Over the past decade, builders and developers in Nevada have seen a host of changes and have had to adapt to a difficult and quickly changing economic landscape. Leaders in this industry recently met at the Las Vegas offices of City National Bank to discuss the future of building and development in Nevada.
Connie Brennan, publisher and CEO of Nevada Business Magazine, served as moderator for the event. The magazine’s monthly roundtables bring together industry leaders to discuss relevant issues and solutions.
How Healthy is this Industry?
Lyle Brennan: If you buy right, you can sell right. That is getting harder to do. The cost of land is up, the cost of construction is up and there’s old product in the Valley. Speaking specifically to office, there’s a lot of old product and as those rents are coming up, they’re not keeping up with the cost of new construction and development to get the same type of returns we used to get. I would just say, bigger risks, bigger costs, lesser margins. It’s got me walking a little bit slower when I look at different projects.
John Ramous: I can speak for the industrial, it doesn’t seem like other product types are heated as much. Industrial does concern me for the short-term in certain submarkets, but overall it is a healthy, I do feel it’s a healthy economy. I think we’re a little bit more prone to, certainly, the larger global issues that dictate visitors and the numbers of people coming through the city. That obviously has an impact. But, I do feel pretty comfortable with where we’re going. I actually was more concerned a year, year and a half ago. Maybe that’s because we have a number of projects moving forward, we’re seeing some good activity and I still think it’s a desirable area to be. We’re still seeing the influx of companies coming here [who are] frustrated with where they’ve been.
John Cannito: The hesitancy is, can it keep up? Can it stay like this? Last year was one of our biggest years. The reality is, no one can see the future, but everyone that we’re working with, all of our clients, are very optimistic. A lot of the developments that are happening, the stadium, the convention center, it seems like it’s going to drive more development. We’re pretty optimistic.
Greg Korte: I would say the biggest challenge is workforce. [This is] not just Nevada’s problem for our industry, but the country’s. Skilled labor and management positions [are needed]. Right now we’re controlled on growth by our ability to bring people in the door that we have confidence can manage the work. Whether that’s estimating, project management or superintendent positions. It was exacerbated by the downturn in the market.
Jeff Wood: Over the last couple of years, we’re getting the number of folks we need on our jobs, that’s not been a problem. [The problem has been] more so the quality, experience and level of training they show up on our job sites with, whether that’s our own forces or subcontractors. That’s been a huge focus of ours.
How will Workforce be Impacted Moving Forward?
Wood: Around 80 percent of the workforce on [the Allegiant Stadium] is from Nevada. It’s going to help with the problems that we’re having and then with a sustained outlook going into 2021. We’re hoping that there’s no real downtick and everyone can stay working.
Guy Martin: I love the workforce where it’s at because it’s keeping the lid on things. I can’t build a tilt-up in six months anymore, nobody can. I’m more worried about the skills and talents. What I’ve recognized on these mega jobs is the skill and talent that the iron worker has, that’s working on that project 300 feet off the ground, hanging iron all day, is not transferrable as easily to a two-story structural steel infill in an office building, it’s not the same person. The minute it was not longer noble to follow in your father’s or your mother’s footsteps to take their spot in their trade, the minute that nobility left, is when [the workforce shortage] problem started. It’s the fifth, sixth, seventh grade that the derailment happens. Is it a generational thing? I believe so. I do believe that it has to be fixed at the fifth, sixth and seventh grade levels. The hurdle of it is, the nobility is gone from the trade. We’re not viewed as a safe solution. There are probably very few industries out there that’s come further with the spend on safety than construction. For man hours worked to safety incident, we’ve probably spent more money per man hour than any other trade out there other than, maybe, mining. The strides have been unbelievable.
Lance Gilman: You hear [labor shortage] talked about, but everything is getting built. I think maybe the worry and the reality are different. Certainly, Tesla has gone up in a reasonable amount of short time. They’re finding the trades, they’re finding these individuals and they’re coming to the market.
Cannito: I think it’s a little dangerous to set a premise that we have labor shortages. I don’t think that’s true. Like [Lance] said, somehow the work is getting done. Three or four years ago, nobody would have seen all the work [we have]. The work that’s going on right now, nobody thought that there was enough labor in town to do all the work that’s going on right now, and it’s happening. The industry, by nature, is a problem solving industry. We touched on the one problem that we’ve seen more than anything, which is skilled supervision. We’re seeing a lot of skilled supervisors that are starting to retire, leave the industry, and we’re not seeing that replaced. That’s a longer term challenge that we’re faced with. We’re not really seeing the challenges, we’re getting the projects built with the labor force.
George Garcia: The good news about having all these problems is, it’s all attributable to growth. Is it going to continue or slow down? We’re all concerned it might slow down. Dealing with the problems we’ve had, like growth, are certainly wonderful problems to work on. On the government side, the workforce they have, when the brain drain occurred during the Great Recession, a lot of those people left. The knowledge and the quality of people in government struggles dealing with all of the projects we bring to them, both the skill level and the number of people they can put on the job. Everything that government is doing has slowed down since the Great Recession dissipated. They’ll probably never catch up until we slow down.
Do the Municipalities Understand the Challenges Delays Cause?
Frank Marretti: Our biggest struggle is the government. It really is slowing things down. Time is money from a developer’s standpoint, as we all know.
Garcia: [There are] two things they’ll all tell you. They understand that we want more certainty, predictability and that growth friendly environment and they understand that time is money. If you look at how many of them have business experience and can really say, not from an intellectual standpoint, that they sort of understand it, but that they really understand, I think that’s a different thing. They don’t experience [the business] as we do. Action we take shows up at the bottom line, for all of us. There is a bit of a disconnect in truly understanding that, while they intellectualize [the business aspect], I don’t think they really comprehend it and they certainly don’t feel it.
Larry Monkarsh: I think they’re trained not to take that into account when they’re making decisions. When you go and you make an argument for a project to a town board or to a city council, the last thing you want to do or say is, “Well economically I can’t do that because it won’t make sense.” That’s not their concern. Their concern is for public safety. On a personal level, when you go down and meet with these people, one on one, you can establish a rapport, then they’re more willing to work with you to figure out. But, at the end of the day, their training inherently says, the economics of your project are not really their issue.
Garcia: Very clearly, and they’ll tell you that. In fact, their codes say exactly that. It’s not their concern. You do have to sit down, one on one, on a project-by-project basis. That education, that direct contact, those relationships become critical.
Martin: Each one of their rules and governance are because somebody was hurt. We’re not the causality of what we’re dealing with. That’s what aggravates us more than anything else. We’re all partners with the community, we’ll do what’s right, but we are all falling victim to the least performing people in each of our sectors. Why are inspectors so hard on contractors? Not, typically, because of us, but because of the contractor’s job they just left. These folks have all these systems set up for the least performing people and there is no way to work through that for the top performing people.
Is Paying an Expediting Fee for Entitlements a Working Solution?
Reed Gorresman: The City of North Las Vegas has hired third-party engineers to do an expedited [service]. That’s been very helpful, for us.
Garcia: It’s a mixed bag on expediting. You get to the expediting until everybody expedites and then there’s not enough staff and they refuse the overtime. In [Clark] County they had to create a lottery, there were so many people in the expediting [queue]. In some cases [expediting provides] great results, in other cases, you spent money to be in the same position you’d have been in if you went the ordinary route.
Monkarsh: The customer gets confused [by expediting]. I can’t tell you how many times I get a phone call where we talk about timing and how to get plans through the building department. [The customer will say,] “Well I was told by so and so contracting company that I can expedite.” And you say, “Technically that’s correct but let me explain to you how that works.” You lose them, every time, oftentimes they just go away. They don’t want to deal with the headache. And we’ll compete straight out with anybody. But, we watch out for those projects where there’s contractors who are going to try to do something that’s not going to be fair. There’s a lot of professionalism for sure. Especially when it comes to being a part of the community. The one thing that this industry in general does, especially in Las Vegas, is get very involved in the community with charitable organizations. Most people in the construction industry in Nevada really care about Nevada and the community and they work to try and make it better.
Martin: One thing I would tell you, and this is true across both developers and contractors, when you get to the top 10 percent of the performers they become peers and not competitors. When that transition happens, that’s when the professionalism shows up. I can go tour the stadium they can come look at the convention center, we can go tour World Market Center. These are peers, they’re not competitors, there’s a point where that changes. One of the ingredients in that might be the job. We chase schools against McCarthy all the time. In that mode, we become competitors but the reality is when somebody from McCarthy picks up the phone and says hey what do you know about this guy, what have you heard about that sub, what do you think? We talk a lot. When you get to that level of performance, you change from a competitor to a peer in the market.
Monkarsh: You see collaboration in competitive bids where somebody will call up the other guy and say, “Did you write that RFI (request for information)? What did you see that we didn’t see?” We all want to make sure that we’re doing apples for apples and that nobody has an unfair advantage.
Gottesman: Oftentimes we play from strength and if there’s questionable characters involved, maybe it’s not the right project for us.
How Safe is this Industry?
Wood: We’ve enacted a three part safety orientation. A lot of times people will show up on a job site, they’ll watch the safety video, get the sticker on their hard hat and they leave. Our [safety training] is over a 90 day period. We found that a lot of incidents happen whenever employees are new to the job. That [advanced training] is some – thing we’ve had a lot of success with on [the stadium] job.
Martin: It’s an awareness thing. Every single accident that happens on a job is preventable. AGC (Associated General Contractors) of America put out a statistic a few years ago that said 75 percent of loss time accidents happen in the first 60 days on a job. We have a very specific process and emersion that we put people through in the first 90 days. [This work is] inherently dangerous, that’s why our industry has put more money, effort and focus into safety. You see dollars per incident, dollars per man hour, we’re spending more money on safety today than ever.
Cannito: Safety is the one area where I would say nobody [is competitive]. We would share anything we know about safety with anybody.
What do you Think the Economy Holds for You in the Next Year?
Cannito: We’re optimistic. We think we’ll be talking about the same challenges, these are good challenges to have.
Gottesman: I feel good. All the high cost, high tax states are feeding us and, for the foreseeable future, it’s going to keep going. We’re good until the supply [of land runs out]. Maybe next year, we’ll be talking about the supply of land. That’s our next potential challenge.
Ramous: We’ve got enough projects going right now that it’s going to continue for the next 18 to 24 months.
Garcia: Building on that is, how are we going to generate another wave that’s a result of what we’re doing now? That’s what we really want to look for. We already have this wave coming, how is that going to help build the next wave and what will that look like? What are we doing to help that wave and what are we doing to adapt to it and make it happen?
Gilman: We’re very bullish on the northern market, there’s still a tremendous amount of demand up there for big business. That’s one of the reasons that we’re looking at land out in Fernley, to reproduce about a 20,000 acre park, being very sensitive to the fact that pricing of the land is very important. That was a key element at TRIC (Tahoe Reno Industrial Center). We had an abundance of land and we held the cost down. We like the focus on the rural areas. When you go to the rurals, you find a healthy environment and attitude. We have development agreements [in Storey County for TRI] that are unprecedented. All industrial use was preapproved. [You can get a] grading permit in seven days, a guaranteed building permit in 30 days on 4 million square feet. It’s been an amazing project. The regulatory environment was taken out of the equation and what a difference that made. We were able to control our own destiny and put a developer-based building program together. We had to front all the costs, we put about a $100 million dollars into infrastructure. We put it all in, day one and then we said, “Here’s a grading permit in seven days, a building permit in 30 days, please come.” And, by golly, they really did. That’s not over, in my world, today. That’s the reason we’re working very hard at putting another 20,000 acre park out in Fernley.
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