Cost to Develop
Concerns over rising costs was a centerpiece discussion.
All costs are increasing from land to labor; insurance to materials.
Architects and construction companies that are using cost schedules older than 1 year get back bids 20-30% higher. If they can find subs to bid.
Positive Change: Construction is turning back to a team approach with their subs instead of a beat down bid model.
Land
Developers hold all the prime tracts of land, especially in Omaha. This has driven the price of land up almost faster then the land can be developed.
The I80 corridor is an under developed stretch. This could finally be the push to link Omaha and Lincoln.
Industrial land is very under served. Industrial is running at a 2.8% vacancy rate. Pressure in on for higher asking rates. New industrial land is being developed at $6-$6.50 for just the shell.
Positive Change: Infill construction is happening both for residential and commercial projects.
Positive Change: "Different deals are being done. We are seeing lease backs and joint ventures more and more." according to Todd Richardson, Husch Blackwell.
Labor
Universally, labor shortages and rising labor costs are an ongoing concern. This shortage impacts everything from cost to scheduling to missing start windows.
"From the Kiewit Institute at UNO, there were 14 engineering graduates this May where before the recession there were 40." stated Andy Stine, Kiewit Building Group, "Company wide we have openings for 27 engineers."
Positive Change: Housing starts and multi family developments are increasing. And Omaha still has a shortage of housing.
Changing Regulatory Environment
Regulatory concerns are a standard conversation. The difference is - so many regulations are still being "written".
Commercial lending is in this position. While construction professionals are used to this type of change, bankers like stability and well defined rules. The numbers are just changing. The ratios for equity allocation, hold back and appraisal values are being rewritten. This is changing the asset pledge balance and how owners are structuring loans.
Positive Change: Project owners remain optimistic. Regulation changes are just a cost of doing business. They are attracted by low interest rates and are extending maturities now.
New Opportunities
Many owners are turning to unique project profiles to get everyone
excited. The new Think building is a prime example. Think combines a unique medical team approach with medical, dental and vision along with spa and health store services. Other locations for the Think business model are being scouted.
The retail sector is in desperate need of innovation. Retail owners want online sales and are not as interested in brick and mortar across the country. Restaurant concepts are also in need of a new wave.
Lincoln has been leading the way.
"Along Antelope Valley, the new live-to-work Nelnet project has breathed new life into Lincoln." Tom Soukup, West Gate Bank, reported. "The new Hudle office in the Haymarket, student housing on UNL campus and the redevelopment of 48 & O is booming."
Positive Change: The population shifts of boomers to right sizing and career changes married with the demands of the Millennium generation is creating opportunity.
How we embrace these positive changes is the business challenge.
*Jerry Slusky is a partner at Smith Gardner Slusky with his main practice in commercial real estate, and the founder of the CRE Summit. The CRE Summit is currently planning its 27th year of continuing education to the commercial real estate and legal community in Omaha, Lincoln and Council Bluffs. Information is available on the 2016 CRE Summit for upcoming Friday, April 8, 2016 event, and to view the education seminars from 2015.