fingersh and its 250 people were looking for space just as city officials were trying to find tenants for One City Center, an 85 percent empty office tower just off Washington Avenue.
In 2006, the city guaranteed $16.9 million in tax increment financing bonds for the building’s previous owner, Pyramid Construction, and when Pyramid went defunct, City Hall was stuck holding the bag. The 25-story building is now owned by one of Pyramid’s creditors, and a $29 million rehab is under way, funded with $12.5 million in loans and tax credits from the city.
"Getting that One City Center building healthy is a special case," Geisman said. "We need to get that thing filled up so it starts paying on that TIF loan."
Meanwhile, Lewis Rice was considering Clayton and other spots downtown, said Tom Erb, who headed its search committee. But with the renovations, the top six floors of One City Center looked like a good opportunity, and they reached a deal.
"We felt really good," Erb said. "We’re the anchor piece that sort of drove the project."
The project wouldn’t have happened without the rehab, Erb said. It also got a $300,000 loan that will be forgiven if Lewis Rice stays five years (a similar loan of $150,000 was made Thursday to the building’s other main tenant, law firm Sandberg Phoenix and Von Gontard, which is planning a $1.15 million rehab of its space). And with the weak demand for office space right now, the price was right.
"We’re just fortunate we hit the market when we did," Erb said. "(The recession) happened to coincide with our lease termination, and we took advantage of the opportunity that that presented."
Not every downtown business has received this kind of help.
Law firm Brown & Crouppen and architecture firm HOK recently renewed their leases at Metropolitan Square without incentives, Geisman said. Development company McCormack Baron Salazar is moving to a new space across downtown with no assistance.
But the downtown St. Louis office market still can’t walk on its own two feet without City Hall lending an occasional hand.
"You need a lot of demand relative to space," said Lewis of Development Strategies. "And we have a lot of space."
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