HOW ST. LOUIS TURNED LESS INTO MORE Never mind an exodus of population and jobs unmatched among large U.S. cities. Thanks to daring business leaders -- and to tax breaks and a stable economy in the suburbs -- downtown is vibrant once again.
By Edmund Faltermayer RESEARCH ASSOCIATE Rosalind Klein Berlin

(FORTUNE Magazine) – FOR A CITY that not long ago seemed to be sliding irreversibly, with a population down to half its 1950s peak, St. Louis suddenly looks like a place with a future. Thanks to successful business initiatives both big and small and copious government aid, new commercial megaprojects are rising and the piecemeal rebuilding of deserted neighborhoods is well under way. In a town whose mood long bordered on desperation, unaccustomed excitement prevails. A stream of good tidings seems to prove that a city can be kept going despite a huge loss of residents: Amid great hoopla -- appearances by Bob Hope and child actor Ricky Schroder and thousands of balloons -- the glittering $150-million St. Louis Centre opened in August after 16 years of gestation. It is the largest enclosed downtown shopping mall in the U.S., with 1.4 million square feet. Proving that the city can take on more than one major new attraction at a time, people have thronged another that opened several weeks after St. Louis Centre. At Union Station, a 17-acre terminal and shed where trains used to come and go, Rouse Co., creator of malls and of its headquarters city of Columbia, Maryland, has brought forth a shopping and eating extravaganza next to a new 550-room Omni hotel. Most Union Station visitors are suburbanites and tourists who hitherto ventured into St. Louis only for ball games. In the resurgent downtown, $1 billion of new office buildings and other projects were recently completed or are under construction. Just as important is the stabilization and gentrification of a host of residential areas. Some 12,000 dwelling units -- 6% of St. Louis's housing stock -- have been built or extensively rehabilitated since 1975. Most are within a short ride or walk of the famous 630-foot arch that dominates the city's Mississippi River waterfront. Meanwhile, on many streets where blight no longer threatens, houses fetch four times the panic prices of a decade ago, and more. The surest sign that St. Louis may be making it: out-of-town investment money has been moving in. The manager and 50% owner of St. Louis Centre is Melvin Simon & Associates of Indianapolis, the country's second-largest operator of shopping malls. Union Station, though operated by Rouse Co. and Omni International Hotels, a division of Aer Lingus, belongs to a syndicate headed by Oppenheimer Properties, a subsidiary of a New York investment banking firm. New York's Metropolitan Life Insurance Co. is the latest outside investor to take the plunge in downtown St. Louis. In late November it was preparing to break ground on a $100-million, 42-floor office tower that will be the city's tallest. Boston-based developer Cabot Cabot & Forbes, an early believer in St. Louis, finished a speculative, 360,000-square-foot office building in 1982 and is completing one 14% bigger. Jack Reis, a Cabot vice president, isn't concerned about downtown's 12% office vacancy rate. It's below the 16% national average, he notes, and demand for new office space is growing nicely. Says Reis: ''St. Louis is on a real roll.'' What stopped St. Louis's slide? It helps that the economy of the metropolitan area is relatively sound by Midwest standards; the region's population has held steady for some time at 2.4 million, and the recent 7.4% unemployment rate was lower than in metropolitan Chicago and Cleveland. More aggressively than most cities, St. Louis has exploited a panoply of tax breaks and other incentive programs. The most important is the federal government's 25% investment tax credit for rehabilitating historic buildings, which has sparked $436 million of local renovation since it became available with the 1981 tax act. St. Louis has also made heavy use of Urban Development Action grants, dispensed by the U.S. Department of Housing and Urban Development as seed money for revitalization projects. The Reagan Administration's proposals to eliminate the tax credit and pare back grant programs, if adopted by Congress, could slow St. Louis's rebound. People -- politicians, corporate leaders, and entrepreneurs -- have willed St. Louis's comeback. The climate for brick-and-mortar investment has improved exponentially under Vincent C. Schoemehl Jr., 39, the city's able Democratic mayor, who in the spring was elected to a second four-year term with 83% of the vote. Schoemehl is white, but enjoys strong support among blacks, who make up nearly half the city's population. Even in the years when the outlook seemed darkest, a handful of businessmen worked toward a revival with many dimensions. Without their interest, St. Louis might have garnered little more than a bit of construction in the central business district. The result would have been a bore: a city surviving solely as a waterfront office park ringed by grass and freeways. Instead, there is plenty to see and do near downtown's new office towers and hotels. St. Louis is becoming a city to which you might want to take along a spouse on a business trip. This outcome is amazing for a city that has been losing ground for generations. After World War II most of St. Louis's manufacturing industries -- including streetcars, apparel, shoes, and all breweries but Anheuser- Busch's -- shut down or moved away. With the oldest housing in the Midwest, a high crime rate, and substandard schools, St. Louis was forsaken by a larger proportion of its residents than any other major U.S. city. As the population plunged to the recent level of 425,000 -- which may not be the nadir even though the decline has slowed considerably -- the cancer of abandonment spread. Rubble-strewn vacant lots and boarded-up stores began to appear even within sight of well-maintained, turn-of-the-century mansions. St. Louis's fiscal plight was widely perceived as hopeless. To its regret, the city had long ago seceded from the rest of St. Louis County. As the city's social problems and costs mounted, it had no way to tap the fast-rising suburban tax base. The county border became a political and psychological Maginot line, and company after company, turning its back on the city's woes, moved to gleaming new offices that sprouted in the county seat of Clayton and beyond. A 1973 Rand Corp. study saw little future for St. Louis except as ''a large suburb among many other suburbs,'' dependent for survival on new sources of revenue from beyond its borders -- meaning, the suburbs, the state, or Washington. But the lights didn't all go out. Even during the grimmest years the city hung on to its cultural crown jewels -- including a symphony orchestra that has become one of the country's best -- and most of its nonmanufacturing jobs. Two huge university medical centers decided against leaving. Ralston Purina, Southwestern Bell, May Department Stores, Pet Inc. (now part of IC Industries), Anheuser-Busch, and others kept their home offices in the city. Downtown employment never fell below 100,000, twice the number today in Clayton, where a boom continues. No big law or accounting firm defected, nor did the head offices of banks, one of whose chiefs was to play a pivotal role in the city's rebirth. To some degree Missouri laws required Mercantile Bancorp., one of the state's largest financial companies, to remain. Banks were allowed to operate only two branches at that time, and moving the downtown branch would have required leaping a lot of regulatory hurdles. But Mercantile Chairman Donald E. Lasater, 60, says his bank could easily have transferred backoffice and holding-company activities to the suburbs, along with two-thirds of its employees. Instead Lasater, who was born and raised in the city, made a decision he concedes was ''30% emotional.'' Says he: ''You can't have a major urban area without a downtown.'' Not only did Mercantile stay, but in 1969 -- when stores were folding almost daily -- it started studying a six-block redevelopment project including a shopping mall and new headquarters for the bank. The 36-story headquarters building was completed in 1975, and local business leaders, Lasater recalls, ''said I was nuts.'' The shopping mall, partly built on land acquired by Mercantile and sold to developers at cost, took years longer because of legal and other complexities. St. Louis Centre began to take shape only after May Department Stores, originally in charge of the project, invited in Melvin Simon & Associates as general partner in 1980. May remains a limited partner with half the equity. Herbert Simon, president of Melvin Simon, says the firm became interested in building St. Louis Centre after he visited the city on a tour four years ago and saw that the regional economy was strong despite the city's loser image. Nevertheless, he says, the project was risky and special inducements were necessary. One of the most important, he says, was an $18-million federal Urban Development Action grant. Another was a ten-year abatement by the city government of property tax increases on all new construction at the site, plus % a 15-year partial abatement thereafter. At St. Louis Centre, the Baltimore architectural firm of RTKL Associates has created an eye-popping four-story arcade linking two existing department stores. The designers strove to create an atmosphere that is urban rather than suburban; instead of blank outside walls, the center has lots of windows offering shoppers glimpses of downtown streets. Another corporate chief who saw the city's possibilities when few others did was William E. Maritz. His private, $600-million-a-year company, Maritz Inc., which has grown rapidly by marketing sales and productivity motivation programs to industry, is based in suburban Fenton. In the mid-1970s Maritz, 57, formed a corporation to redevelop Laclede's Landing, a collection of 19th- century warehouses on the site where Frenchman Pierre Laclede stepped ashore to found the city in 1764. The area has blossomed into an aggregation of offices, restaurants, discos, and shops with the ambiance of San Francisco's Ghirardelli Square and some riverboats thrown in. Some buildings were restored with the help of fast tax write-offs or the 25% federal tax credit for rehabilitating historic structures, and the city helped with property tax abatements. Competition from St. Louis's latest attractions hasn't hurt Laclede's Landing, says Maritz, who hopes a luxury hotel will be built at the site. ''I love it down there,'' he confides. ''You can walk on those cobblestones and smell that muddy, moist Mississippi River.'' JAMES LEVI, 46, president of Oppenheimer Properties, has also played a crucial role in nudging the city back to vibrancy. But for a 1979 snowstorm that grounded planes, he might never have explored St. Louis -- nor taken a look at then abandoned Union Station. The huge 1894 terminal, with a facade like a medieval French castle, was in terrible shape, Levi recalls. ''But it was a truly grand piece of property, and in my view St. Louis was a real sleeping giant.'' He saw the possibilities for shopping and dining, as well as for a hotel. Many other businessmen considered the project dicey, because the station is on the fringe of downtown. The station combines painstaking restoration and new construction designed by St. Louis architects Hellmuth Obata & Kassabaum. Federal and city inducements eased the project's way. Along with a $10-million Urban Development Action grant and the same property-tax abatement as the downtown mall, the $140-million project qualifies for the 25% tax credit for historical + renovation. Oppenheimer's 400 limited partners, who in a 1983 offering bought equity participation units priced at $155,000 each, enjoy a tax shelter comparable with an oil-drilling fund. Through the tax credit alone, they stand to recoup most of their investment by 1987. New offices, shops, and restaurants do not add up to a city. Close to the downtowns of great metropolises the world over are neighborhoods whose residents have the tastes and the purchasing power to help sustain urban attractions night and day. No one knows this better than Leon Strauss, 57, who has proved adept at luring middle-class residents to rehabilitated housing. Strauss, jovial and indefatigable, is president of a development firm called Pantheon Corp. Pantheon is best known for turning a seriously run-down area between downtown and the city's most affluent suburbs to the west into an apartment community called DeBaliviere Place. The community's tennis courts, swimming pool, and other amenities are a drawing card for baby-boomers trickling back to the city and others who don't want to leave. On a visit to DeBaliviere's predominantly low-rise buildings, mostly built in the 1920s, it is hard to visualize the dangerous, semideserted mess they were when Strauss took them on ten years ago. Recalls a St. Louisan who lives not far away: ''You needed an armed guard to go there.'' To Strauss the neighborhood seemed a test of whether middle-class living had a future in St. Louis. DeBaliviere was close to splendid old houses and to the city's biggest park, with its zoo, art museum, and myriad recreational facilities. ''If we couldn't turn things around here,'' says Strauss, ''then it was bye-bye St. Louis.'' Pantheon took over 100 acres with 1,651 apartments and other buildings. So far it has gutted and totally rehabilitated most of the buildings, with $126 million spent or earmarked for further work, in what may turn out to be the most ambitious neighborhood resuscitation ever undertaken in America. Pantheon relocated many of the prior tenants in apartments they could afford in other parts of town; some tenants who were behind in their rent payments, says Strauss, moved out without waiting for relocation assistance when presented with rent bills. TO GET DeBaliviere Place moving, Lasater of Mercantile Bancorp. agreed to a $3-million line of credit when no other bank would touch the project. The city government helped with property tax abatement, and because DeBaliviere Place meets the federal government's definition of a historic district, most of the project got a 25% tax credit. The apartments profitably rent at $520 a month for a typical two-bedroom unit and vacancies are few. Young gentrifiers and others have bought and spruced up old houses. Jack Bader, 33, president of a small computer consulting firm, lives with his wife and two small children in a late-Victorian three-story house on the South Side. Scorning what he calls ''the sameness of the suburbs,'' Bader chose the city because it offered ''inexpensive, high-quality living space that could be reworked to our tastes.'' A handful of entrepreneurs, mostly spurred by a city program that uses federal funds to cut mortgage interest rates and rebate part of the purchase price to buyers, are erecting brand-new houses. Mark Conner, 38, has prospered by putting up hundreds of ''infill'' houses to replace long-demolished dwellings on streets that are coming back. Most of Conner's offerings, which start at $64,500, are brick-front replicas of old St. Louis townhouses. Filling the gaps does wonders for an urban block. Says Conner, ''I've been compared to a dentist.''

Conner's houses are selling briskly, in part because many of the city's negatives have been exorcised. Pruitt-Igoe was a mammoth public housing project that became a symbol of federal housing policies gone amok; an underclass terrorized the inhabitants of high-rise buildings ill-suited for large families. Now the buildings are gone, brought down by dynamite and wrecking balls. The city hopes to attract light industry and offices to the site. Meanwhile a widely emulated tenant-management organization, with the clout to get undesirables evicted, has enabled a nearby high-rise public housing project called Cochran Gardens to avoid Pruitt-Igoe's fate. City life has improved in other ways. Since Schoemehl took office, litter has largely disappeared from streets and sidewalks. Between 1981 and 1984, violent crime fell 30%. By halving the city's payroll, Schoemehl has balanced the city's budget for the first time in seven years. The barriers between city and county are coming down, though some St. Louisans doubt that the city, with its fiscal house in order, suffers by being outside the county. St. Louis's mayors long feuded with county executives. But Schoemehl and Republican Gene McNary, the St. Louis county executive, recently collaborated to open a jointly operated hospital. ^ THE RACIAL division between city and county is also eroding. McNary estimates the county's black population at 12% to 14%, vs. 5% two decades ago. Following a lawsuit, St. Louis and the county three years ago agreed to a voluntary school integration plan. Some 7,000 black city students daily ride to classes in the suburbs while 540 white suburbanites have been recruited to attend ''magnet'' schools in the city. One suburbanite student is Julie Montgomery, 15, from far out in the county, who's developing her jazz singing and cello playing while studying academic subjects at St. Louis's Visual and Performing Arts High School, where the student body is 53% black. ''This school has more to offer musically,'' says Julie, who's in her second year, ''and it's more true to life than a suburban school.'' A big question is how long St. Louis will need all those tax breaks and other inducements. The city government already feels confident enough to get stingier with tax abatements on new developments. Mark Conner is building his first nonsubsidized townhouses, priced at $149,500 each, on a street bordering handsome Lafayette Park, where he believes rising property values will support a price that's high by St. Louis standards. But John Roach, 46, a former alderman who is executive vice president of Pantheon Corp., perceives ''an inherent fragility'' in the city's comeback. He hopes that if the props are removed, they will not be removed all at once.

To Mayor Schoemehl, improving the public schools is the key to a self- sustaining recovery. ''If the city had schools good enough to justify normal housing demand,'' says Schoemehl, ''no subsidy at all would be needed.'' Improving the schools is a tall order. But more than most cities, St. Louis has learned to manage adversity.