Industry FocusBuilders & Developers

Like many other industries, builders and developers have been dealing with a multitude of COVID-related issues, from supply chain disruptions to market uncertainty. Building and development leaders have been challenged with remaining flexible on projects and adapting where possible. Recently, leaders in these industries met in a virtual roundtable, sponsored by City National Bank, to discuss Nevada’s building landscape moving forward.

Connie Brennan, publisher and CEO of Nevada Business Magazine, served as moderator for the event. These monthly roundtables bring together industry leaders to discuss relevant issues and solutions.

How Has the COVID Pandemic Affected Your Industry?

Sam Nicholson: We had four hospitality projects that were put on hold due to COVID. The capital market right now is a little skittish on hospitality. It’s just a challenging market right now. We’re seeing some success in office space and, amazingly, some retail.

Scott Loughridge: [It’s been] pretty hard to predict. Every week we were in reactive mode, trying to figure out what the CDC or the governor was going to decide we could or couldn’t do and whether we were essential or not essential. I’m glad to see 2020 gone. Hopefully we’re on the downhill side of this COVID thing and things will start to get back to normal. ‘

Neil Sansone: We’re currently in the midst of designing a variety of different multi-family, mixed-use projects. Those have been delayed, slightly, due to COVID but are still on track. As far as issues with the market, there have been cost increases in construction. Everything, from regulations, permitting and construction costs, have all been huge challenges to overcome in the last year. In addition, our single-family home portfolio took an interesting hit with the regulatory concerns of being able to collect rents, evict tenants and even sell some of the homes.

Jim Donofrio: When COVID hit we were lucky enough to have work on the books going in. We’ve had projects, mostly in the hospitality sector, that had been pulled out from under us and are either on hold or shelved permanently until everybody can figure out what’s going to happen with the hotels. We’ve shifted gears and tried to use some of our experience in other sectors [such as] office, industrial and medical. Luckily we’re small and nimble enough to shift on the fly.

Larry Monkarsh: We strictly do industrial, so we’ve been lucky through the pandemic era of this last year. Even though our projects were stalled, they’re now moving forward. We were able to take advantage of the PPP (paycheck protection program) and keep our people working, keep them paid. So, as we get ramped back up again, I don’t have to go out looking for staff. We didn’t furlough anybody; we didn’t lay anyone off. We kept our superintendents. We kept our project managers. We’re actually still looking for another set of that staff to work some of our projects.

How Have Supply Chain Issues Affected Your Projects?

Chet Opheikens: I would have to say as far as [our] challenges it is inflation – hyperinflation is what I’m afraid of. I am not saying it’s quite here, but the impact of COVID [is significant] for our suppliers and materials getting here on time. The compression that it’s bringing into our schedules [is a challenge].

Loughridge: The biggest thing we see [increasing] right now is supply chain pricing and, maybe even more so, logistics. It’s becoming more and more difficult to manage budgets and schedules. Part of the problem is, we’ve got corporate clients that think there should be a “COVID discount”. Everybody is raising prices, not lowering prices, especially in Nevada. We see that as a short-term issue and try to be proactive, but it’s difficult to know from one day to the next what our supply chain is going to be doing. I’d say [subcontractors] are definitely not raising prices just to raise prices. There is a COVID factor to add to labor now because we’re doing a lot of CDC requirements on job sites to keep people safe.

Monkarsh: We’re looking at a 30 to 35 percent [increase], in some categories, where we’re seeing things jump. The challenge is finding a workaround. We have a new tilt wall system. We’ve found ways to replace rebar and install something that’s just as strong to get around the rebar increase. For the materials issue, with lumber, there are natural disasters. You’ve got California and Oregon wildfires and Canada shutting down mills so you can’t get lumber. You’ve got hurricanes and floods in the Gulf that are shutting down factories processing pipes. You’ve got the fluctuation in oil up and down. These natural disasters have contributed to the material price increase.

Jeff LaPour: All the markets we’re in, between Colorado, Arizona, and Nevada are facing the same pricing pressures. I think there are markets that are more expensive to build, but, in general, everybody’s facing sort of the same pressures.

Sansone: For us it’s been lumber. We’ve seen almost a 260 percent price jump from about this time last year when we’re putting projects out to bid. In the last 12 months everything from metal stud framing, [concrete] block wall and other supply chain issues have caused shortages. For our ground up construction, it’s made it very challenging.

Kevin Burke: We were doing an office building for LaPour Partners when we started to head into this time period. I went back and looked at parallels to the great financial crisis and I said, “We’re going to see cost deflation, right?” I’m telling you I was wrong. From April to October the producer price index, essentially material inputs, went up six percent in a time of a pandemic and recession. It’s hard to understand. I understand the supply constrictions, but if you see a softening in construction demand and construction starts, it just seems there’s a bit of disconnect there.

Donofrio: Looking back at when the recession hit, prices for materials went up, but labor stayed the same. The only thing that happened was there was less work to go around for everybody. The toothpaste is out of the tube as far as material prices.

Tom Warden: In the home building industry what we’re seeing [increases in] most is lumber. Trusses in particular, but also compressors and steel pipe from Mexico. Some of the home builders can’t get appliances that people purchased for the homes. That’s how tight some of this is.

Does Availability of Land Continue to Be an Issue in Nevada?

Keith Earnest: The biggest challenge we’re looking at right now, from a commercial perspective, is the availability of large parcels of developable land. For the distribution market, our best friend is the state of California because of all the restrictions that happen there. We are blessed with quicker entitlements, but it’s a challenge to find good land to facilitate large e-commerce and distribution users.

LaPour: Land availability is absolutely critical. We’ve had challenges in certain parts of the valley with being able to get [large parcels]. If you’re in the southwest, which has a very strong demand on the 215, it’s highly unlikely in today’s world you’re going to get more than a 5-acre parcel together in one continuous space. North Las Vegas and Apex has not had that issue and the boom in that submarket has been relatively new; it’s a five-to-six-year trend. The municipalities here have to make a decision on how important employment is to this market because the commercial development market has, historically, yielded to the residential market. Municipalities have shown a strong willingness to take commercially zoned property out of production and allocate it to home building. That is one of the biggest issues that the Valley has faced, on top of the already tight land supply based on federal ownership. I’d go so far as to say there hasn’t been any master planned communities, any large residential land buys, that even had a portion allocated to industrial business park type uses.

Warden: [I don’t expect] a BLM auction; I don’t know when they’re going to get [land] back onto the auction block. My colleague, who is the senior vice president of land sales, would tell me to say Summerlin has got thousands of acres of land. We feel we’re in a blessed position because we still have five thousand or so acres, even though that requires a great deal of infrastructure. But we absolutely see and acknowledge that land is tight across the Valley outside of that.

Rod Martin: [In a BLM auction,] the industrial developers would be out bid by residential developers. On top of that, the process of the BLM auction is difficult for those that are developing industrial land. Looking at the appraisals that the BLM is bound to, even those that Clark County is bound to, and oftentimes those numbers don’t make sense for industrial developers and there’s no adjustments made to those prices. I don’t blame the appraisers. They’re looking at what the comps are and the comps are being set by the home builders. Therefore, prices are being set to commensurate what the home builders will pay, and you don’t see commercial developers able to participate in that game. Although there have been a number of sales, it’s rather interesting when none of us can point to one sale from the BLM that ultimately went to an industrial developer.

How Have the Municipalities Been to Work With in the Past Year?

Opheikens: I was scared to death when I heard [they’re going] paperless at the county (Clark County) and city (Las Vegas) but things have gotten much better.

Donofrio: The biggest problem for us with COVID is that all the municipalities, all of the utilities, I equate to the DMV – you can’t talk to anybody. You can’t get plans through. And the plans we get through and permitted have so many revisions. It’s just crazy. The plan checks have been farmed out to third-party reviewers. We’re getting crazy comments back on plans that has been bringing the permitting process to a halt. I’ve never seen anything like that before. It doesn’t make any sense to hold up projects when they can’t collect [fees] and all they’re doing is drawing the process out. It took us 21 weeks to get a permit on Planet 15, and we had eight rounds of revisions. This was a multi-use interior build out. It wasn’t like we were building anything new, we just had everything installed in one big warehouse.

Loughridge: The people that do it well i.e. Henderson are still doing it well. Their challenge is just like everybody else’s, but they seem to have the right solutions and formula. The city [of Las Vegas] is not bad; we’re getting along well with them. [Clark] county is, always has been and remains our biggest hurtle to get over. We’ve got one project that had minimal offsite work that we [submitted] in August [2020] and we’re hoping to have a permit in March. It befuddles me that it’s taking this long to get through the process. We are going to start losing, if we haven’t already, people coming to town. The first question they ask is how long it will take to get a permit and you tell them you’re looking at a year. They go, “Oh, okay. We’ll go over to Arizona or someplace else.” Our politicians need to address that or it is definitely going to be an issue.

Nicholson: We’re experiencing the same thing. It’s taking twice as long to get through planning now as it did [preCOVID]. They’re not having any face-to-face meetings, or even telephone conversations, when you do a submission. The timing of that takes literally twice as long as it did a year ago. And we’re [also] seeing comments back from the plan checkers, in the context of a dozen pages of comments. It makes the process very arduous. I don’t know why that is. We’re seeing that consistently, not only with the building plan checkers but with public works planning. In Henderson they get it, they’re still trying to do a good job making sure things get though expeditiously. The city of Las Vegas is in the middle. It’s always a challenge for us and its always conversations we’re having to have to see what we can do to get [projects] pushed through.

Monkarsh: We’ve got two projects we’re trying to get out of the 100-year flood plan so we’re having to deal with FEMA (Federal Emergency Management Agency). The FEMA process is 18 months. You can point your finger on some of these deals back to the municipality but now if you’re going to get into the BLM, you’re dealing with the federal government. We all know how dysfunctional they are in getting something through. That’s some of the reasons we’re experiencing delays in permitting. We’re now dealing with problems that were kicked down the road. Now it’s time to pick those up and deal with them.

Neil Sansone: I agree with everything everyone has been saying. Our issues in the county have been far worse than those in the city of Henderson. Plan times have more than doubled. I think it’s a combination of the bureaucracy, COVID and staffing issues they’ve had since the last recession. The issues we had in our permitting process on our Rainbow office building is similar to what [everyone] said. It’s taken two to three times the amount of time it should have taken with six or seven revisions we went through and two different plan checkers. The new one had to start from scratch because they didn’t know what the old one was talking about. The stuff they were coming back with was not, “Hey, we want you to bring ‘X’ and ‘Y’ up to code.” It’s, “We just feel your asphalt should be six inches thick in the drive,” with no justification or reason. Your choices are to either fight them and hope to reduce cost down, or to move forward and pick your battles.

Warden: The county lost 400 jobs that were either furloughed or laid off. It’s going to be years before all of those are rehired. You’ve lost institutional knowledge. It makes it really hard to get things done. I don’t know if this one is going to be solved any time soon.

How Has Your Workforce Been Impacted?

Burke: In our minds we can see our way to the other side of the pandemic. Our mid- to long-term challenge is sourcing and importing talent into the state. Our universities just simply don’t put out the volume of talent we need here. That always is a challenge, although over the last several years it has gotten easier. California is an easy place to pluck from. We have a much more compelling value proposition which is great to bring in talent. But [workforce] is still our number one challenge.

Warden: Labor is really tight in skilled labor. I’ve heard some of the outfits are actually doing their own training of equipment operators to get things moving. I know that the Southern Nevada Home Builders have a very robust program of job training to try to get some of the younger people into this [industry], but those things take time. That is just one choke point for the labor market, which is tight.

Monkarsh: We are seeing, through the pandemic, kids coming in looking for work. My son is 16 and he’s going to get a heavy equipment operating license this summer. He’s already got a job lined up in Oregon for a civil contractor. There are people and kids that are starting to look towards [this industry] and say, “Hey, if I can make $25 to $30 an hour and work my way through college running a loader, then that’s what I’ll do.” We’re seeing a little bit of that, but it’s still tough to find office [employees].

What’s the Outlook for Building and Developing in Nevada?

Monkarsh: We’re currently developing mostly in southern Nevada – West Henderson and the southwest. The biggest buildings we’ve built are 160 to 230 thousand square feet, but our niche is that 40 to 100 thousand square foot range and we’re seeing demand through the roof. In our realm we’re seeing great activity. There’s money available to go build with and people have money to invest outside of capital sources. We’re optimistic. We’re bullish. We really think that what we’re doing is great.

Martin: In industrial, you look at the bread and butter of Las Vegas and it’s been the resort corridor. That includes convention services, large event companies, hotels and gaming. Those industries have been in the tank since March of last year. There’s been no expansion. There’s been a number of closures and reductions and so on and so forth. Despite that, if you look at the health of the submarket it’s as strong as ever. The demand far outweighs the supply. The expectation at some point in time, whether it’s middle of this year, the latter part of this year or next year, the core industries are going to come back again. There’s just not the available space. I think there’s a lot of pent-up demand that is going to be surfacing towards the middle or latter part of this year and next year in a market that is already starving for available product. I think the outlook going forward is very strong.

LaPour: Some of it has to do with restricted supply too. It’s based on land availability, but [there has also been] a lot of in-migration and existing companies expanding. Outside the core, convention services and what not are still, for all intents and purposes, closed. There’s ferocious investor appetite for finished product. The markets are good, rents are rising, but we’re also in a very tight vacancy situation.

Warden: The large retailers have really taken a beating, obviously. No community has been immune from the carnage of the national retail landscape. We’ve certainly seen some in Downtown Summerlin, but I will say we’ve been very gratified to see the shoppers come back to Downtown Summerlin, somewhat, in droves. It’s supporting a lot of those business so much so that a new store just opened up a little while ago in Downtown Summerlin. We’re encouraged but I still believe that the big department store retailers are going to be hurting for at least a while.

Opheikens: I look at March of 2020 and where I was at my home office when the whole thing shut down. I can’t tell you how happy I am compared to how I thought it might turn out. I’d say 2020 didn’t create new trends, it just expedited trends that were already in place. There are major impacts to our clients that we need to manage very delicately, in particular costs. We did a hotel where we took all the wood studs out of the interior and did all metal studs. There are ways to look at it, approach it differently, manage them differently than we did in the past. [We can make a] positive turn out of the process.