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Thoughts on the Omaha apartment market – March 2015

The apartment market will continue to experience healthy demand in 2015, but increasing construction costs and higher property taxes are producing strong headwinds. Supply will exceed demand by 300 units this year: not enough to cause discomfort for owners and developers, but enough to reduce occupancy rates by 1-2%. Vacancy, especially in the core submarkets, will stay below a tolerable rate of 6%.

The biggest challenge this year for developers won’t be demand, it will be construction costs. It is likely that many projects that receive building permits will be delayed due to cost overruns.

The Omaha metro area will have 1,500 units permitted in 2015, but not all will be started due to costs outstripping rents. This is the same number as 2014 but slightly higher than needed.

The market will experience 2% rent growth, but gross income will be up by 3% by passing through more expenses – especially water and sewer fees.

There are additional threats to the apartment market on the horizon:

Home buying will pick up this year as people gain more confidence in the jobs market. The “people don’t want/can’t afford houses” has become a tired cliche.

The biggest challenge to existing properties is the property tax re-assessment which occurred this year for the first time in 5 years. Real estate taxes for multifamily units (especially B and C properties) are set to increase 20% to 50%. New taxes kick in in 2016 – a hellish wake up call for those who aren’t prepared.

The agricultural economy is down. I don’t think people realize how much the farm business filters into Omaha. With commodities down, you’ll see lending decline, cutbacks at Claas, less vehicle spending and shopping trips to Omaha etc.

The sewer separation project is another problem. Every massive infrastructure project run by the government has been over budget. The previous rate increases are already reducing demand as people conserve water. With less water use, The City is going to be forced to raise sewer fees again in 2 years.

Here is my wild card… a major corporate downsizing or defection will occur. We’ve heard about Yahoo! and Woodmen, but there are others in transition: First Data, ConAgra, CHI Hospitals, Gavilon, Kelloggs, and Gordman’s are all searching for ways to cut costs.

Crime is a major factor in choosing where to (or where not to) live. The gun violence rate is appalling for a city of our size. This poses a very challenging environment in which to continue to attract residents to emerging neighborhoods in east Omaha. Marginal developments at the fringes of downtown may struggle from oversupply and perceived lack of safety.

Do I have any optimistic trends? Yes!

  • Entrepreneurs are creating jobs shed by corporates at a healthy rate. Omaha has a diverse economy and has a creative group of young people that used to leave the city but are now choosing to stay.
  • The education “industry” is strong and growing as UNO adds sophistication and UNMC is enhancing it’s services and growing in prestige.
  • The PayPal spin off from Ebay could unleash some advancement in electronic payment systems.
  • Companies like Home Instead and Right at Home growing with the elderly trend.
  • The Omaha 1% annual population growth story has been intact for years – nice and steady – and it will continue.
  • More disposable income will result from tighter labor markets and moderate gas prices.
  • The Fed is unlikely to raise rates. The dollar is too strong.
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New Building at Shadow Lake Square

Our first three buildings are open at Shadow Lake. The clubhouse is finished and the lake views are ideal for watching the fall foliage. A special thank you goes out to our builder – Overland Constructors. We are excited to announce that we broke ground last week on a fourth building at the Papillion site. We’ll have more room for you to enjoy Shadow Lake Towne Center and the prime recreation areas at the Walnut Creek Reservoir.

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Alchemy Development Looks to the Future at Werner Park

0731_NEW_WERNERPARKAlchemy Development plans to construct 522 apartments in the Werner Park. The site is adjacent to Pennant Place and the Stormchasers home stadium. The area is envisioned as a recreational, retail, and residential neighborhood with a variety of mixes.

Omaha World-Herald, August 5, 2014

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OWH: Aksarben Village has another $82 million in development planned

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By Cindy Gonzalez / World-Herald staff writer

An additional $82 million in new construction projects headed to Aksarben Village — more office, retail, apartment and parking structures — will close up a couple of the biggest gaps left at the 70-acre midtown Omaha campus.

Not all of the tenants have been secured for those proposed properties, but developers say the village’s history suggests that won’t take long.

And except for a few hitches, such as the scrapping of a plan for owner-occupied town houses, the ongoing transformation of the old Thoroughbred racetrack grounds near 67th and Center Streets continues better than expected, said lead developer Jay Noddle of Noddle Cos.

So far, he said, the investment on projects built, under construction or planned at the village totals about $500 million. Original estimates a decade ago were about $150 million. That is just the village portion, not First Data Corp. or university-related buildings on the larger former Aksarben site.

City Planner Bridget Hadley said spinoff activity and property improvements in and around the village are what the city had hoped for: “Not only bringing forth more density, but a vibrant mixed use of work, play, entertainment and living options,” she said.

The latest changes, according to documents submitted to Omaha planners, total more than $82 million and seek $9.75 million in tax increment financing. The plans call for:

» An 80,000-square-foot office, retail and restaurant building on the corner of 67th Street and Mercy Road. A large corporate user reportedly has committed to occupying the top level of what would be a three- or four-story structure.

» A four-story retail and residential building fronting Frances Street that would have 10,000 square feet of retail and apartment lobby space on the ground floor; upper floors would contain 21 apartments.

» Another four-story building with 40 apartment lofts, facing west with a view of College of St. Mary softball fields and campus.

» As announced six weeks ago, a five-story building with Pacific Life Insurance Co. as anchor on the northeast corner of Mercy Road and Aksarben Drive. Restaurants, other retail shops and offices would occupy the rest.

» An 880-stall, four-story parking garage, replacing an existing surface parking lot and connecting by sky bridge to the Pacific Life building.

» About two blocks to the east, southwest of 64th Avenue and Frances Street, two apartment buildings. The largest would have four levels, 45 units and 31 parking stalls. A three-story eight-plex is designed in a “walk-up” style. Parking for both would be available in an existing garage servicing nearby businesses.

Construction on the Pacific Life building and connected parking garage are to begin soon, with opening of the office structure expected late next year, planning documents said. The other office and housing structures in the entertainment zone are to be done either next year or in 2016.

The other apartments are to be completed by fall 2016.

The TIF funding, a tool that allows property tax revenue from new construction to pay some redevelopment costs, is to be a topic at today’s City Planning Board meeting.

Alchemy Development, which is planning the new apartments at 64th Avenue and Frances Street, already has developed 183 other units at Aksarben Village. The next group would resemble the existing Pinhook Flats buildings, said Alchemy owner Bert Hancock, but have a distinct name and feature red and bold color elements to complement the neighboring DLR Group.

“We want to have an impressive corner element so when you’re looking from the new arena it will really attract people’s attention,” Hancock said, referring to the $88 million sports arena that the University of Nebraska at Omaha is to open next year at 67th and Center Streets.

Earlier plans by Noddle Cos. had called for the Alchemy site to be 21 upscale “live and work” town houses, the first owner-occupied residences in the village. But Hancock said people who could afford the homes typically are older and don’t like all the stair-climbing.

“If everything had gone as planned, there would have been more town homes, but that market really evaporated in the recession,” Hancock said. “We adjusted course, added apartments and everybody is happy. It has added to the amount of people that live and work in the area.”

The other proposed apartments and office/retail structures are projects primarily of Magnum Development and McNeil Co., which previously partnered on Aksarben Cinema.

John Hughes of Magnum said that new chunk would, for the most part, finish off the 8-acre entertainment “Zone 5” bordered by Stinson Park, Aksarben Drive (parallel to the Keystone Trail), 67th Street and Frances Street. (Also in that zone is the theater and businesses including DJ’s Dugout and Aspen Athletic Club.)

Securing TIF funds is an important part of making the proposed parts fall into place, Hughes said. He said he is in negotiations with various tenants to fill the space.

The land remaining lies mostly in Zone 6, the vacant block where the $50 million Waitt Plaza is to rise. Announced six months ago, the eight-story office and retail building with a parking garage is scheduled to be completed at the northeast corner of 67th and Frances Streets by early 2016.

Plans for that block call for two other office/retail buildings. Noddle said marketing and tenant recruitment for all three has ramped up.

A few property patches “here and there” remain and could become homes to various users as the village further matures, said Noddle. “It’s those little eclectic pieces that get filled in and really round out the mix in the village.”

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Shadow Lake Square Debut Scheduled Novermber 1

ShadowLakeSquare.com

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