HEARTLAND SNAPSHOT, JULY 2009

Omaha, Nebraska, Office Market

Compared to other markets in the country, real estate professionals in Omaha, Nebraska, seem to be taking the current “Great Recession” in stride. It would be easy to attribute this to the laid-back attitude of many Midwesterners, but a more accurate reason would be that things in Omaha are simply not as bad.

“Omaha, like few other cities in the Midwest, is very fortunate in that it is largely insulated from some of the national downturns others have experienced. The insurance sector, the financial sector and the medical sector are really creating a lot of jobs and stability in our office market,” says Trenton Magid, president of Omaha-based Coldwell Banker Commercial World Group.

In January, BlueCross BlueShield of Nebraska, the state’s largest insurance company, announced plans to build a new 10-story, 315,000-square-foot corporate headquarters in the up-and-coming Aksarben Village area. The $98 million project will be known as Blue Cross Centre. It will be owned by Tetrad Corporation of Omaha and leased back to BlueCross BlueShield, which will take occupancy in the first quarter of 2011. Initial plans include the possibility of the project applying for LEED-Silver certification. Kiewit Building Group is serving as the general contractor, and Leo A. Daly Company is providing design services.

Last fall, TD Ameritrade ended speculation that it was leaving Omaha by announcing that it would be consolidating its Omaha operations into the Old Mill development, located at 108th and Farnam streets. The company plans to occupy several buildings within the office park and construct two new multi-story buildings, which should be complete by 2011. In addition to the more than 2,000 employees that would move from its four current offices, Ameritrade could eventually hire up to 400 new employees to work at the new offices.

Omaha is also wrapping up more than $1 billion in healthcare development that has taken place in the past 3 years. The $120 million Methodist Women’s Hospital is under construction at 192nd Street and West Dodge Road, and Nebraska Medical Center is working on a $100 million project in Bellevue, Nebraska. Projects such as this have brought about a lot of ancillary medical office development. For example, Methodist Women’s Hospital will contain two medical office buildings, in addition to the full-service hospital. Two medical office buildings totaling 165,000 square feet are being developed by Dana Magid Group. Called Village Pointe West, the project is part of the University of Nebraska Medical Center. Unlike other markets, the construction pipeline in Omaha is full, but the market is still having the same credit issues as the rest of the country.

“The biggest issue right now is projects that were financed 5 or 10 years ago that have balloon payments due. The banks are forced to make a decision in which they recast the loan and keep those borrowers in place, or the borrowers are forced to bring in an equity partner and figure out a way to refinance, either with that lending institution or a different one,” Magid says.

Transaction velocity has also slowed, especially in the range of 10,000- to 50,000-square-foot buildings. Magid notes an interesting trend: while there are some vacancies in the office market and the leverage has shifted to the buyer, many owners are holding out on selling for a better market.

“We’re not seeing a lot of fire sales in the market. There may be a few landlords that need to get out because they need the cash, but most landlords are staying put and waiting for things to pick up,” Magid says. He adds that many people in Omaha see the current market as only a dip, and things are bound to get better soon.

“It will continue to be a tenant’s market throughout the end of the year and the beginning of the next year, in my opinion,” Magid says.

The future will also see the construction pipeline slowing. Landlords of existing properties are providing significant discounts to tenants, which provides a more attractive alternative to new construction. There is not a lot of vacant space for larger tenants, but tenants under 20,000 square feet are facing very attractive leasing options. In response to this, contractors are lowering profit margins drastically just to keep work coming. This will allow owners and developers to take advantage of the market’s softness for future projects.

— Coleman Wood

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