When Jason Fisher and his team launched efforts last year to buy the downtown Omaha Landmark building, they thought that a fresh wave of companies was about to hit the urban core.
Other cities across the country were seeing a trend toward downtown living and working. Locally, construction costs were rising, making rents at the already-existing Landmark an attractive alternative to new suburban digs.
On top of that, Fisher noted, the glassy Landmark office tower had a parking garage and spectacular views from its 15-story spot between two tourist magnets, the Old Market and Gene Leahy Mall.
Tenants didn’t rush to 1299 Farnam St., though.
The 275,000-square-foot office tower sat half-empty, a lingering reminder of the 2015 exodus of Pacific Life Insurance to a new central Omaha campus. The Landmark’s new ownership group switched to Plan B: It’s now turning a hefty chunk of the complex into a boutique hotel.
“Market conditions we thought would be steering companies downtown just didn’t seem to be coming to fruition,” said Fisher, an investor in Avaden Landmark LLC and president of the Lund Co. “Omaha continues to spread west, and CEOs are having a harder time looking at downtown as an option.”
The Landmark helps illustrate challenges of downtown office development. Fisher and others say the coolness factor of working in a historic area near sporting venues, theaters and the brain of city government has not been enough to squelch concerns many business leaders have over commute times and what some of them see as a shortage of convenient parking.
Of course, there are bright spots on the horizon — including a confirmation by Mutual of Omaha Bank that it plans to move its corporate offices into the Landmark. Toast, a Boston-based software company, reportedly plans to open an office downtown. And Fortune 500 member Kiewit Corp., now based at 35th and Farnam Streets, plans to build a new headquarters that would bring up to 650 workers to north downtown as early as 2020.
Yet downtown awaits other heavy-hitter employers to fill available prime sites and to increase daytime bustle. Business leaders and real estate officials say mass transportation options and better parking could help strengthen the core.
Often, downtown loses out to office spots farther west, where employers provide free or cheaper surface parking and workers are more plentiful. Of 18 office buildings currently under construction in the metro area, two are in the downtown/Council Bluffs market area, according to real estate analytics firm CoStar and World-Herald reports.
“We talk about our unemployment rate and pat ourselves on the back,” said Steve Sheppard, first vice president of Omaha’s CBRE/Mega Real Estate. “That is a great thing, unless you are an employer trying to hire people. It goes to, where can you best recruit and hire employees? A lot of people say that’s out west.”
What it will take for downtown to build its mojo — and daytime workforce — has become a front-and-center topic in the wake of a city-chosen developer giving up on its four-year effort to develop the site once occupied by the Civic Auditorium.
That setback follows previous hits including Conagra Brands relocating its corporate flag from the downtown riverfront to Chicago, and HDR’s decision not to build its 1,000-plus-worker world headquarters downtown after all, but instead at Aksarben Village.
More recently, Wells Fargo Bank sold its 160,000-square-foot office complex at 1919 Douglas St. to a developer who plans to convert the former work space into apartments (a bank branch will stay).
Cassie Paben of Tetrad Property Group, the lead developer that had been working to transform the four-square-block Civic site, said a corporate employer was “very close” to becoming an anchor tenant that could have brought more than 1,000 workers and a 400,000-square-foot office structure to that tract.
She declined to name the business but said: “It would have been a big game-changer for downtown.”
Mayor Jean Stothert has said discussions fell apart on the Civic property because the developer sought more than the roughly $60 million incentive package the city offered. Paben said the terms presented were demands of the tenant.
Paben, who served as Stothert’s economic development adviser before taking the job with the private developer, said she remains optimistic about downtown and believes long-term success is also dependent on attracting a mix of smaller businesses.
Currently, the downtown office market is still digging out of a dip exacerbated by the 2016 downsizing of Conagra. Three years before the Conagra changes, the 2013 downtown vacancy rate was under 10 percent. It worsened to nearly 14 percent in 2016, and by the start of 2018 had improved to 12.3 percent.
Last year, businesses leased a net 130,000 square feet of additional office space downtown, according to figures compiled by Omaha’s Colliers International. While not as good as the nearly 170,000 square feet gained five years ago, it’s better than the five-year downtown average of 60,000 square feet.
Big-vision plans that have surfaced for downtown tracts — including Lot B near the CenturyLink Center, the city’s main library property, the former Union Pacific headquarters block at 14th and Dodge and the Conagra campus — have sparked both optimism and caution from real estate experts and business leaders. The question remains: Is there demand to fill the sites?
The Conagra proposal alone, which is led by a Houston-based developer, foresees up to 500,000 square feet of office space, 900 residences and a hotel. The River’s Edge project on the Council Bluffs side of the Missouri calls for about 200,000 square feet of office and retail space (the Iowa West Foundation is filling one of the four floors in a building now rising on the site).
Even on one of the most high-profile corners of the Old Market, a newly rehabilitated 15,000 square feet of office space has been on the market for a year.
“It’s space for that unique type of user that wants to be downtown, and with that, understands there are some potential challenges with parking,” Colliers’ Kristi Andersen said of the area in the historic Woolworth building. “For the right user, it’s going to be an amazing space.”
The $205 million Capitol District development at 10th Street and Capitol Avenue has yet to fill numerous retail bays. Construction has yet to start on a building there that earlier was envisioned as a three-story office and retail structure.
Jon Blumenthal, a real estate attorney, says the downtown market may have reached a “saturation point” for office leasing. “The fact is the city has to continue to attract new companies to be able to absorb all the downtown office vacancies.”
Barriers include parking, he said, and new suburban projects pulling companies in other directions.
Blumenthal’s law firm, Baird Holm, is a tenant in the iconic downtown Woodmen Tower and had considered moving to build its own home. But, he said, “the reality is that the rapidly increasing costs of new construction was a deterrent to constructing a new building.”
Meanwhile, companies such as travel data firm Sojern and Lindsay Corp., a manufacturer of farm irrigation and road infrastructure products, opted for a new home near 180th Street and West Dodge Road — after looking downtown.
Sojern’s Brent Brummer said the growing company with a local crew of about 150 didn’t want the extra commute and parking challenges of downtown. It settled on a 40,000-square-foot home not far from its existing main office.
Lindsay’s Brian Ketcham said his company was mindful of future recruitment when choosing a site for its new 55,000-square-foot world headquarters. He said a west Omaha address was more convenient also for workers who travel back and forth from its plant in Lindsay, Nebraska.
Ron Cizek, developer of the under-construction multitenant office structure Sojern and Lindsay soon will move to, already is planning a sister building next door, even before he has tenants.
Tim Kerrigan, vice president of Investors Realty, said new top-notch offices could trigger more activity downtown, too. But he said constructing so-called speculative space without a tenant in mind is “a fairly significant leap of faith” most developers won’t touch.
Mike Moylan of Shamrock Development, who has been transforming pockets of downtown since 1995, said public transportation options are key to luring more businesses. He believes the hotly debated streetcar line from downtown to midtown could provide more convenient access to offices. Moylan led development of the Capitol District and the Paxton condominiums, among other projects.
Todd Heistand of NuStyle Development, who has brought hundreds of new apartments to downtown in the past few years, agreed. He foresees big employers coming, “as long as we solve the parking problem.”
“Bottom line, it’s not going to happen unless we fix the parking issue.”
The City of Omaha’s parking manager has said repeatedly that downtown has plenty of parking overall. Ken Smith is guided by a 2014 report that said smaller, specific parts of downtown face parking problems, and the city needs to find ways to increase access to downtown’s decent supply of unoccupied parking.
At the Landmark, turning four office floors into hotel rooms that require relatively little parking left sufficient on-site parking for Mutual of Omaha Bank’s incoming team.
Fisher said the bank’s 10-year lease commitment is a definite win but doesn’t change his view that downtown is too sluggish in luring office users. He said he’d feel more optimistic about a healthy downtown if traditional suburban employers were to start turning attention eastward.
“That’d be a shot of penicillin,” he said.