Three questions with … NorthMarq’s John Reed
There’s something about Omaha. This market remains one of the steadiest in the Midwest, with brokers closing a solid number of big deals each year and new companies flocking to the city’s downtown core and surrounding neighborhoods. What’s behind Omaha’s success? That’s what we asked John Reed, senior vice president and managing director of the Omaha office of NorthMarq, as part of our Three Questions With … series.
Here’s what Reed had to say about the remarkable resiliency of Omaha’s CRE market.
Omaha remains one of the steadiest CRE markets we cover. Why do you think this is, and what are some of the reasons for the strong commercial real estate market throughout the Omaha market?
John Reed: Reliably, the theme of Omaha as a solid, steady market comes up in many conversations we have with investors and lenders. This characterization has a lot of merit. Certainly Omaha doesn’t experience the large swings upward, but that protects the city from significant corrections. When the national unemployment rate reached 9.9 percent in 2009, Omaha unemployment was significantly better at 5.9 percent.
Among the major reasons for Omaha’s consistent growth is a strong and diverse economy. The employment base is anchored by Union Pacific, Peter Kiewit, Mutual of Omaha and Berkshire Hathaway. These Fortune 500 companies have deep roots, with all (except Berkshire Hathaway) having been established in Omaha more than 100 years ago. Other large Omaha-based companies like First National Bank of Omaha, Green Plains Energy, HDR, Tenaska, Valmont, Woodman of the World and Werner Enterprises are leaders in their respective industries. These great corporate citizens have underpinned Omaha’s long track record of growth.
Moreover, the owners and CEOs of Omaha’s major companies have shown extraordinary vision and leadership in making Omaha a great place to live. For example, Walter Scott Jr.(Kiewit) and Robert Daugherty (Valmont) established the non-profit Heritage Services to lead and fund important civic projects like the CHI Arena, TD Ameritrade Ballpark and Holland Performing Arts Center.
The latest example is Heritage Services’ public private partnership with the city, led by Ken Stinson and Mogens Bay, to significantly improve downtown public spaces. The Gene Leahy Mall and Riverfront Redevelopment will reinvigorate the core of downtown Omaha and will cost $290 million, largely donated from Heritage. These are the kinds of projects that keep the city vibrant and attractive for talented young people.
Out-of-state and locally domiciled businesses have expanded in Omaha, as they recognize the strong community and well-educated workforce is a good base for operations. Growth in these businesses is spurring exceptional office development.
Among the major projects:
Lockwood Development is developing the new 200,000-square-foot LinkedIn office building, which brings another outstanding tenant to its Sterling Ridge mixed-use development. The building will house LinkedIn’s customer support operations, which are growing from 450 current employees to potentially 1,000 or more by 2021.
Applied Underwriters will anchor the new Heartwood Preserve development, with a 260,000-square-foot first phase. The building will bring together 500 Omaha employees (currently in three locations) and will provide room to build and accommodate hundreds more employees.
Valmont is also building a new $50 million headquarters at Heartwood Preserve that expands its space by 50 percent and increases its headquarters staff to up to 500 employees.
Kiewit will open a new 180,000-square-foot headquarters on the north side of downtown, which will house 650 employees. This development brings a significant anchor to north downtown, which has benefited from city and private investment but has lacked major employers.
Even further north in downtown, Flywheel will move 200 employees into a newly renovated Ashton Warehouse building. Flywheel is scheduled this year to move into the first piece of Paul Smith’s $300 million Millwork Commons mixed use redevelopment.
The scale of business expansion in Omaha reinforces the city’s solid growth trajectory. Moreover, the mix of urban and suburban development is a credit to Omaha leadership and the sustainability of Omaha CRE submarkets.
As 2020 arrives, what are some of the commercial real estate trends you expect to see in Omaha? Will we see more development of the city’s downtown area and will demand continue for multifamily units in the urban core of the city?
Reed: An interesting Omaha CRE trend in 2020 is the continued investment in large medical facilities and follow-up CRE investments they induce. Omaha is a regional medical hub, serving the acute medical needs of the rural areas that surround the city. To keep up with the needs of the region, Nebraska Medicine just completed the $324 million Fred and Pamela Buffett Cancer Center and Children’s Hospital is in the midst of constructing its nine-story, $450 million clinical facility that will add about 500,000 square feet to the hospital.
The investment of billions in Nebraska Medicine/UNMC’s campus has been critical for Omaha’s medical capacity and today the organization estimates their impact on the Omaha economy at $4.8 billion annually. The economic impact is clear in the Blackstone District, which is adjacent to the east of Nebraska Medicine’s midtown campus. The Blackstone District has realized the development of approximately seven blocks of revitalized retail, 500 apartment units and the $50M Cottonwood Hotel redevelopment.
Nebraska Medicine and UNMC just announced their plans for a $1 billion to $2 billion expansion at its midtown campus, which would be a national hub for the treatment of biological hazards, among others. This is a huge single investment for Omaha, which will spur significantly more multifamily and other CRE development in midtown over the next five years. The concentration of continued CRE investment around the Nebraska Medicine campus is a trend that has a significant amount of room to run.
Another major catalyst in downtown Omaha is the Conagra redevelopment, which is a $500 million multiyear mixed-use development on the current Conagra campus downtown. Conagra selected Hines to redevelop the north side of its existing campus, after relocating the company headquarters to Chicago.
The initial $105 million phase, southeast of 10th and Farnam, will be a two-block-long plaza with restaurants and 375 luxury apartments. Ultimately the seven- to 10-year development envisions about 900 new residences, nine new structures containing roughly 500,000 square feet of office space, 80,000 square feet of retail and a boutique hotel with up to 200 rooms.
Separately, the $290 million Gene Leahy Mall and Riverfront Redevelopment will reinvigorate 90 acres of public spaces leading to and around the Conagra campus, including green areas, an urban beach, tiered botanical gardens, parks, trails and a skating ribbon that shifts from smooth concrete in the summer to ice in the winter.
The redevelopment of downtown public spaces and the Conagra campus reconnects Omaha’s Old Market with the Missouri Riverfront, in the heart of downtown. This significantly expands and improves the Old Market/downtown as an entertainment destination and vibrant submarket. It will spur peripheral investment in multifamily and downtown retail for years to come.
When it comes to financing requests, whether for new developments or acquisitions, what are some of the factors you consider when deciding whether a request makes sense for your company?
Reed: NorthMarq is a correspondent for a wealth of lenders in Omaha. We can accommodate a wide range of deals from a $1 million office building to a $50 million multifamily asset or a large industrial portfolio.
We are in the market every day and know the best capital sources and unique deals that are being done. However, there is no cookie cutter solution for a given property type, or client.
We concentrate on each client’s priorities, i.e., fixing a great rate for 20-plus years, maximum leverage or flexibility. There is always a trade-off between objectives.
Ultimately, we need to have conviction that we can accomplish our client’s objectives. Our reputation with our clients and lenders is paramount. Therefore, we only take on deals that will lead to long term success for everyone involved.