Tag Archives: CRE

Why Industrial Landlords in Omaha Will Soon Have Negotiating Leverage

The Omaha industrial market, which contains a total inventory of roughly 67.5 million square feet, posted a tight vacancy rate of 5.1 percent at the end of 2012, according to commercial real estate research firm Xceligent Inc. For the year, about 652,000 square feet of space was absorbed, or about 1 percent of the market.

Industrial vacancy rates continue to decline.

Industrial vacancy rates continue to decline.

Overall, 2012 was a strong year with an estimated 142 new leasing transactions completed. Unlike 2011, however, in which eight major deals in excess of 100,000 square feet dominated the industrial market reports, none of the deals in 2012 were blockbuster.

In fact, only three transactions were in excess of 50,000 square feet. What does this mean? A lot of midsized deals occurred. For the first time in a while, those vacant spaces ranging from 2,000 to 10,000 square feet that have accounted for a glut of excess space in recent years are getting leased.

More significantly, the mid-sized deals indicate the growth of both new and local businesses expanding their presence in the Omaha industrial market.

Meanwhile, speculative or new construction is at a standstill. Almost all of the new construction in the market has either taken the form of build-to-suit or owner-occupied space, or is mostly preleased space.

Flat rents stifle construction

If historical tendencies hold, a vacancy rate near 5 percent would signify that the time is nearing to add inventory to the market. But for several reasons, that isn’t happening.

Since Xceligent began tracking the Omaha market in late 2010, rents have remained relatively unchanged while the market as a whole has positively absorbed around 1.5 million square feet of inventory.

Such a trend defies logic. How can a market absorb between two and three percent of its overall inventory and not see at least a slight uptick in asking rents?

Regardless of the answer, the lack of an escalation in rental rates, combined with a rise in construction costs and a lack of well-located industrial land, is making speculative construction difficult not only to finance, but also to justify.

Despite unchanged rents, landlords are still expected to invest significant dollars to compete for the best tenants. Rent abatement, generous tenant improvements, and attractive lease rates are all part of the equation. Even though market conditions imply that negotiation power should be on the landlord’s side of the table, it isn’t.

Historically, industrial owners in Omaha have preferred the long-term stability of their assets as opposed to a quick return on investment. Although a landlord may want to push for the extra 25 cents per square foot in rent, doing what it takes to keep a long-term, stable tenant takes precedence. It is these conservative business decisions that make Omaha such a stable business environment.

Something has to give

Assuming business expansion in Omaha continues at its current pace, at some point inventory will have to be added to the market. Otherwise, asking rents will have to increase. One of these factors has to give. It is simple economics; landlords won’t need to entice tenants with free rent or other leasing incentives. Space will fill up.

Tenant rep brokers are already griping about the lack of quality product in the market because much of it has been leased. My gut tells me that the next few years will be a good time to be a landlord in Omaha.

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Filed under Commercial Real Estate, General Omaha News/Opinions, Xceligent

Part 8-Omahans Find A New Home in Downtown Omaha

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A rendering of the 19th and Capitol apartments (Courtesy of the Omaha World-Herald)

Around 56,000 attended events in Downtown Omaha this weekend: two UNO hockey games, one Creighton basketball game, and one sold out rock concert.  All of these events took place at the CenturyLink Center Omaha.  With the Holland Performing Arts Center, Orpheum Theater, CenturyLink Center, and TD Ameritrade Park, downtown has evolved into the entertainment epicenter of Omaha.  Compare that overall event attendance figure to any market, whether it be Kansas City, St. Louis, Des Moines, Milwaukee, or heck, even Chicago.  We, as a city, have really found something here.  Downtown has become, for the lack of a better term, the place to be.

For decades, Omaha has been the business hub of Omaha.  Titans of industry such as Union Pacific, Woodman of the World, Con Agra Foods, and First National Bank, have called downtown their home for decades (some of them over a century).  Over a  years ago, it was really one of the only places where companies would consider when locating an office.  In the past 20 to 30 years, that wasn’t the case.  Suburban office parks began to offer ample parking, easy access to and from residential neighborhoods, and major shopping destinations just a short car ride away.  In 2010, Black Hills Energy announced its intentions to relocate 150 downtown employees to its new facility in the bustling bedroom community of Papillion.  The move, without question, made sense for Black Hills.  It brought them closer to their customer base and allowed them to become more effectively serve them.  But in their wake, they left behind an antiquated 96,000 square foot office structure at 19th and Capitol.

We’ve seen resurgence in downtown’s entertainment offerings: the Old Market, North Downtown, TD Ameritrade Park, the list is long.  Even with companies like Black Hills moving out of downtown we’ve seen growth in the Office Market.  But the major boom that is currently underway will shape downtown in larger ways than the physical office buildings or entertainment venues.  They are lampshades seen in windows as the sunsets over Downtown Omaha.  They are young professionals walking their dogs in the Gene Lahey Mall.  They are residents, who call Downtown Omaha their home.  The true sign of a strong urban core is its overall vibrancy.  Sure, larger cities have more tall office buildings, bigger stadiums, and fancy shopping destinations, but what Omaha is gaining right now will set it apart for decades to come.

NuStyle Development has been at the forefront of this emerging downtown mutlifamily market.  They have launched successful redevelopment efforts such as the Bank, a multifamily conversion of the former Farm Credit building at 19th and Douglas and the Tip Top Lofts in North Downtown.  Currently, they are the talk of downtown with their soon to be move in ready Highline project at 23rd and Dodge.  Soon though, they will add to their resume of success with their latest project at 19th and Capitol.

Last July, NuStyle announced their intentions to create 110 residences in the 7 story office building.  The project, which will cost an estimated $17 Million (per the Omaha World-Herald), will again, create a unique property for Omahans to call home.  Later this year, residents will be able to picnic on its rooftop deck overlooking the core of Downtown Omaha, read a book from the buildings newly installed exterior decks, or get in a good work out at the on site fitness center.

What is more important is that, once again, developers are finding a way to bring more people downtown.  Unlike the events that filled downtown’s calendar last weekend, these people live there.  As this and similar projects continue to be met with success, soon, demand for more retail will need to be filled.  Soon the young enterprenuer who lives at 19th and Capitol will no longer seek office space at 114th and Dodge streets, he or she will want to be downtown.  Large companies who want to attract and maintain young and bright minded talent will seek space office space in downtown.  It may seem over simplified, yes, but in order to build a truly vibrant neighborhood, people just need to live there.  Much like the speculative strip center or office building located among new suburban residential developments will be eventually filled, commercial property in downtown will have a similar fate.

For those who often wish Omaha’s downtown was more vibrant, had tall shiny buildings and big name retailers, don’t worry.  It’s coming.  We will get there.  A renaissance larger than what we’ve seen in the last decade is coming to Downtown Omaha.  In fact, it’s happening right now, one resident at a time.

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Filed under Building Omaha: Downtown Development Top 10

Part 7-Lerner Building Rising to New Heights

A rendering of The District and its 3 story addition to the Lerner Building.

A rendering of The District

Few properties have gone through as many redevelopment proposals as the Lerner Building has.  Since 1995 when the City of Omaha took ownership of the property, the building has been a target for redevelopment.  The only problem?  It took almost 15 years to find one that would stick.

Bought for the price of just $157,500 in May of 2012, the District, as the project is being called, will take the corner of 16th and Harney to new heights, literally.  With plans to create over 4,000 square feet of retail space and 36-38 multifamily apartment units, the 16,000 square foot structure will be expanded to accommodate these ideas.  Whats interesting though, is that the expansion isn’t horizontal, its vertical.  The development team, which is a partnership between Dicon Corp. and Seldin Company, intend to add 3 stories to the top of the existing two-story structure.

At a price tag close to $6 million, the project will serve as a starting off point for the revitalization of 16th Street.  Dormant for years, the once bustling heart of the city has been relegated into a gathering point for many of Omaha’s economically disenfranchised.  Popular for almost a century, 16th Street was once the place to be in downtown.  But in the wake of the post war 50s and the dawn of a new sprawling society, urban malls no longer had their place in Omaha.  Once Brandies closed in 1980, the wide pedestrian corridors that lined 16th Street became a hindrance to parking as opposed to a guide for pedestrian traffic.  One by one businesses closed and the street began to decline.

Soon though, 16th Street will carry with it a different legacy.  As the city continues to work on plans to create angled street parking, remove unsightly bus shelters, and reroute bus traffic away from 16th Street, more developers like Dicon and Seldin will be attracted to the area.  Although it may never again live up to the reputation of the retail heartbeat of the city, it is about to enter a new stage in its life, starting with The District.

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Filed under Building Omaha: Downtown Development Top 10

Part 4-Reviving Kimball’s Legacy at 15th and Dodge

An architect’s rendering of the redeveloped Old Federal Building (courtesy of the Omaha World-Herald and Alley Poyner Macchietto)

It was 1878 when a young Thomas Kimball and his family moved to the banks of the muddy Missouri River to the bustling railroad town of Omaha, Nebraska.  At the time, his current neighbors likely could not fathom the role that the young 16-year-old Kimball would have in shaping the architectural landscape of Omaha.  The future graduate of MIT aided in the creation of local icons such as the Hotel Fontenelle, the Medical Arts Building, Omaha Public Library, Burlington Station, St. Cecilia Cathedral, and campus of the Trans-Mississippi and International Exposition.  In all, he was responsible for the design of over 25 buildings across town, few of which are still in existence today.  Built in 1933, the Old Federal Building on 15th and Dodge Streets remains one of the few existing Omaha landmarks designed by Kimball.

Constructed as a part of Franklin Delano Roosevelt’s New Deal, the 12 story 105,000 square foot building was home to several federal agencies, including, the US Weather Bureau, the Internal Revenue Services, US Department of Agriculture, and most recently the Army Corps of Engineers.  For the past few years though, the once bustling legacy of Kimball has been relegated the status of just another vacant building in Downtown Omaha.

In December of 2011 that changed when First OFB, a joint venture between Iowa based Nelson Development and Rosemont, Illinois’ First Hospitality Group acquired the property for $2.375 million.  The group intends to bring the property to new life with a 152 room Residence Inn by Marriott.

The approximately $23 million redevelopment will create an estimated 50 full-time and 25 part-time hospitality jobs and is slated to open in the Spring of 2013.  The hotel will feature amenities such as Wi-Fi, a fitness center, meeting space, and will serve as a great compliment to the sculpture park located just west of the property.

The project will help meet the demands of the currently undeserved Downtown Omaha hotel market.  With just under 2,400 rooms currently, the 152 rooms created by this project is among the over 600 units either planned or under construction in downtown.  Worth noting, the building is located in an area not widely utilized by tourists.  Most other projects are taking place in either the Old Market or North Downtown neighborhoods.  This project speaks volumes of the level of confidence out-of-town developers and investors are seeing in Downtown’s core.  Additionally, the hotel will greatly serve neighboring corporate giants including First National Bank, Union Pacific, and Woodman of the World.

Currently under construction, it will be exciting to see another great piece of Omaha’s history saved.  With the proud legacy of one of Omaha’s great architects at stake, the hotel project will be a wonderful reminder of the many contributions made by Thomas Kimball to the Omaha landscape.

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Filed under Building Omaha: Downtown Development Top 10, Commercial Real Estate

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