The good economic news keeps piling up for Nebraska, lifting the commercial real estate market in its two largest cities to new heights. In a May report issued by the Corporation for Enterprise Development in Washington, D.C., Nebraska was noted for having the nation's lowest unemployment rate, unemployment duration and the second smallest gap between rich and poor. The result is that people have money to spend, and lenders have money to lend to support new commercial enterprises.
Nebraska also scored high in the national report for "an excellent quality of life," ranking No. 1 in air quality and No. 13 in crime rate. It was the fourth straight year the state received the group's highest score for economic performance. The commercial real estate market is thriving in the atmosphere. "If you aren't making money now, you won't make it," says R.J. Neary of Investors Realty Inc. of Omaha. "Every once in a while, we look at each other and wonder when things are going to slow down, and it doesn't seem to happen."
In Omaha and Lincoln, the retail spaces are filling up, industrial space has trouble meeting the demand and rents are rising on office space. Every sector of the commercial real estate market is thriving, developers say.
If Nebraska has an Achilles heel, say some developers, it stems from its strength -- the lowest unemployment rate (2% in the April report) in the state's history. Contractors are having trouble attracting workers to keep up with construction demand. "There is a shortage of workmen," says Tom Nicholson of Oakview Construction of Omaha. "I think owners will end up paying a premium for certain types of construction. If it's intensive with a lot of electrical and a lot of masonry work, they will be paying a premium."
But at the same time as low unemployment creates a shortage of skilled workers during peak construction periods, it also keeps people spending. "Our real estate market relates to the fact that unemployment in our city and state is so low," says George Venteicher of KVI Associates of Omaha. "People have dollars to spend."
All of this is happening at the same time state government is making its first significant commitment of tax dollars to lure industrial investors since 1987. Further indicators that commercial real estate is on a roll in Nebraska's largest cities can be seen in the size of some of the developments. In Lincoln, the state's largest apartment complex is in the wings, and in Omaha, the state's largest office park is underway. "I don't know that I ever recall the brokerage business being any more active than it is today," says Jay Noddle of Pacific Realty in Omaha.
Renovation projects have given the downtown areas of both cities a shot in the arm. In Omaha, the City Auditorium is getting a facelift with government funds. The commitment by both the city and the state eased the fears that a new auditorium and convention center might go up in the fast-growing western sector of the city.
A new federal courthouse is being planned for downtown Omaha. In Lincoln, the Burnham Yates Conference Center was doing well after only seven months. The center was built on city property by David Murdock, who owns the adjacent Cornhusker Hotel, for $14.7 million. Nebraska's two largest cities are fortunate to have all of the commercial real estate markets in supply-and-demand balance, says Steve Ruff of Daisley Ruff Financial. "There is a lot of lending competition for good quality projects," Ruff says. Omaha commercial development continues to be guided by common sense.
Office space in Omaha has been tight, property managers and developers say. "The selection for a prospective tenant is very limited, especially in larger blocks -- 10,000 sq. ft. or more, especially Class A," Neary says. "I think that holds true for all three market types -- office, industrial and retail. A lot of tenants are turning to build-to-suit opportunities."
The largest office development project, with a total value near $200 million, is on 300 acres of Boys Town land on West Dodge St. between 132nd and 144th Streets.
Dirt started moving in April for The First National Business Park, which will eventually have 1,690,000 sq. ft. of office space, Jay Noddle says. The business park, which is a joint effort between Pacific Realty Group and Noddle Development Co., is about 80 acres. The First National Bank of Omaha will occupy the phase one portion by late 1995. Although the first bank building will be about 250,000 sq. ft., Noddle says, First National will eventually occupy about 850,000 sq. ft. "This will be the major office development, certainly, in metropolitan Omaha in the next 15 or 20 years."
The tightness of the office market has led to a loosening up of lending, Neary says, and an increase in rents after three to five years of remaining flat. "We've seen rental rates jump 10% to 20% in the last year. It's a landlord's market."
Noddle says Omaha's development community has not changed its conservative ways, keeping the suburban office markets tighter than they have ever been. "At the same time, a lot of employers are growing," he says. "Those things working against each other have made occupancy rates rise to 92%, 93% or 94%. There are certain submarkets that are 100% occupied."
Even in the downtown area, the easily occupied buildings are 85% to 90% full. "When you get into the Class A space, it's between 95% and 100%," Noddle says. "What's going to happen is there are going to be several new developments take place in the next several years."
In the meantime, tenants are staying put, says Steve Farrell of Investor Realty Inc. "We just recently renegotiated lease renewals for two tenants totalling 96,000 sq. ft.," Farrell says. "That's nothing new, but it's a sign of the times that people are staying and renewing their leases at increased rents." Farrell says the lease renewals were at rents about 20% higher than the rents that were established five to seven years ago.
In Lincoln, office rental rates are running about $2 per sq. ft. higher than a year ago, says Kevin Rhodes of Mega Corp. "Part of it is that landlords need that to offset higher interest costs and high construction costs."
Lincoln's downtown office market got a boost last year when NMPP Energy, a nonprofit organization that provides an energy pool for communities, purchased the former Centrum Building at 1111 O Street. The Centrum, once a retail plaza, has been renamed Energy Square and has become a 72,500 sq. ft. office building. "NMPP Energy's goal is to return Energy Square to the hub of activity it once was," says Steve Wacker, director of special projects for NMPP. "We want this facility to be an asset to downtown Lincoln."
Retail developments continue to rise in both Lincoln and Omaha. "Retail is super-hot," says R. J. Neary of Omaha's Real Estate Investors Inc. "Land prices continue to climb, and the demand by local and many new players is pushing it to new limits." The greatest retail activity in Omaha continues to be focused around the area of 132nd and Maple Streets in the northwest sector of the city. "The development around 132nd and Maple Streets is astonishing," Noddle, of Pacific Realty, says.
"The housing growth in that area is just exploding," says Jay Lerner of the Lerner Co., developer of the Eagle Run Shopping Center at 132nd and Maple. The first phase of the Eagle Run center on the northwest sector of that corner is complete.
The West Center Street corridor continues to be Omaha's other hot retail area. Under construction, on 2.2 acres, is a 28,000-sq. ft. Barnes & Noble Book Store, says Venteicher of KVI Associates. A Blockbuster Music Store is going up nearby on Oak View Boulevard, and an eight-acre parcel has been sold for an 80,000 sq. ft. Kohl's Department Store.
Lerner says Lincoln continues to see a rapid growth along the 27th Street Corner, where the Lerner of Company has developed Lincoln Crossing at the corner of 27th and Superior Streets. The first tenants there were a Wal-Mart and a Sam's Club. Recent additions include the 43,000 sq. ft. Lincoln Sports and Rec Store. The store had its grand opening April 9. A 65,000 sq. ft. HyVee Supermarket is planned for 1996. Lerner says the company has about 15 acres left to develop out of the original 85 acres.
In the southern sector of Lincoln, Hampton Development Services continues to expand the Williamsburg Village. "We will see a few more retail buildings and probably another restaurant this year," Bob Hampton says. In addition, there will be several office buildings ranging size from 8,000 to 16,000 sq. ft. Williamsburg is 320 acres of master-planned community. It encompasses upscale housing, apartments, town homes, a retirement community, a day care center, restaurants and offices.
Of the 675,000 sq. ft. approved for retail and office space, about 120,000 is built, Hampton says 100,000 more sq. ft. will be added this year. Total value of the project is about $150 million. Hampton says the development service hopes to have the expansion project completed in about five years."
Renovation of Lincoln's Gateway Shopping Center on East O Street continues. Owned by the Richard E. Jacobs Group in Cleveland, Ohio, Gateway has been getting a facelift since 1993. By enclosing its garden mall, Gateway added about 14,000 sq. ft. of usable space. The biggest development is construction of an expansion wing that will be anchored by a 125,000 sq. ft. J. C. Penney store. "The retail business has been very good to us," says Scott Vyskocil, Gateway's general manager. The existing mall is full, Vyskocil says. Leasing is now underway on 42,000 sq. ft. of additional space that will come available with the completion of the Penney addition.
Even with its continued success in commercial development, the Nebraska Legislature decided this year to sweeten the state's tax incentives to attract new businesses and encourage growth. For the first time, Nebraska's power companies can negotiate lower rates for large corporate customers than it collects from other ratepayers. Nebraska is the only state that has all public power.
The state can also offer incentives for the purchase of land and the construction of plants for companies that invest $50 million and create 500 new jobs, or invest $100 million and create 250 new jobs.
The incentives come in the form of tax increment financing, which allows the increased property taxes on the property to be used for the project. Another incentive passed by the Legislature allows companies to retain the state income tax withholding of employees for training and benefits.
Nebraska's new tax incentives are in addition to the sales and income tax credits offered to investors under business recruitment laws passed in 1987. Nebraska developers hope the incentives will now help the state become a technological center.
In Lincoln, planners are looking forward to development of the University of Nebraska's Technology Park just west of where Superior Street crosses Interstate 80. Plans call for three or four dozen buildings, including a business incubator where a dozen high-tech, start-up companies would go through the early stages of research and product development.
With the N.U. Foundation as the primary backer, the technology park is moving beyond the concept stage. So far, the park's only tenant is Transcrypt International.
Overall, the industrial market has been tight in Omaha and Lincoln, says Neary of Investors Realty. "Land prices have gone up 10% to 25% over the last five years," Neary says. "We have also seen that tenants are demanding railroad access, which we haven't seen so much of in five years."
Growth in technology-related companies has been astounding, developers say. "The number of technology companies starting throughout the state is unbelievable," says Donald W. Helmuth, associate dean for research at the University of Nebraska. "I counted 35 in Lincoln alone."
The industrial market remains strong, says Kevin Rhodes of Mega Corp. "I would say that, generally speaking, vacancies are at an all-time low right now. There is just a strong market for industrial." Rhodes says lease rates have gone up $.50 to $.75 per sq. ft. in the last 12 months.
The biggest news in apartment developments in Nebraska is the proposed development of Northridge Heights on 214 acres in north Lincoln. Developers say it could be the largest apartment complex in Nebraska.
Home Real Estate and Whitehead Oil Co. are planning the project between 27th Street and Salt Creek, a mile north of Superior Street and a half-mile south of Interstate 80. Plans call for 1,672 housing units, including 292 single-family houses and 1,380 apartments in 39 three-story buildings. The apartment buildings are planned as seven complexes of five or seven buildings each.
John Schleich, president of Commercial Investment Properties, says Lincoln has historically been able to absorb 400 to 600 apartments per year. At that rate, Northridge Heights could take from five to 15 years to develop.
Omaha lenders described the expansion of the Omaha multifamily market as disciplined. Developer Jay Noddle says new projects keep in step with demand, and rental rates continue to move up.