The Journal. - Many Cities Fear the ‘Doom Loop.’ St. Louis is in One.

Episode Date: April 16, 2024

Cities such as San Francisco and Chicago are trying to save their downtown office districts from spiraling into a doom loop. St. Louis is already trapped in one, with abandoned buildings, vacant offices and shuttered shops and restaurants. WSJ’s Konrad Putzier unpacks the lessons from downtown St. Louis’s doom loop. Further Reading: -The Real Estate Nightmare Unfolding in Downtown St. Louis  -Commercial Real-Estate Woes Run Deeper Than in Past Downturns  -Can San Francisco Save Itself From the Doom Loop?  Further Listening: -The Downfall of a Real Estate Empire  -What’s Keeping Zombie Malls Alive?  Learn more about your ad choices. Visit megaphone.fm/adchoices

In the last few years, there's been a lot of talk about how downtowns and big cities are hollowing out, how they're falling apart, and how they're at risk of something called the doom loop. Perceptions of a city spiraling into what headlines are calling a doom loop. The doom loop. Calling it a doom loop. Threatening cities beyond New York, Dallas, Chicago. Do you think Philadelphia is in one of these urban doom loops? Sue, I think that certainly is what we're inching towards.

Voters' concerns are crime, homelessness, and the so-called doom loop. The doom loop is this big buzzword right now when people talk about downtown office districts. That's our colleague Conrad Puzia. What people mean by doom loop is the self-reinforcing cycle where people stop going to the office, buildings become empty, and that causes all these ripple effects. And it's really something that every city is kind of afraid of right now. While many cities are worried

about falling into a doom loop, Conrad found a city that's actually in one, St. Louis. I think what makes St. Louis unique is that it's kind of far along in this doom loop already and way further along than some other cities. It started earlier there

and this is really what the future looks like for other cities if they can't stop this slide of companies moving and businesses closing, this self-reinforcing cycle. Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Tuesday, April 16th. Tuesday, April 16th. Coming up on the show, the cautionary tale of St. Louis'

doom loop. Attention all soccer fans! From Orlando to Los Angeles, take to the fields of the USA for your next vacation. Ready to kick off? Discover exciting games and events. Plus, find amazing hidden gems in cities full of adventures, delicious food, and diverse cultures. You'll love it so much you'll want to extend your stay beyond the matches.

Get the ball rolling on your soccer getaway. Head to visittheusa.com. St. Louis is one of Missouri's largest cities, with about 300,000 people. It's home to big landmarks like the Gateway Arch, the St. Louis Arch, the spectacular structure overlooking the famed Mississippi River, and the Cathedral Basilica of St. Louis. It's also where the St. Louis Cardinals play baseball. Welcome to Bush Stadium for opening day in St. Louis.

St. Louis is kind of a pleasant, vibrant, fun city. People like living there. But then you go downtown to the office district, and it's just this void. Inside the city's sprawling office district, there's a 15-block span that's a total ghost town. Conrad went there earlier this year. Now at the corner of Gates and Olive, walking north, is the chemical building, old post office to the left. And it's kind of jarring because a city of that size, you think it has a vibrant office district. And there's just none of that downtown.

So you have all this infrastructure, you have these giant office buildings that make you think, okay, this is downtown. This is where the crowds go in and out at 9 o'clock in the morning and 5 p.m. And then you walk around at 9 a.m. and there's barely anyone on the streets. There's barely anyone walking. There's a lot of empty, boarded-up storefronts. You can see here that doors and windows have been boarded up, sprayed over. And, you know, don't get me wrong, it's not completely empty. doors and windows have been boarded up, sprayed over.

And, you know, don't get me wrong, it's not completely empty. There are still tourists, there are some hotels, but it's just not much going on. Doesn't sound like a nice place to be. It's really hard to describe how depressing some stretches of downtown look. And it's not just that the streets are empty, it's that the storefronts are boarded up that they're sprayed over with graffiti that you walk around and you hear broken glass

crunch under your shoes if you pay attention you see these little bits of copper pipes that are left behind by scavengers who go into empty buildings and rip open the walls and pull out the copper pipes to sell them and it's just the kind of stuff who go into empty buildings and rip open the walls and pull out the copper pipes to sell them. And it's just the kind of stuff that you don't associate with the central business district of an overall pretty vibrant city. Businesses have been leaving St. Louis' downtown area for years. And some of them aren't going that far.

There's this rival office district called Clayton, which is just outside the city, which has basically been stealing office tenants from downtown St. Louis for decades. It has newer buildings, it's considered to be safer, and it's closer to where a lot of white-collar workers live in the suburbs. And so it's really drawn a lot of people away from downtown.

And this is really an issue that has hurt downtown St. Louis. Arrivals stealing office tenants is a big problem for St. Louis. Because for a long time, its downtown has been centered around mainly one thing. Offices. And really what a lot of those cities that are most at risk have in common is bad urban planning. They have these downtown office districts that are basically all kind of gloomy, big office towers and parking garages and some hotels, but really not much else. And this is kind of the product of this old thinking that people live in the suburbs and then they drive, they take their cars and they drive downtown to work.

And that's not what people seem to want these days. cars and they drive downtown to work. And that's not what people seem to want these days. They want vibrant districts where you can work and you live nearby. Maybe you can walk to work or bike to work. There's bars and restaurants and theaters and sports venues. And the cities that don't really offer this, they're having challenges. St. Louis' downtown doom loop really picked up speed about a decade ago when one of the biggest buildings in St. Louis closed. The Railway Exchange Building is kind of like the Empire State Building of St. Louis. It's not as tall, it's just 21 stories, but it's as important and it's arguably as famous in St. Louis. It's more than 100 years old, stunning architecture, beautiful facade,

and it used to be home to this giant department store that people would go to to shop and they'd go have lunch there at the restaurants. Everyone mentioned the French onion soup, which apparently was absolutely amazing. The building opened in 1913, and for many decades it was the heart of the city's business district. But in 2013, amid a wave of department store closures across the country, the one in the Railway Exchange building closed down. And after that, many other businesses inside the building closed down too. Soon, the whole place shut its doors. And that 21-story building has been sitting vacant for years.

See a lot of glass on the ground here. So the railway exchange all blown up, obviously. When I walked by the railway exchange building on a Sunday afternoon, they have now covered all the ground floor windows with steel plates. But sometimes people get in and then they open the door and I walked by and the door to this building was open. And it was kind of eerie. So I looked inside, and it was just completely dark.

There was like a faint smell of smoke. I don't know what it was. Some sort of smoke. There was a single flower plot on the ground with a sunflower sticking out of it. Wow. And that was it. It's a very scary-looking building now. When the Railway Exchange building closed, it took a lot of neighboring businesses that was it. It's a very scary-looking building now. When the Railway Exchange building closed,

it took a lot of neighboring businesses down with it. I think every commercial building downtown has its own little ecosystem. And a building as big as the Railway Exchange has a really big ecosystem around it. And what I mean by that is there's all these shops and restaurants and other venues in the streets around it that kind of depend on the people coming in and out of that building. Because think about it, there are thousands of people going in and out of this building all the time to work, to shop, to go to the restaurants. And they kind of provide the livelihood of sandwich shops and karaoke bars and delis across the street.

And once people don't go into that building anymore, these businesses around it don't have any customers anymore, and they're forced to shut down. And that's exactly what happened. The next domino to fall? The AT&T building, an office building three blocks away. It was vacated in 2017. It's 44 stories. It's the biggest office building in St. Louis. And that was really important because you now had the two biggest office buildings in the city of St. Louis,

who are really close together, both completely vacant, both completely boarded up. And that's a really big deal because if a building's mostly empty, if it's 50% empty, 70% empty, 90% empty, there's few people in there, but at least there's still a doorman. At least there's still security. At least there's still lights in the lobby. It feels less depressing. It doesn't feel as scary as a completely boarded up building. Once the building just becomes completely abandoned, it's a much bigger deal for the neighborhood around it, and it can really become an issue. And in St. Louis, you don't have just one building like that. You have two buildings,

and they're the two biggest office buildings in the city of St. Louis. They're two or three blocks away from each other, and they're both completely abandoned, boarded up, and have been for basically many, many years. After the railway exchange building and the AT&T tower closed, smaller dominoes began to fall too, like a Panera Bread. You'd think that a Panera sandwich shop closing is not a big deal, but it was a big deal to the attorneys at this law firm, Brown and Crouppen, which was just across the street. And it was also a place where people

from nearby streets would come to, to get lunch. And I talked to Andy Crouppen, who's a managing partner at this law firm. And he said, when that closed, all that activity just disappeared and became this void. Just like the railway exchange building is a giant void for downtown, this became its own little void on a much smaller scale for the area around it. The law firm near the former Panera left a few years ago, and now it has an office in a different part of the city. But why didn't any businesses just replace the ones that closed in the railway exchange building? Yeah, I think this gets us back to the general issues that downtown faces, right? So

if you have an empty building in the middle of Manhattan, it's probably going to get filled pretty quickly because there's all those tourists and office workers and you can make money there if you open a business. But if you suddenly have a giant building, more than a million square feet, completely empty in a city like St. Louis, it's more challenging because you're in a downtown that's already been losing businesses to the suburbs and to other cities. You're in a downtown that doesn't really have a lot of apartment residents that could kind of be customers for shops and restaurants in such a building. And that just makes it hard to fill a building of that size. And I imagine that the pandemic must have had a pretty big impact on this doom loop. Oh, yeah. Yeah.

The pandemic was a huge deal for downtown St. Louis, as it was for downtowns anywhere in the U.S. The issue in St. Louis was just it was already in bad shape when the pandemic started. And now on top of that, you have remote work. To give you a sense of just how far St. Louis's downtown has fallen, consider how much the AT&T Tower is now worth. The AT&T Tower, which again, giant building, more than a million square feet, 44 stories. It sold, I believe earlier this month, and it sold for $3.5 million, which is nuts. That's like the price of a two-bedroom apartment in the Upper West Side. I was going to say, that's not a lot of money for a skyscraper.

Yeah, $3.5 million. And back in 2006, it sold for more than $200 million. Wow. So those are really two numbers that show you what happened in the St. Louis office district in the last 20 years or so. And again, the reason why it's sold for so little is it's this giant empty building where it's very hard to figure out what to do with it. Coming up, why it's so hard to reverse a doom loop.

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This whole concert, it's a trap. Trap, directed by M. Night Shyamalan, only in theaters August 2nd. City officials and local business leaders know St. Louis' office district is in bad shape. And they're throwing a lot of ideas around to try to make things better. So St. Louis is trying to do two things really to drive the office district. One is to just get more people on the streets. And it's doing that by making the streets nicer. They're planning to invest in traffic barriers to slow down cars and landscaping and bike lanes, just to make it easier for people to walk and bike around, basically.

They're also offering monetary incentives for businesses to move downtown. If you're a restaurant or a shop, you want to move downtown, the St. Louis Development Corporation and Greater St. Louis, which is this business and civic group, they'll give you money to help pay for the build-out of your store for construction work. They'll give you money if you want to add outdoor seating to a restaurant. They'll give you money if you just want to open up a pop-up store. It's not a lot of money, but it'll help. In an op-ed published last week, the mayor and a local business leader wrote, quote, while there's much work to do, we are optimistic about the future of

St. Louis and the revitalization of downtown. One idea that gets talked about a lot in St. Louis and elsewhere is turning office buildings into apartments. But that's a lot harder than it sounds. Take, for instance, the Chemical Building, which is a couple blocks away from the Railway Exchange Building. The Chemical Building was sold three times since 2016 to investment firms, and each time, the buyer said it was going to turn it into apartments.

Each one of them failed, and nothing's happened. It's very eerie. There's this banner over the doorway that says, you know, beautiful residences starting at $170,000. And above it, the windows are boarded up or broken, and there's graffiti everywhere, and it's just, it's an abandoned building. Why haven't they been able to convert it though? Like three developers have looked at it. What's the problem? In general the challenge in St. Louis is it's expensive to convert buildings. It's a market that investors look at and say rents are low it doesn't really have a growing population so why why would I invest in real estate development here? These buildings often aren't easy to convert because they have these very big floors.

And often they have windows that don't open. There's all these issues that office buildings have that make it hard to turn into apartments. And that just doesn't mean it's impossible. That just makes it hard to convert these office buildings. Yeah, it sounds like a really tough problem to solve. Yeah, I think this is really one of the key lessons of what happened in the St. Louis office district. The longer this doom loop goes on,

the harder it gets to stop or reverse it. Because initially, if it's just one empty building, you can redevelop that, right? At relatively little expense. The more buildings become empty and the more retail around it dies down, the more depressing downtown becomes, the harder it becomes to get people to move there

and to convince investors that this is an area that you should spend money on. Is there any hope for St. Louis? I think there is. I think there is plenty of reason to hope. And a big reason to be optimistic, I think, is this other part of downtown that's not the office district, right? Because the office district isn't all of downtown. There's also this former industrial area that really went into the decline during the 1970s, 60s, 80s, when factories kind of started disappearing from cities.

1970s, 60s, 80s, when factories kind of started disappearing from cities, and then became revitalized over the past two decades, where a lot of old industrial buildings were converted to loft apartments, hotels have opened, there's bars, restaurants, there's a brewery, there's a big soccer stadium. And I think that the reason why this matters and why it gives me reason for optimism is it kind of proves that people want to be in downtown St. Louis if it's nice. So it's not an unfixable issue. It's not like people will never want to be in downtown St. Louis again. The question is just how do you recreate that success from these former industrial areas in the office district? So what does this story tell you about the problems facing downtowns across America? I think the cities that are most at risk are cities like St. Louis, Midwestern cities that have had shrinking populations, these slightly depressing office districts that are really just about office towers and parking garages where there isn't much else going on.

office districts that are really just about office towers and parking garages where there isn't much else going on. So it's sort of a window in the future for a bunch of cities. You can look at St. Louis, the office district there, and say, this is what might happen in my city if we don't stop the doom loop. And what St. Louis is finding is that because this downtown office district has been in decline for so long, it's now so much harder. It now requires so much more investment and so much more efforts to revitalize the districts. If the city had been serious about turning things around 10 years ago, it might have been a lot easier. That's all for today, Tuesday, April 16th. The Journal is a co-production of Spotify and The Wall Street Journal.

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