Omaha Apartment Market, Pockets of Oversupply but No Worries


We continue to have positive views on apartment demand going forward. Occupancy has exceeded 95% for over two years. However, we view 2016 with some trepidation as a surplus of 500 units reaches the market in 2016. 

Market Breakdown

We believe the Omaha Metropolitan Area apartment market is heading towards an over-supply level of 500 apartments. However, this amount is fairly insignificant in light of the pace of job creation, population growth, and the overall amount of units in the market.

Three reasons support this idea.

  1. Supply is roughly in line with demand, but has slightly outpaced typical homeownership percentages.
  2. Multifamily supply has been in line with job growth, but has recently exhibited a ratio that signals some caution.
  3. The perceived amount of oversupply is not only a function of job growth. It is also a function of income growth. Construction costs have pushed rents to levels that many new entrants to the housing market will lack the means of stretching for rental payments in new projects.


Supply and Demand Equilibrium Levels

The Omaha metropolitan area has grown beyond a population of 905,000 and has a consistent level of household formation around 4,000 per year. With about 70% of new housing demand typically attracted to homeownership, rental housing stays at rough equilibrium between supply and demand at 1,200 units per year. That number is roughly line with current supply numbers, but there are signs that new apartments have begun to outpace growth.

As a percentage of total housing supply, multifamily units have, in aggregate over the past three years, exceeded the typical homeownership ratio by 2%. There were 3,041 single family permits issued in 2013, 2,639 permits in 2014, and 2,830 for the trailing 12 months ending September 2015. Multifamily housing hit 1,370 units in 2013, 1,533 in 2014 and 1,114 through September 2015. The sum of the three years shows that multifamily has been approximately 32% of new housing. Meanwhile, historical averages for homeownership in the Omaha MSA have hovered at 70%. In this instance, the oversupply of 2% translates in 250 excess apartments.

As an aside, the peak single family construction occurred in 2005, when 5,877 units were permitted.

Total Units

Units         Single Family    Multifamily    Total      % Multifamily

2013             3,041              1,370            4,411              31%

2014             2,639              1,533            4,172              37%

2015 ttm       2,830              1,114            3,944              28%

Total             8,510              4,017            12,527            32%


Job creation and Housing Demand

Apartment demand follows job creation levels in a fairly lock-step pattern. The Omaha employment market has been robust since 2012. Between the 2008 nadir of 437,000 jobs and the recent 2014 figure of 462,500 jobs, Omaha has created over 25,000 jobs. This level far outstrips the supply of housing by more than double. By comparison, the stock of housing increased increased by an astonishing 56,700 between 1999 and 2008, but jobs only grew by 26,200!

Typically market research firms such as Axiometrics use a ratio of 5 jobs per unit as a demand equilibrium ratio. In an ideal equilibrium, the 25,000 jobs created in Omaha since 2008 implies a maximum apartment supply of 5,000 units. In fact, over 6,000 multifamily units have been permitted between 2008 and the end of 2014. This implies a ratio of 4 jobs per unit. If one assumes a job growth rate for 2015 of just over 1%, it can be figured that 5,000 jobs have been added during the past year. The ratio for 2015 is, therefore, slightly better at 4.50.

The ratio of jobs to units at a sub-5 level implies an oversupply of about 750-1000 apartments in the metro area.

Year Employment Population Jobs/Population
1999 411,240 761,603 54%
2008 437,478 845,119 52%
2014 462,515 904,421 51%


Income Concerns

So far, we’ve established that an oversupply of between 250 and 1000 apartments exists in the metro Omaha area. While this number is statistically insignificant out of Omaha’s 100,000 rental units, the direct peer group for new construction is much smaller. The peer group for these units really amounts to about 10,700 units built over the past ten years. These apartments have been built at the top end of rental rates. In this case, a 5-10% oversupply is a number that deserves watching.

Why do we say this? The new apartment math requires an annual income of $38,800 per year. This is towards the high range for single person households who have recently entered the workforce. With young people graduating with significant amounts of student debt, the ability to afford rents approaching $2 per square foot per month may be under pressure.

In Conclusion

Apartment supply as a percentage of homebuilding implies a 2% level of oversupply – about 250 units. When a job ratio is applied as a benchmark, the oversupply level rises to between 750-1,000 apartments. Our best estimate is that the Omaha MSA is heading towards a 500 apartment surplus in 2016 that will cool the occupancy levels from the peaks enjoyed the past several quarters. Additionally, units being delivered to market must be cautious about the pressure of income levels. While employment growth has been robust, student debt is high and many new jobs are below $35,000 per year.

Are we concerned? Not yet. We believe that many of the areas receiving supply have been absorbed at a rate that has exceeded our own expectations. Meanwhile, some experts believe that the Midtown Omaha area is going to be pushing the limits of absorption by late 2016. Also, while supply may have been running ahead of demand recently, the level of occupancy has been in excess of 96% for a few years now. Anything above 95% implies a very tight market. In this regard, there is proof of continued high demand.

One final caveat: We are not in the camp that there has been a paradigm shift in home-buying attitudes. Millenials will eventually get married and have kids. This process may have been retarded by the recession, but it will continue.

Factory 12: A Proposal for 12th & Cass


Alchemy Development is one of two developers to submit proposals to the City of Omaha to redevelop a lot at 12th & Cass Streets in Downtown Omaha. The location is prominent for its proximity to the TD Ameritrade Stadium, Centurylink Center, and the burgeoning entertainment district on the north side of downtown. The project features 78 apartments and Alchemy Development is teaming up with the Old Mattress Factory bar and restaurant and Holland Basham Architects.HBA elevation

The Omaha World-Herald printed an article featuring the  two proposals for the site.

2 companies submit bids to develop prime downtown spot

POSTED: FRIDAY, SEPTEMBER 18, 2015 12:00 AM, UPDATED: 9:36 AM, FRI SEP 18, 2015.

By Cindy Gonzalez / World-Herald staff writer

Apartments with a view toward the home of the College World Series could be in store for a patch of city-owned land once embroiled in controversy.

Two local companies, Alchemy Development and Lanoha Development, have submitted proposals to develop the site at 12th and Cass Streets.

The last structure on the 33,600-square-foot area was a now-dismantled condo showroom and office for the failed WallStreet Tower project. The city had to turn to the courts to regain control of the Cass Street parcel after it sat idle for years as an out-of-town developer’s dream for the tower at 14th and Dodge Streets never got off the ground.

City officials recently put out a request for proposals to develop the 12th and Cass Streets site valued now at $910,000. The candidates are to be interviewed by a committee of various city department heads in early October. The top choice is to be approved by the mayor and City Council. City Attorney Paul Kratz said factors beyond price will be considered when choosing the winner.

Among the city’s objectives, according to public documents, is for the project to encourage a lively, pedestrian-oriented urban neighborhood that expands jobs and residential opportunities.

Both proposals offer residential living as a focus, but they look different and offer contrasting amenities.

Alchemy’s plan is primarily housing, calling for construction of a five-story, L-shaped structure with 78 apartments and indoor parking. A rooftop deck would be carved out of a top-floor space, offering a view of TD Ameritrade Park and the CenturyLink Center.

The $10.8 million project would seek $1.2 million in tax-increment financing and be called Factory 12 — a nod to the Old Mattress Factory restaurant across the street and to 12th Street, said Alchemy’s Bert Hancock. Owners of the Old Mattress Factory are signed on as co-developers. Also involved in Factory 12 are Holland Basham Architects and Dicon Construction.

While the Alchemy project won’t offer retail space, its street level will feature big glass windows through which pedestrians can see fitness and community rooms. “It gives it some liveliness at the ground-floor level,” Hancock said.

Competitor Lanoha proposes a four-story complex with fewer apartments, 45, but with office and retail space as well.

The first floor would contain retail and office bays, a lobby and 50 parking stalls. The second level would be made up of offices and a covered terrace, and the third and fourth floors would contain apartments. Lanoha’s design by Alley Poyner Macchietto Architecture also features a third-floor deck and a community space.

Jason Lanoha of Lanoha Development declined to disclose the project’s price tag. He said his firm chose a mixed-use approach to add around-the-clock action that he said would move north downtown forward. “When office workers are leaving, residents are arriving back home,” Lanoha said.

Hancock said he and his partners were attracted to the growing area of north downtown, even with the challenges associated with the property’s proximity to the Interstate. “We love the idea of being a part of what is happening on the north side of downtown,” Hancock said, citing the nearby CenturyLink Center, TD Ameritrade Park, Creighton University, the Slowdown and future development planned for the Yard parking site. “All of that points toward a direction of making the north side much more exciting, not just for entertainment, but as a place to live,” he said.

Kratz declined to provide any detail on the two plans, calling such details potentially proprietary information and part of an ongoing real estate deal. He said that although the request for proposals process has long been a way that the city sells or develops property, the improved economy and commercial market has led to increased interest in downtown parcels.

WeWork: Venture Capitalists Take Real Estate to Ludicrous Heights


Do you like the idea of hanging out with people in a laid-back environment where you have free WiFi, beer, and ping pong? Hell yes. Do you want to work in this environment? Hallelujah.

WeWork sounds like a cool co-working concept where users pay fees for differing levels of access and services. But when I saw that venture capitalists have valued the company at $5 billion, I needed a beer of my own to wash down this slice of fantasy.

Source: Bloomberg

Here’s the founder quoted in Bloomberg’s article:

Adam Neumann, WeWork’s Israeli-born co-founder, has called the company a “physical social network,” and it makes every effort to lubricate connections. “We gave 90,000 glasses of beer last month,” he said in a recent onstage interview at TechCrunch Disrupt NY 2015, “which is a number we’re proud of.” 

I get the general concept, and it is appealing: there’s probably enough people in New York, LA, Chicago and San Francisco who would rather pay a la carte for office space. There’s a cool factor as well. These aren’t beige-carpeted Regus office centers with a Bunn coffee maker in the corner. Non-dairy creamer is probably disdained at WeWork.

But a $5 billion valuation is preposterous.

There are many flaws in the venture capitalists’ assumptions:

First, they make the old argument that X is a multi-billion dollar market, and if we can just capture Y, we’ve got a home run. In this case, they estimate the size of the office market as being $15 trillion, so their whole value is based on the idea that they can capture just a thimble-full of the market. Unfortunately, capturing a market of users does not necessarily translate into profits.

The doubts pile up quickly:

A. Sorry, there’s just not that many freelancers. I know we’ve all seen the hype around start ups, but most new tech businesses generate zero cash flow for many months or years and are purely boot strap operations that can’t stomach a posh rent in a highrise office space. There’s a reason why a lot of Silicon Valley success stories got started in garages.
B. So where do most small companies and freelancers work?Their homes. Why pay double rent?
C. Open floor plans suck if you need to complete tasks that require focused concentration. I’ve tried it. It’s hell.
D. There are already competitors (and will be more)…including building owners themselves.
E. There’s a little place called Starbucks that has free WiFi. I’ve heard they have some locations around.
F. WeWork has no assets and relies entirely on leased space. Leases are a contractual obligation akin to debt. They may not get capitalized on a balance sheet, but they should be. The company will immediately be an over-leveraged behemoth with tremendous fixed costs.
G. Ping pong and beer are amenities, they’re also distractions for the others who actually need to work. Go to a bar.
H. They will need to hire a staff to maintain the spaces.

Here’s my biggest gripe: The article references Uber as a comparable. The logic goes something like this: workers share spaces and more efficiently utilize a common area by making use of what would otherwise be spare capacity. But is WeWork really like Uber? In the case of Uber, individual drivers carry all the risk and Uber only acts as a technology infrastructure for sharing transportation. If there is no one to pick up, its the driver who doesn’t make any money. In this model, WeWork carries all the risk.

If I was going to create an “Office Uber” I can see a better market where companies with existing leased office space (an advertising firm or insurance company) post available cubes and conference rooms for rent when they are empty. You probably have offices that only run at 50-75% capacity on a daily basis (ie, Don Draper heads to California for a few weeks), so there’s a lot of spare space that can be posted. I’m sure someone has already thought of this concept.

On the positive side for WeWork, there’s probably a health club model here – sign up tons of people at $40 per month and know that they only show up a fraction of the time of what they thought.

But $5 billion is a bridge too far.

Kilroy Property Trust is one of the biggest office landlords in San Francisco (if not in the the entire US) and their market cap is $6 billion. Ping Pong and beer are probably not included in Kilroy’s market capitalization, however, so there’s tons of upside.

Omaha: What buildings would you tear down?


Centre PompidouOver the weekend, the Financial Times ran a piece that gathered correspondents throughout the world and asked them to name a building they would like to see torn down. Usually the answer came in the form of buildings that wAsahi Buildingere designed hopelessly out of context with their surroundings. The answers ranged from the brutalist Soviet embassy in Havana which spoils the surrounding Spanish colonial treasures, to the garish Centre Pompidou in Paris, Rem Koolhaas’ “Pants” building in Beijing, the Asahi Brewing Company’s “golden turd” in Tokyo. The “Walkie Talkie” building in London, which recently had to undergo special facade treatments to reduce the glare that had caused dashboards to melt on cars below, also gets a mention.

It got me thinking. If I could wield a wrecking ball in Omaha, what would I demolish? My list would probably be short on buildings, but long on poorly planned infrastructure. Over the next few weeks, I’ll be putting together a top 10 list. Please send me your suggestions. I’d love to hear them. Here are a few items for today:

1. Central Park Mall – Gene Leahy Mall Gene Leahy Mall

Located from 10th to 14th Streets and bounded on the north by Douglas Street and the south by Farnam Street, the 9.6 acre public space was introduced to Omaha among a flurry of ill-conceived 1970’s-era revitalization projects around the country. It features a lagoon, symbolizing the City’s connection to the Missouri River, surrounded by a walking path and sitting areas. The problem with this mall is really obvious – it was built below street level. A huge mistake.

Rather than integrating an inviting public green space into the street grid, it attempts to be an oasis for City-dwellers to escape the bustle of surrounding streets. Unfortunately, placing the park below grade makes it an isolated and dark place that is the haven of homeless people and a threatening place to anyone seeking to avoid crime. Who really wants to visit the Mall at dusk when the drunk teens begin to take over the dark corners? Aside from the holiday lighting, there is nothing inviting about this dredged-up hole of earth.

The lagoon should be filled in. The park should be raised to street level and a nice public lawn should be installed for the use of the burgeoning downtown population in need of a space to kick the soccer ball, toss a football, and walk with children. It might add an amphitheater for performances. It would dramatically help to integrate the Holland Center with the Old Market.

Yes, renovations will be made to the Mall soon. But it will still be a depressing depression and a waste of a huge opportunity.

2. The Hilton – Red Lion – Doubletree Hotel at 16th and CapitolDoubleTree

This brutalist tower was Omaha’s signature hotel for many years. It’s top floor dining facility was once paneled with mirrors and mahogany-carved motifs of corn stalks. I think the odd steer could be found among the wooden foliage. I haven’t been up there in years, so it may have been remodeled.

The problem isn’t the hotel itself. Yes, its architecturally dated, but there’s nothing particularly wrong with a brutalist concrete structure here and there. They had their day and lets take them in the context of the designs of the early 1970’s. I can forgive the architects of this scratchy gray piece of pavement with windows. It was probably cool at the time.

What isn’t cool is how the site was planned and what it did to the neighborhood. The lobby side is raised above grade, so any hope of guests mingling with pedestrians is nil. That was the attraction of old urban hotels –  a gent could walk in off the street for a shoe shine and a haircut and admire the passers-by. Ladies could take an afternoon tea in the lounge. Livestock traders made deals over bourbon and cigars. But that’s impossible when the lobby is up a ramp on the second floor. I’m sure its effective at keeping the homeless away.

However, the front of the building pales in comparison to the atrocity on the north side. 16th Street was once a major north-south thoroughfare that passed through downtown. Instead, the hotel was dropped in the center of the street and cut off North Omaha from the rest of downtown. The Capitol Street side is devoid of any life – just gray concrete and service doors – as cars heading south on 16th Street have to hopelessly decide whether to shamble east or west. The area to the north was cut off from commerce, and it has taken 50 years for anything to occur in the wasteland it created.

One can’t help but think that the planning location of the hotel was a deliberate barrier to North Omaha. After the turmoil of the late 1960’s, downtown Omaha probably wanted to forget the race riots and strife of the north side. A giant monolithic wall of concrete was an effective barrier, but it was a planning disaster.

At the risk of sounding like a complete cynic and crank, its only fair to salute some planning decisions that have gone the right way. Today, I congratulate the 10th Street Bridge in front of the Durham Western Heritage Museum.

Designers could have gone with a plain concrete span with traditional OPPD “snake-head10th Street Bridge” street lights. Instead, they opted for a monumental structure reminiscent of Omaha’s golden railroad age. Embossed concrete elements remind one of some of the finest WPA bridge projects of the New Deal Era (the old L Street Bridge over the Missouri River comes to mind) and the historic lighting is top notch. It allows for parking and impressive views of the City when heading north.

Some may complain that its elevation is a little too high and blocks the facades of the Old Market Lofts to a degree, and they would be right. But overall, this bridge is an excellent tribute to the City’s heritage.


My Gift to Omaha’s Sewer


Our lawn sprinklers are getting a free ride.

Omaha has undertaken a massive sewer separation project mandated by the federal government. It will cost more than $1 billion. The means of paying for this project is fundamentally flawed: The new sewer system is paid for by increasing sewer rates by more than 50%.

Lawn Sprinkler Broken

There is a huge problem with this formula: When you increase the price of something, you reduce demand. By effectively raising the price of water consumption, the City has created a cycle of reduced demand that will ultimately result in a need for continually higher rates to keep up with diminishing volume as people buy low-flow shower heads, stop running the water while they brush their teeth, take shorter showers, etc., etc.

Look for the rise in rates to rise past all previous forecasts as consumption declines.

So here’s my advice for the day: As a commercial property owner, we have the ability to split our water meters in to several units. One of these meters is usually dedicated to a lawn sprinkler system. Why do property owners split the lawn sprinkler onto its independent meter? There are no sewer fees charged to these meters, only water fees. The theory is that lawn sprinklers do not use the sewer system and, therefore, should be exempt.

Anyone who has driven through a deserted office park after business hours will easily see that this is a fallacy. Water overflows the curbs at nearly every perimeter location. This water heads immediately towards its favorite sewer inlet.

Here’s my proposal (and it will directly hurt my pocket book): All sprinkler meters should be required to pay a sewer fee that is somewhere between 25% to 50% of the standard water meter.

Sure, it will reduce demand. But it will more honestly price how lawn irrigation water is used.

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



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.”