Midwest Real Estate News September October 09 : Page 1

midwest WWW.REJOURNALS.COM by Dan Rafter, Managing Editor Randy Lenhoff is a realist. The president of Omaha- based Seldin Company knows that his city is seeing its share of office and retail vacancies. He knows that the recession has taken its toll on Omaha the same way it has on other major Midwest cities. But Lenhoff also knows that the unemployment rate in Nebraska fell to 4.9 percent in July, tied with South Dakota for the second-lowest unemployment rate in the country. Omaha’s unemployment rate was 5.3 percent during the month, far lower than the national average. The same was true in Lincoln, when the unemployment rate stood at 4.8 percent in June of 2009, up from 3.1 percent in 2008 but, again, far lower than the national average. He also knows that while vacancy rates in the city’s retail sector stood in the 15-percent range this summer, that rate of empty storefronts is nowhere near as high as it’s reached in other markets. Omaha and Nebraska, then, are holding their own during the recession, just as they were last year. And for that, Lenhoff, and other commercial pros doing business in this Midwest state, are grateful. “It’s getting to be a bit of a cliché, but in our case it’s true: We have historically not had the huge ups, the tremendous increases in value and construction. That means that we typically don’t have the big downs, either,” Lenhoff said. “We have a good broad base of business here. That has been helpful during this time.” Lenhoff, of course, is far fromalone in this view. Yes, commercial construction has dried up throughoutmost ofOmaha, Lincoln andNebraska’s othermajormarkets. And, yes, vacancies in office buildings and strip malls are up. But overall, Nebraska has been hit far less by the recession than other states. Commercial pros here point to the state’s steady nature, the lack of big downs and huge ups that Lenhoff refers to. Others point to the state’s wide mix of busi- nesses, with Nebraska boasting everything froma still- strong agricultural base to a solid mix of headquarters and regional bases for service industries such as insur- ance companies to a thriving healthcare business. Then there’s the fact that the major markets in Ne- SPECIAL SECTION: R E A L E S T A T E N E W S® Women in Real Estate Page 34 THE DAKOTAS | ILLINOIS | INDIANA | IOWA | KANSAS | KENTUCKY | MICHIGAN | MINNESOTA | MISSOURI | NEBRASKA | OHIO | TENNESSEE | WISCONSIN September/October 2009 VOLUME 25, ISSUE 6 Weathering the stormin Nebraska braska never saw the overbuilding of office buildings and shoppingmalls thatmany other cities experienced during the commercial real estate boomtimes. This has helped keep the vacancy rates fairly modest in the state’s bigger cities. And as RichardMeginnis, executive vice president of Lincoln’s NAI FMA Realty, puts it, there’s something calming about being located in the center of the country. “Nebraska never has the big ups or downs,”Meginnis said. “We’re in the middle of the country. When a big wave hits the coasts, by the time it gets here it’s a ripple.” Sobering, but not devastating, numbers NAI FMA Realty’s analysis of the first half of 2009 in Lincoln paint a picture of a city suffering from the im- pact of the national recession. But it also shows a city that is faring better than many others. The numbers in the report certainly aren’t cause for celebration. But they won’t cause commercial brokers to weep, either. They’re down, but not as badly as one might expect considering the weak economy. For instance, office vacancies in the city stood at 9.3 Continued on page 32

Fighting Off The Slump In Nebraska

Dan Rafter

Randy Lenhoff is a realist. The president of Omahabased Seldin Company knows that his city is seeing its share of office and retail vacancies. He knows that the recession has taken its toll on Omaha the same way it has on other major Midwest cities.<br /> <br /> But Lenhoff also knows that the unemployment rate in Nebraska fell to 4.9 percent in July, tied with South Dakota for the second-lowest unemployment rate in the country. Omaha’s unemployment rate was 5.3 percent during the month, far lower than the national average.<br /> <br /> The same was true in Lincoln, when the unemployment rate stood at 4.8 percent in June of 2009, up from 3.1 percent in 2008 but, again, far lower than the national average.<br /> <br /> He also knows that while vacancy rates in the city’s retail sector stood in the 15-percent range this summer, that rate of empty storefronts is nowhere near as high as it’s reached in other markets.<br /> <br /> Omaha and Nebraska, then, are holding their own during the recession, just as they were last year. And for that, Lenhoff, and other commercial pros doing business in this Midwest state, are grateful.<br /> <br /> “It’s getting to be a bit of a cliché, but in our case it’s true: We have historically not had the huge ups, the tremendous increases in value and construction. That means that we typically don’t have the big downs, either,” Lenhoff said. “We have a good broad base of business here. That has been helpful during this time.” Lenhoff, of course, is far from alone in this view. Yes, commercial construction has dried up throughout most of Omaha, Lincoln and Nebraska’s othermajormarkets.<br /> <br /> And, yes, vacancies in office buildings and strip malls are up. But overall, Nebraska has been hit far less by the recession than other states.<br /> <br /> Commercial pros here point to the state’s steady nature, the lack of big downs and huge ups that Lenhoff refers to. Others point to the state’s wide mix of businesses, with Nebraska boasting everything from a stillstrong agricultural base to a solid mix of headquarters and regional bases for service industries such as insurance companies to a thriving healthcare business.<br /> <br /> Then there’s the fact that the major markets in Nebraska never saw the overbuilding of office buildings and shopping malls that many other cities experienced during the commercial real estate boom times. This has helped keep the vacancy rates fairly modest in the state’s bigger cities.<br /> <br /> And as Richard Meginnis, executive vice president of Lincoln’s NAI FMA Realty, puts it, there’s something calming about being located in the center of the country.<br /> <br /> “Nebraska never has the big ups or downs,”Meginnis said. “We’re in the middle of the country. When a big wave hits the coasts, by the time it gets here it’s a ripple.” Sobering, but not devastating, numbers NAI FMA Realty’s analysis of the first half of 2009 in Lincoln paint a picture of a city suffering from the impact of the national recession. But it also shows a city that is faring better than many others.<br /> <br /> The numbers in the report certainly aren’t cause for celebration. But they won’t cause commercial brokers to weep, either. They’re down, but not as badly as one might expect considering the weak economy.<br /> <br /> For instance, office vacancies in the city stood at 9.3Percent in the first half of 2009. That’s up from 8.1 percent at the end of 2008, but not as high as it is in other markets. Retail vacancies hit 18 percent in the first half of the year. But Lincoln has seen some retail expansion in the first six months of the year: CVS Pharmacy, for instance, is expanding, and is planning to open its first free-standing location in Lincoln. Jimmy John’s, too, is growing in the city, opening two new locations.<br /> <br /> And 7-Day Furniture has expanded into 40,000 square feet of a long-vacant former Kmart.<br /> <br /> In the industrial sector, Lincoln has seen vacancy rates hit 12.1 percent in the first half of the year, up from a rate of<br /> <br /> 10. 8 percent at the end of 2008. The city has seen its share of struggles in industrial, though, with Duncan Aviation and Lincoln Industries announcing the first layoffs in either company’s history in the second quarter of 2009.<br /> <br /> In fact, while Lincoln saw 168,000 new square feet of industrial space added to the market last year, for the first time in 10 years, no additional industrial space is under construction in 2009.<br /> <br /> But Lincoln does have several positives going for it. For one thing, it is the home of Nebraska’s state government, which provides a strong employment base for the region. It also boasts the University of Nebraska. At the same time, the city’s business district is served by a solid mix of life insurance companies, medical centers and other small businesses.<br /> <br /> “Right now, like in every other market, retail is dead in the water,”Meginnis said.<br /> <br /> “We had some larger national retailers looking at Lincoln, but they are now putting those plans on hold.” A similar story in Omaha Vacancy rates are up in Omaha, too.<br /> <br /> But, again, the city is doing better than many other markets.<br /> <br /> For instance, according to market research by NAI Global, the vacancy rate for downtown class-A office space stood at 19 percent at the beginning of the year. For class-B office space, it hit 14 percent. The suburban office market saw vacancy rates of 11 percent for class-A and 15 percent for class-B spaces.<br /> <br /> Lenhoff, with Seldin, says he has seen signs of a recovery in the city, though.<br /> <br /> He points to the early stages of a residential housing recovery as a reason for optimism.<br /> <br /> “Seeing more single-family home construction is always a good sign,” Lenhoff said. “I personally think that we have bottomed out. It seems like we have taken steps to deal with credit problems.<br /> <br /> The question now is how soon will the retailers see positive growth again. That is the key.” As in other markets, developers in both Lincoln and Omaha are struggling to gain financing for any commercial construction projects they may be planning.<br /> <br /> This, of course, has been a significant challenge for developers across the country, and has been hampering any recovery in the commercial real estate industry.<br /> <br /> Scott Dye, partner in the Omaha-based law firm Baird Holm, says that developers today have to be extremely strong to gain financing.<br /> <br /> “Developers have to have a good project, obviously. But developers have to show that there is a market for their projects, too,” Dye said. “Most lenders want the owners to have some significant equity in the project to make the lenders feel comfortable. All these are pretty high hurdles to overcome in this market.” Like other observers of the commercial scene, though, Dye says that Omaha and the state of Nebraska are poised to come through the recession in relatively good condition.<br /> <br /> “We’ve experienced some of what the other markets have experienced, but I don’t think to the same degree,” Dye said. “Our unemployment rates are some of the lowest in the country. That obviously helps. The other thing that helps is that there hasn’t been an overabundance of construction in the office area.<br /> <br /> Yes, we’re down, but not as significantly down as other parts of the country, based on what I can tell.”<br />

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