Industry Focus: Builders and Developers

Many builders and developers in the Silver State fought through the recession only to come out on the other side and realize there are new challenges facing their companies. Leaders in commercial building and development recently met at the Las Vegas offices of City National Bank to address these challenges and discuss opportunities in the industry.

Connie Brennan, publisher of Nevada Business Magazine, served as moderator for the event. These monthly meetings are designed to bring leaders together to discuss issues relevant to their industries. Following is a condensed version of the roundtable discussion.

How Healthy is the industry?

SCOTT LOUGHRIDGE: There’s still a very high uncertainty about our economy going forward. May 2016 is in pretty good shape, but 2017 and beyond [is uncertain]. We all rely on people wanting to spend a whole bunch of money on capital improvement. That money, being proportional to what they may have, whether it’s a $200,000 tenant improvement project for a dentist (that’s a huge amount of money for him) or a $20 million or $200 million capital improvement for a corporation. They’ve got to have the certainty of the economy to make that commitment. That’s my concern going forward. That uncertainty is underneath everything we’re dealing with right now.

MIKE SHOHET: Land availability is a big issue. Large contiguous parcels are just not that available for industrial development. They’re few and far between. With the BLM land-locking the city, it’s very difficult to find property at a decent price when competing with home builders and other land buyers that are willing to pay more for land.

JOHN RAMOUS: I’m concerned more about the viability of the smaller businesses that still want to come and have been the lifeblood of this city. We’re not going to be able to accommodate the demand for the small product. It just doesn’t make economic sense now. I’m not seeing rents going up to accommodate the cost of the construction. The “mom and pop” smaller business, the incubator-type tenants, that we have seen in the past are going to be squeezed out. We should all be concerned with that.

What effect will the elections have on Development?

LARRY MONKARSH: “I’m going to wait this out and see what happens in the election.” Every four years I hear the same thing from certain clients and it gets old real fast. I think there’s a definite danger. In regards to labor, I think the danger is if certain people are elected and they start sending people back across the border. Our labor problem is going to get even worse. I know it’s not the most politically popular thing to say, but I’m not necessarily in favor of that approach. I think it would benefit us to help solve that problem by finding a solution to that issue. That would also improve our labor market.

DOUG ROBERTS: We don’t like uncertainty. No business does. In an economy like the United States, which is diverse and large, every few years you have this happen. You’re used to it. I understand elections, but this is the most polarized election that I’ve ever seen by far. You can look back at the ones where guys were clearly not going to be elected. You kind of knew what was happening. Nixon was going to kill it and McGovern was not. In this case, you don’t know. That’s what’s spooky and that’s why I don’t like it.

What Workforce Issues is your industry facing?

SHAWN DANOSKI: Workforce is continuing to be a challenge, and it appears that it’s going to be a challenge for many years, not only for the craftsmen, but also for the supervisory and office project management roles. There’s not enough people in the colleges, in the programs, in the pipeline, to fulfill the needs of ongoing growth. We’re trying to grab and develop individuals that didn’t already have construction in their background. It’s going to take quite a few years for all of those who left the industry to shift and make a curve back.

MASON GORDA: It’s not just here in Nevada, but it’s rampant across the U.S. We’re literally turning down projects in markets where we don’t feel the labor is available anymore. It’s a scary thing out there. We’re watching the average age of the professional and the skilled worker approaching 50. Fairly soon, we’re hitting retirement for a vast majority of these people and we don’t have young people taking their place. The other thing against us is the upward pressure on the cost of labor. We’re competing with markets that are paying twice as much as we are here.

KEVIN BURKE: We’re also seeing the same challenge on the professional staff. Recruiting at the college level, the colleges and universities, the programs in science and construction management haven’t bounced back quick enough. For instance, BYU (Brigham Young University), in 2015, graduated under 50 kids. Back in the middle 2000s, it was over 100. So there’s a lot of companies recruiting and simply not enough talent coming out of the universities. It hasn’t corrected quick enough.

CHET OPHEIKENS: If you look across the country, the trend is the subcontractor default is worse because they’re taking on projects they don’t have the manpower for. As general contractors, we rely upon those subcontractors to fulfill their contract duty. The best subs we’ve had relationships for 25 years, the most solid guys out there, they’re falling. And that’s what’s really scary. Not the guy you’re taking a risk on, the guys that you knew and have been there by your side.

Does the declining workforce have to do with generational issues?

GUY MARTIN: Our millennials are an entitled group and they have a challenge with doing the work first. The way I was raised, in the trade, you did the work, and then you got a raise. You didn’t come in and make what the other guy was making because you have the same title or bought the same tools or wore the same badge. It was about production performance and that is lost today. It is hard work. Parents [need to] find value in their kids going into the trade or going into the construction industry. It’s a fundamental thing.

MONKARSH: I have five kids. I don’t think I have one child that’s interested in helping take over LM Construction Company when I want to retire. They’re just into other things. I used to go with my dad to meetings and I’d sit there bored out of my skull, but I learned by osmosis. If I had to take my kid’s phone away to lock in one of those meetings, I don’t think he’d have any interest in tagging along. That for me has been a big quandary. I’m third generation. Who’s behind me?

OPHEIKENS: I grew up in the field and working through the trade, from concrete to carpentry. Today you can’t even bring these young men out there to work in the trades until they’re 18 years old. Regulations don’t event allow you to do it. I’ve found with the millennial age is they’re way past wanting to get out and learn the trade at 18 years old. They’re more into IT and learning computers. With the computer skills and the level of professionalism that we have, the skilled tradesmen that we need in our field is lacking from the loss we’ve had from the recession.

SANDRA ROCHE: I have a little bit of a different spin. My father founded our company and we’re now in the third generation. Actually, two of my nephews are in the company and are starting from the bottom up and went through the construction engineering program. I will say for the management part, we are getting interns in their freshman year of college because the labor force is so small and we’re just hoping they’ll commit to us by the time they get out of college. There is a serious issue with getting the good construction management students, but they’re out there. We all need to figure out a way to inspire the families and the kids more.

Is industry training readily available?

MICHAEL DERMODY: Nevada is interesting because it’s a small state. To bring companies in, we say we’ll train your people. Advanced engineering? We can train you. We have skills at the university and they’ll train you right now. But for construction, people in the trades, we need more training in the high schools and early on. We, as a state, can be pretty unique in that because of our size. Instead of just trying to get labor, we can be one of the greatest trainers of labor that we need. At the end of the day, I think it’s about the training that comes down from the state and we, on the private side, focus early on in the school systems where we make the trades a very acceptable place where kids want to go. They can make money and they can get dignity.

MARTIN: This is a deeply passionate issue for me. When I was in the trade, my father wasn’t ashamed of what I did and he pushed me. If I wanted to be around my dad, I went to work with my dad from the time I was five or six years old. [Now] you got a guy that climbs to the top of the tower crane that’s making $150,000 a year, and he’s busting his butt to keep his kid from selecting construction as a career. There’s a fundamental issue with that, not an issue that the state can fix. I do believe that Nevada has the opportunity to swing a really big stick in becoming the vocational training headquarters of the United States. We have everything from mining all the way down to tech. We have the ability to vocationally be the mecca. The issue, though, is you have to have people willing to do the work.

DERMODY: I want to clarify one thing. When I made my comment, it wasn’t about getting a state program. Making us a vocational leader in the country requires getting the state aligned with that. This has to be a priority at the state [level] to get money. We’ll create the program.

CURTIS CUMMINGS: For about three and a half years, I actually taught the union apprenticeship program. It was a very cool experience because what I got to do was help cultivate people and grow people from seeds that knew craft, knew trade, and practiced it and had a right mindset. Part of it was attitude. If you don’t have the right attitude, you’re not going to get it right. There’s got to be a way that, collectively, like the minds in this room, could duplicate on the non-union side a way to cultivate and grow tradespeople. I honestly think if folks like us don’t do it, it’s not going to happen.

How are the municipalities handling increased projects?

RAMOUS: There have been delays in some municipalities. I do know [North Las Vegas] made a conscious effort to try and push things quickly and to try to be the best and quickest municipality. The municipalities have to be consistent. That’s where some of them are starting to fall short or will fall short if they don’t keep pace and really look at additional resources outside. Some don’t offer expedited looks anymore, which is going to be a concern. The volume’s starting to get back and the municipalities aren’t keeping pace.

MONKARSH: It comes down to a staffing issue again – qualified help in the municipalities to check your plans, do the drainage studies, to do the building department plan check reviews. Over the counter permits really have to be simple permits for you to get them over the counter anymore. They don’t have the staff for the volume. It’s funny because some of them say we need the volume to get the revenues to hire more staff, but it never seems to actually happen when they start getting those revenues. Are they actually adding that staff to those plan check departments? So it’s across the board.

GORDA: Some cities will allow you to bring your architect, your structural engineer, everybody right into City Hall for the day to work with the plan checker and process it that day and do it quickly.

LOUGHRIDGE: The city will do that, but the problem now is that it takes five weeks to get that appointment. So you’re not saving anything. The other issue, beyond the municipalities, is the Water District, Southwest Gas and Nevada power are killing us on projects. We get the job done and we’re still waiting for Nevada power. That’s an issue. I don’t know where the help is there.

What building trends are being utilized in nevada?

ROCHE: I’m on the USGBC (U.S. Green Building Council) board for Nevada, and that’s one issue we’re trying to bring the focus on again. The green is there, but one of the things we hear from all the architects and owners is that actually paying for the certification is the issue. What we’re not realizing is a lot of the buildings have the LEED and green in them and everyone is working towards that. The USGBC is looking for a way to make it cost efficient for the owners to want to take that next step. Schools, public works, they’re all looking at that, but they don’t actually get the certifications even though the buildings have more of it than you realize.

MIKE SHOHET: If you comply with ICC 2012 (International Building Code), you’re basically LEED certified. The only clients that we have that really see the value in certification are the big corporates, the ones that want to show it for their corporate responsibility. Smaller clients just don’t care. They want a building that’s efficient and that meets code. That could be green or LEED equivalent, but they don’t generally care.

LOUGHRIDGE: We started our LEAN journey about five years ago, and that was because one of our biggest healthcare clients adopted it. It’s a new approach, a new process, of building and developing a team throughout the whole construction and design process. I guess the correct terminology is: You go slow so you can go fast. On the [Henderson] Hospital, we spent a lot of time in pre-construction. So we spend cheap dollars thinking things through to save expensive dollars on the construction end. We’re right on budget. The original goal two years ago was we want heads in beds October 31, 2016. We were working with the city and they were helping us, but we still didn’t have a full building permit until December. We never changed that October deadline.

What lessons did the recession teach?

MARTIN: Don’t sacrifice with how you’re hiring people. Don’t sacrifice in how you run your job. Don’t change the type of company you are. And don’t lurch. That’s what we saw more people doing out of acts of desperation. I can say that because we did it. We went from a situation where we were doing almost half a billion dollars a year in revenue with 700 people only in Las Vegas. In 17 months, we were in nine cities in seven different states, and more than 90 percent of our revenue coming from a client that we had never worked for before.

DANOSKI: Don’t compromise your core values.

MONKARSH: The more desperate you become, the more you call, the more you chase, the more you show that desperation. It becomes a detriment to who you are. The best jobs I’ve had are the ones that just dropped in my lap. The worse jobs that I’ve had are the ones that I’ve been chasing, chasing, chasing.

MARTIN: When you work for a company or work for a client who doesn’t find value in the service you provide, it’s going to go bad. It doesn’t matter what industry you’re in. If your client doesn’t appreciate the level of service that they’re going to get, you may win the work, but you won’t like it.