Omaha: downtown redevelopment and a possible railroad corporations merger accelerates city's market

Omaha city officials and developers are getting ready to hatch a plan for downtown redevelopment that could rival the largest such effort in city history.

Coupled with another major development on property formerly used as a horserace track, the multicompany downtown plan would thrust the city into world-class status, says Mayor Hal Daub.

Although final plans are not expected until July or August, the early concepts call for as many as 20 blocks to get new buildings by the year 2000.

These major projects -- one estimated at a minimum $100 million and the other at $40 million -- come in when little letup is seen in Omaha's commercial real estate, in spite of a recent softening of eastern Nebraska's economy.

"Our markets have continued to be extremely active in all product types," says Jay Noddle of Omaha's Pacific Realty Group.

Mark Wieseman of Wieseman Development says, "There's not a lot of available space in any of the categories."

"There's a fair demand for rental space and sites for building," says James McCart, president of Prime Realty Inc., Omaha.

A lack of inventory for well-located commercial property has actually stymied growth in the city, says Dave Maenner, head broker for Maenner Real Estate Company Inc., Omaha. "That is causing more space to be built, but there is a lag time before completion."

"Retail development is probably at the top of the cycle," says Jay Lerner of the Lerner Co. in Omaha.

Railroad merger heightens interest

Developers have shown enthusiasm for Omaha's downtown, Noddle says. That's a market that could reach a peak if Omaha-based Union Pacific Railroad gets approval in coming months for its proposed merger with Southern Pacific Rail Corp.

Union Pacific's plans have been the catalyst for the multicompany downtown proposal. The railroad originally was considering a 1.1 million sq. ft. office building for downtown -- at a cost of $100 million to $150 million -- to house its current 3,200 Omaha workers and 1,600 more that would be brought in with the merger.

"This merger would be a boom to Omaha's real estate market," says Investor Realty Inc. vice president R.J. Neary. "In addition, it would bring suppliers and other related industries to the market." It could more than offset the recent news that the Mutual of Omaha Insurance Cos. will lay off about 800 workers.

The Mutual announcement's impact on the office market is softened by the fact that the company owns all of the buildings it occupies.

Economist Ernie Goss of Omaha's Creighton University says a purchasing management index for Eastern Nebraska in February indicated softening of economy for the Omaha-Council Bluffs metropolitan area, but not a recession.

But, Nebraska continues to rate at or near the top in keeping people in jobs with a steady unemployment rate of 2.4% (2.2% in Omaha). A recession isn't likely to occur in the region, says Goss.

Dying summer draw doesn't slow hotels

If anything in particular has marked the commercial development of the last year, it is the awakening of the hotel market, partly due to the introduction of casino gambling across the Missouri River in Council Bluffs.

A 146-room Westin Aquila has opened near the Orpheum Theater in downtown Omaha. And, Harvey's now has a 250-room casino-hotel in Council Bluffs. Ameristar, another casino hotel development with 160 rooms, plans to open in late summer or early fall.

Embassy Suites also has a 244-room hotel under construction, scheduled to open in about a year. The hotel will have parking facilities and meeting/convention space of approximately 20,000 sq. ft.

The addition of hotel rooms comes at a time when Omaha's major summer draw -- the Ark-Sar-Ben horse racing season -- has fallen victim to Iowa's expanded gambling. For the first time in decades, Ak-Sar-Ben will not offer a summer racing card.

"That certainly won't help," says Jay Baum of the Omaha Convention and Visitor's Bureau. "Anytime you take something out of the market place, it has some negative impact." However, Omaha still draws thousands each year to the College World Series and Henry Doorly Zoo's rain forest and acquarium.

Hotel-motel occupancy rates for 1995 -- with November and December figures not yet added -- was 70.7%, Baum says.

With the expected demise of horse racing, suggestions for Ak-Sar-Ben include the proposed 120-acre First Data development. The $40 million development would not only lock First Data into its Omaha headquarters, but it would also fill the need for better technological training. It also would add 2,000 jobs during the next five years.

Downtown updates its image

Other commercial activity in and around downtown Omaha includes the $55 million, 300,000 sq. ft., six-story Federal Justice facility, designed by the firm of Pei Cobb Freed of New York. Dana Larson Roubal & Associates of Omaha is the contracting firm.

There are also plans to renovate the Securities Building into 35 apartments and commercial space. The six-story, concrete building is the largest structure along the 16th Street mall that hasn't been developed, city officials say. The 80-year-old building was vacant for 10 years before the city acquired it by eminent domain for $190,000 in 1994.

Its renovation is in response to a survey that showed the area could use 100 additional housing units, in spite of the fact that 600 housing units have been added to the downtown area in the last decade.

The city accepted a $3.2 million bid by Nu-Style Real Estate Sales and Development of Omaha for the renovation. The city will deed the property to Securities Building Limited Partnership, a joint venture of Nu-Style, Holy Name Affordable Housing Corp. and the Equity Fund of Nebraska.

The Lerner Building, a block south of the Securities Building, will be demolished to provide a surface parking lot for tenants. Both buildings are in an area that was declared blighted in 1992.

In the Old Market, there will be a construction start of a 400-stall parking garage and an addition of several new restaurants. The City Auditorium will undergo a $15 million renovation.

Also, activity around Eppley Airfield, north of downtown, has picked up as the airport's business has boomed. For the second year, Eppley has been listed in the top three in the country in terms of new passenger growth. This has resulted in a project to extend the runways to handle larger planes and the construction of additional parking facilities.

Little space available in office market

Downtown office space has tightened up considerably, Noddle says. "There is virtually no Class-A space available in the downtown market with the exception of two sublease opportunities." One of those is approximately 10,000 sq. ft. in the 1200 Landmark Center Building, and the other is about 40,000 sq. ft. in the Woodmen Tower Building.

The Woodmen Tower space is being made available as a result of First Bank's acquisition of Firs Tier and the consolidation of facilities in the downtown area.

"The office sector has been very, very strong," says Neary whose firm in a joint venture with Cushman & Wakefield of Illinois sold the Central Park Plaza office building for $25.4 million. "During the last quarter, we have seen a few vacancies stay on the market longer and availability of 5,000 to 15,000 sq. ft. blocks of space that we did not have six months ago."

Office rental rates have firmed up, Maenner says. "They took a jump in 1995, but they have plateaued in 1996."

The lack of space will likely lead to new construction in 1996, Noddle says, including the formal groundbreaking for the First National Bank Business Park. The development on 300 acres of Boys Town land has a total value of about $200 million and could eventually have about 1.69 million sq. ft. of office space. The project is a joint effort between Pacific Realty Group and Noddle Development Co.

Retail maintains strength

Retail activity has remained strong in Omaha, Noddle says, with some of the construction including a 30,000 sq. ft. Borders Book Store; a 25,500 sq. ft. Barnes & Noble Store in the Oak View Mall area; two new No Frills Super Markets, one with 91,852 sq. ft. in Bellevue and 63,000 sq. ft. in Millard; two new Super-Targets, one with 190,000 sq. ft. and the other with 180,000 sq. ft. in Papillion.

The division of the Minneapolis-based Dayton Hudson Corp. has plans for six to eight new super centers this year and 10 to 12 more in 1997.

Occupancy of retail space is relatively high at about 90% to 95%, says Lerner. "They have peaked, in my opinion. The last couple of years have been excellent."

The large retailers have forced many of the small retailers out, says Lerner, and that space is now being taken up by service-oriented businesses.

Kennedy Freeway impact

The completion of the Kennedy Freeway from downtown Omaha to Bellevue has been a boon for the southeast section of the metropolitan area. More construction permits for new housing were issued in Bellevue in January alone than in all of last year or any year since 1988. There were permits for 300 apartments, compared to last year's 104. The city expects permit requests for another 300 apartments in the next six months.

Apartment occupancy rates in the Bellevue area went from 87% in 1994 to 98% in 1995, according to the Institute of Real Estate Management. Bellevue also is working toward construction of a new sewer line to service about 3,000 acres of industrial and residential land.

The freeway has changed, to some degree, the direction of growth in the city.

While Bellevue and Sarpy County have still-undeveloped tracts of land within relatively easy driving distance from downtown Omaha, the westward expansion of the metro area has sprawled farther and farther from the city's core. The shifting has helped attract some attention to other areas.

"We're starting to see some solid growth in Papillion," says Maenner. "The South 84th Street corridor is extremely hot."

Maenner says apartment construction is still going on where financing can be obtained. "The lenders want to make sure the area is proven," Maenner says.

Christopher Mustoe, an Omaha appraiser, says there is a lot of diversity of style in the new apartment construction, and new properties are hardly being completed before the unit is leased.

Average apartment rents increased 3.28% in the last year, according to IREM.

Industrial space in short supply

All areas of Omaha are experiencing a shortage of industrial space, Maenner says.

"As of right now we have very little industrial space that isn't under contract," says Noddle.

Dorothy Buckingham of the Greater Omaha Area Chamber of Commerce says there is no space available for large manufacturers. "If a company wants that kind of size, they are going to have to build."

Progress West's Monte Matz says there are 86,000 sq. ft. being developed at Centech Business Park, and 50,000 sq. ft. near 132nd and Giles Road will be ready for spring use, and the development community is "rising to meet the need" for space.

Availability of financing in the Omaha market has remained strong, according to both lenders and developers.

Steve Ruff, president of Daisley Ruff Financial in Omaha, says the capital market has improved across the board in the last couple of years. "There is an abundance of money from the life insurance companies."

Conventional lenders in Omaha have been disciplined. "They fund projects that have a real chance to be meaningful," Ruff says, and lenders are not allowing speculative projects to take place.

In some areas, says Ruff, there is a softness in the office space that has led renters to seek up discounts on rents. A five-year lease may get a renter six months free.

Maenner says financing opportunities have been good. "The rates are down, and all types of lenders are getting back in."

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