The past year of pandemic related hurdles has presented unique challenges for commercial real estate (CRE) professionals. Each submarket was affected differently by COVID and the market shifted to reflect those changes. Recently, executives representing commercial real estate in Nevada met virtually in a roundtable sponsored by City National Bank to discuss the changes to the market and what the future holds.
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.
Have Tenants Been Taking Advantage of the COVID Eviction Moratorium?
Mike Nevis: Not in Reno. The receivables here are in good shape; there’s not a lot of aged receivables out there.
Cathy Jones: We’re seeing most of the tenants are pretty current with their rents.
Charles Creigh: Not in the retail business. When the pandemic hit, pretty much every one of our junior box tenants, like Petco, TJMaxx, Marshall’s and all those guys, went to landlords and either got rent reductions or free rent. [That rent] tacked on to the back of their terms and it’s all burned off now; everyone is back to paying. Some categories of tenants, such as boutique tenants like White House Black Market, Chico’s, Victoria’s Secret and people that were getting phased out anyway, used this opportunity to just close. Those are all going to be online retailers now. The brick and mortar [stores are] really tough for boutiques right now.
Soozi Jones Walker: A lot of our landlords in the office market were doing the same thing. Some of the national tenants had a point person that was just calling all the landlords. The tenants didn’t necessarily need the help, but they were asking if they were going to get some. We got proactive with all of our listings with our landlords. We just asked them, “Do you want us to reach out to your tenants?” Realistically I think the tenants realized then that the landlords wanted to help them, wanted to keep them and wanted to keep everybody calm. While a lot of our tenants are not working out of an office, 100 percent of our landlords are being paid.
Is the Lack of Developable Land an Issue?
Devin Lee: We’ve been running out of land my whole career.
Jones: My number one concern moving forward is the rising prices of land. We have a huge amount of demand for land, coming primarily from industrial and residential right now. We have a significant lack of available land. What I’ve seen as far as price increases over the last 12 months in land has been a little bit staggering to me. It’s inflating the cost [of the product that’s being delivered]. It’s hard for developers to achieve the numbers they are looking to achieve.
Cassie Catania-Hsu: I actually asked some of my brokers [what their challenges are] in anticipation of this roundtable and land was the resounding response. [The land] we are seeing either has multiple offers or sellers are unrealistic on their pricing. As a land sparse market, it’s going to be a challenge for us in the coming years, aside from everything else related to the pandemic that we are dealing with currently.
Mike Mixer: There is going to be extra land coming through but that’s going to take a lot of time. I think it really depends on the city municipalities to adhere to the master plans. If a property owner can change their zoning to the most advantageous buying group on a whim, they are going to do that. If you have an industrial zoned property but you can zone it to residential, the residential guys are going to pay more. You can’t fault the landowners for wanting to get the highest price they can, if the city is going to let them do that. The focus has to be on the master plans and zoning to designate areas to be business zoned and stick to it. That’s the only way.
What Does it Take to Succeed as a CRE Broker?
Christopher McGarey: Some say [this industry] is intimidating to people. Once you get them over that hump, they realize it’s just like anything else, you’ve just got to put your time in. You’re not going to get that six-figure salary working 30 hours a week on your iPhone. No disrespect to that, but you’ve got to put in the time, do the research, do the prospecting and have a lot of fails before you get your successes.
Jones Walker: Skills are an issue with support staff. Many have been out of the office now for over a year and they are moving on to other things. We’re going to have to retrain everybody. It’s just like when the escrow business blew up after the big recession. Escrow officers and support staff that had been out of the office for two and three years started coming back and they didn’t know how to work the technology, the software. Everything had changed, the platforms had changed. Now it’s all retooling to come back again.
Nevis: On our team we did have a couple junior guys we brought on. We struggled with one and had to part ways. The other one, fortunately, had a different work ethic. He was a Navy Seal. [The broker] model seems to work for somebody that’s gone through a structured program and works hard. We just need to hire [people] that are structured and hard working. That’s a challenge, certainly in a market like Reno. It’s not as big of a population and the brokerage talent pool is very shallow. We struggle with that for sure up here.
Mixer: In our experience it’s been luck and timing [for people] to get into this business. We won’t hire someone green just to hire them and give them a desk and a phone. The fastest way for success in this business is to match a green person with an experienced team or agent that has existing business. They can ramp up right way to [understand] the nuances of the business. [They] learn so much more by doing than by trying to learn by books or interviews. When someone on one of our experienced teams needs somebody, that’s where that luck and timing comes in. If you get into this business and are picked up by a senior team member, you’re on the right path to accelerated learning.
Catania-Hsu: You don’t graduate, come into commercial real estate and start here and in five years [you’ve achieved a certain milestone]. It’s a challenge for a lot of people because if you go to Enterprise Rental Car [for example], they have this whole map for your 30-year career. There is no “One Size Fits All” playbook for commercial real estate. I think some people get frustrated because they want to know today where they are going to be in five years. Everybody in our industry is different. Our duty is to get these graduates and help them [find their niche]. The reality is, not everyone wants to be a broker and there are so many other career opportunities within commercial real estate. I’ve met with people who don’t like brokerage, but they want to be in our industry, so I’ve introduced them to Rod Martin with Majestic. Now he has a great construction manager, and she loves it. That’s how I think we will keep them in the business, by not trying to pigeonhole them into one job that they may not love. Find what they love and help introduce them to people that will be able to grow them in that career.
How Important is Mentorship for New CRE Brokers?
Catania-Hsu: I am the industry liaison for the UNLV Lied Center for Real Estate. I am a graduate of and owe my whole career to the mentorship program. I worked my way up. It’s been a continuous problem the last ten years of trying to help fill this pipeline, the next generation of brokers. I’ve hired many mentors and many UNLV students, some that are still in the business today, which is amazing. There’s a few that always rise to the top. I would say, the majority feel it’s hard to come out of college and hear, “You are commission only. We expect you to work. We want you to be the first one in the office and the last one to leave.” It’s been a challenge. It’s my passion project to help fill the next generation of our industry. It’s come a long way the last couple of years and definitely the mentorship program works.
Jones: We started an intern program late last summer. We’ve now recruited three people through that program. The way we’ve structured the intern program is they rotate between different teams in the office. They provide them with support, whether it’s research, drafting letters of intent or pulling comps. They get a broad range of experience and we’ve found it to be really successful. The brokers in the office like it too because they are getting an administrative person to do some of the grunt work for them. They’re also helping us train these interns.
Creigh: We try and run our business from a team perspective, not with individual teams in the company, but with the whole company as a team. You can mentor people if you bring them on to an account with a more experienced broker. Once you start to have everyone intertwine it’s more difficult for someone to want to leave. They know that they can take a holiday, or whatever, and someone is going to cover for them. We don’t really lose a lot of brokers once they come over here.
Nevis: We’ve used the office as a collective mentor group for [people] that are not teamed up. That works somewhat well. We have a retail guy that’s been a lone wolf and when we brought on another retail team, it just so happened that there was some synergy there. They’re starting to work together as a team. That really was more effective [for him] than myself, or any of the senior guys here, providing mentorship.
McGarey: It’s a great program. It’s fun when they come into the office. This is more of a volunteer thing. It’s imperative that, as long as the senior agents are willing to do the time, teach them and share commissions with them, you build a relationship.
How Has Each Submarket Been Faring?
Carania-Hsu: At the end of the year the net adsorption was 6.4 million square feet, which was the second highest level in the market’s history. Our industrial team was working around the clock to keep up with the demand. E-Commerce and third-party logistics users are what we’ve seen. [There has been] accelerated tenant demand and multiple proposals on spaces.
Mixer: For us, it’s voluntary whether people come in, so we had the office open for those that wanted to. Almost every single industrial broker, on all of our teams, was in the office as if nothing had happened. There was so much business to be had, they had a banner year last year during COVID. That market was, and still is, on fire in terms of steadiness. There’s incredible absorption, new development and a new business model with e-Commerce that took our city by storm. It was really a pleasant surprise to have a shining star like the industrial submarket be so strong for us.
Nevis: Agreed, it’s been the same up here. [Industrial is] the darling now; it never used to be. The biggest impact [to industrial] is that the capital partners on a lot of projects in the construction pipeline got really concerned. They put projects on hold. [Only] one developer kept going and they’re 12 months ahead of lease up on a 1.6 million square feet project. It’s crazy. We’re going to have a lull up here, probably about summertime, where there just won’t be any new construction. The running joke on our team is that this summer there is probably going to be a lot of golf.
Lee: It’s healthy, but they keep trying to screw it up. All of the owners are in asset management mode and [trying to] figure out what the government is doing. That’s been a big hiccup because nobody wants to buy [multifamily] if they don’t know what the rules are. It’s been a pretty good mess, but it actually played to our game. We worked the middle market, so we actually had a pretty darn good year, and we had a good first quarter so far. We have a really weird niche that nobody else honestly wants to do that’s why we do really well at it. We’re starting to see some break loose but there’s just still nothing listed and everybody from California thinks they are going to buy a destressed deal in Vegas. They don’t exist, they don’t. Prices are up and inventory is down. We have a big hole in the affordable housing and changing the rules does not help it. Class A has actually crushed it. I thought in the beginning that Class A was going to get killed but remote working has just killed it for Class A. That’s really been a big thing for residential housing. Workforce housing, where I live and breathe the most, has been significantly challenged and that’s [because of] employment and government interaction.
Jones Walker: There hasn’t been a lot of movement, in one direction or the other, in office. Interesting enough I don’t think that our office market is going to be as affected as a lot of other areas. I think it is more business as usual. We’ve got a lot of product coming online because office added very little in the Vegas Valley since the big recession. Almost everything that was leasable was leased. Now you’ve got big projects that Matter is bringing in and Summerlin is building another building, so we’ll see how that goes. Rents might not accelerate quite as fast as they thought they would. When I’ve been talking with tenants, they haven’t wanted the option to downsize, what they’ve wanted is the opposite. They want to be able to expand. They don’t want to take the space now, but they want to have the option to do it. [And] it’s all about technology. For the amount of Zoom calls we are all doing, it’s how much upload you can get. In some of the older areas that don’t have fiber in, it’s not good. Everybody is freezing and having trouble getting into their servers.
Mixer: I do think there’s going to be a tremendous flight-to-quality for those developers that do get those buildings up. Summerlin, Howard Hughes, Matter and a few others, we’ll see those have good successes in leasing once they’re out of the ground. It’s the Class B and C product that will really take the brunt of that.
Catania-Hsu: We’re very bullish that office is not going away. It’s going to be different. The office space is going to look different for a couple of years coming out of the recession. We’re making a lot of changes to our traditional workplace model with more collaboration areas, but not necessarily all cubicles. It’s going to look a little different for a while. Compared to other markets on the west coast, we actually faired relatively well. We are a suburban market, so we didn’t lose four floors of headquarter space like San Francisco might have. In this case being a suburban market helped us during the pandemic.
Jones: I see a couple other things helping office and one is California. LVGEA (Las Vegas Global Economic Alliance) is seeing some of the highest influx of office interest they’ve seen in a long time from California. With the [interest] rates being where they are, we’re getting a huge amount of traffic from that because of the discounts they’re currently offering.
Creigh: Retail is my baby; I primarily do junior-box to big-box deals. I can tell you that, in the first half of last year everybody pretty much was gone and pushed deals to [the next few years]. Typically, in the retail business we’re not doing deals that are this year, we’re doing deals a couple years down the road. Some retailers, TJMaxx, Ross, Homegoods, those kind of junior box discounters, are doing great. We opened a new Costco on St. Rose and we have another two more in the pipe and they are just killing it. It just depends on the kind of retailer you’re talking about. Because of the pandemic, restaurants just got hammered. On the restaurant side we’re getting a lot of activity, a lot of quick service retail (QSR) and causal dinning are coming back but everybody wants a drive through. Everybody wants that ability to not go into the restaurant, so drive throughs are huge for us right now.
Mixer: By and large we saw a pretty steady year last year in retail. Vacancy didn’t really spike. We all thought it would, but it didn’t. Retailers are adapting. Some restaurants are actually doing better now with expanded facilities than they did preCOVID. There’s a lot of news in the retail sector but I don’t think it’s all bad. By and large we saw a pretty steady year.