Many industries are facing significant changes due to the shifts in how professionals work after COVID. On the forefront of many of those changes is property management as they are responsible for maintaining the workplaces of Nevadans. Recently, leaders in property management met in a virtual roundtable, sponsored by City National Bank, to discuss the challenges their industry faces and whether their industry will ever revert to pre-COVID operations.
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.
What Challenges are you Experiencing with Workforce?
David Bauman: Staffing and recruiting are by far our greatest challenges. One of the things we need to work on is trying to attract younger talent. Maybe even going into the high schools, community colleges, UNLV, the real estate training schools and getting in front of everybody and letting them know this is a viable career. This is not a $15 an hour type of position. You can make good money and you really don’t need a lot of additional education
Meaghan Levy: Especially in the Las Vegas market, there just aren’t a lot of people that come into property management as a career. So, finding that next generation to come in and love what we do, that have the good algebra skills, communication skills, writing skills and be able to have a tough conversation with a tenant and not take it personally. That’s one of the biggest challenges that we face.
Natalie Allred: Succession planning is [also] very important, especially as individuals start to age out of our industry. It’s really important to get in front of the next generation and explain how important property management is and how you can make an amazing career out of this field.
Gene Laramee: Talent acquisition is probably the hardest thing that we’re dealing with. [There are] a lot of great people out there, but this is such a heavy labor market, it’s really compressing what people want and what they’re looking for. Trying to ensure that we’re being as flexible as possible to meet all of those career choices and options they have and trying to nail down exactly the right fit is [important].
Is there a Certification Required for this Industry?
Sharon Sevigny: Yes. You take classes in property management. It’s a 24-hour class, and then there’s a test to get a permit. In order to do it, you have to be licensed in real estate. But, if you own or manage [a property], you can do it yourself.
Jessica Jardine: If you are only representing one entity, then you can manage that building or entity’s building only. There is a certification you can get for property management, but you can also take other classes through the Institute of Real Estate Management (IREM) and become a designated CPM, a certified property management manager, that is a national designation. There are other certifications and different things in which you can do. Our company works closely with high schools and colleges to get interns to come in, work, learn and see what this industry is all about. They know there’s people out there that take care of the properties, but they don’t understand to what extent and that it is truly a viable career in which you can grow.
Corry Castaneda: The general public may not be aware, but every property manager is licensed as a licensed salesperson or broker under Nevada’s real estate division. So early on, there’s a bifurcation as you get your real estate salesperson or broker’s license, there’s a fork in the road. You can either go sell houses or become a commercial broker selling or leasing real estate. Or you can choose the property management path. A lot of people are lured with, “Hey, you can go sell ten houses a year and make an annual income,” versus the steady cash flow and a little bit more predictable nature of property management.
What Affect has COVID had on your Industry?
Allred: The property management field was determined as essential. We’re extremely essential as far as keeping the buildings running and things of that nature. I believe we’re coming through the clear, [but] we still have a lot of large office spaces where tenants have not come back to work and may not ever. However, there is quite a bit of velocity in the leasing front in the post-COVID world.
Jardine: We truly didn’t have much of an effect. Some of my property managers did work from home for a short period of time, but they were still required to go out and do their property inspections and go through their buildings. That just meant they were not interacting with people and keeping their distances. For us, the only effect we truly saw was the tenants struggling to pay their rents and keeping track of which tenants were not able to pay their rent. What kind of programs the investors were going to work out with them to make sure that rent was recovered or how we were going to weed through that. So that’s the effect as far as our company goes.
Leslie Simmons: The additional effects we saw were in the actual assets that we manage in the tenants wanting or requesting additional sanitation measures, cleaning measures, disinfecting and proper protocols for all our vendors. Ensuring all our vendors followed required protocols. The problem came in when you have a vendor who has an employee that said they were COVID positive. Okay what buildings have they been in the last few weeks? [We were] tracking those items in addition to our tenant issues and trying to work remotely, for the most part. Most of us did try to stay out of the offices. But, we definitely had to be on site in those buildings to see what was going on, to make sure that all these additional measures were enforced at all our locations [was important].
Market Segment Overview
Bauman: I don’t foresee a decline in the industrial market for quite some time. One of the things we are seeing a lot of is condominium industrial projects coming online. People are able to take advantage of existing interest rates and purchase their individual buildings or a combination of suites and get tax benefits and things of that nature. We have started to encounter a lot of requests to manage those owner associations that are created when you have an individual building or project that’s itemized. That’s gotten to be quite frequent.
Jardine: Here in northern Nevada, our investors know that if they have a space that’s coming available, they have five other people [lining up] behind them before that tenant moves out. It is a hot commodity, I can’t [keep] a property on the market, four or five offers come in within a day, It’s a very competitive market. I don’t see it changing anytime soon. If it does decline, it’s probably [going to be in] three to five years, but it’s obviously going to be far behind office and retail to be the last one to go down.
Castaneda: The two coolest kids in commercial real estate right now are, unquestionably, industrial and multifamily. In northern Nevada especially, they cannot [build] large concrete warehouses fast enough. It is feverish and there’s so much demand. Vacancy is so low, there’s very little, if any, shadow market. The only question mark looming on the horizon would be cap rate compression and that effect. Right now, demand from the tenant side is enormous, especially in a state like Nevada, which has so many tax favorable incentives.
Jardine: The other thing that’s occurring is, owner investors are able to keep their tenants. The long-term relationships are not coming into factor anymore because they know they’re going to get that market rate. Tenants are signing longer leases because they want a better price per square foot. For them to be able to move, there’s nothing to move to. You’re going to be out there looking for three, four, five months, if not longer. And the cost that it’s going to take them to move because everything, as far as inflation, is through the roof. So, we’re seeing leases come across that are three to five years. It’s definitely going to be a long time before that industry changes.
Castaneda: We’re seeing a lot of influx from Californians. A lot of people wanted to get out of the big cities, northern Nevada has been a bit of a sanctuary. There’s been a lot of flight here, both corporate relocations and, with that, retail follows rooftops and vice versa. They literally cannot [accommodate] the amount of workforce that’s come to northern Nevada through economic development with housing. You’re seeing everybody that can slap up apartments [doing so], there’s so much demand that you’re seeing rent skyrocket too. It puts us in the difficult position of having to interface with frustrated tenants, rising rents and owners that are demanding higher returns.
Jardine: On top of it, there’s no land to build on in northern Nevada. We are running out and the land that’s available is just slim to none. I have a property that’s up by UNR (University of Nevada, Reno). It could be a multifamily development if my investors wanted to sell it. However, we spoke to contractors and the price per door to build does not make sense because of the amount of supply, the demand [for] materials, you’re paying the highest price possible. There’s nothing to build and there is no place to live. So, the investors that have available units are going to charge the highest rents, especially if they’re in an appealing area.
Jardine: [In] this day and age, everybody buys from the Internet. That’s what they were forced to do with COVID, that’s what we all did. So, smaller retailers can’t get [the inventory they use to], it goes back to the supply. Things are not being produced as fast as they used to be because you just cannot get it. I don’t know that the bigger box [retailers] will close, but they will shut down certain ones that are not income producing.
Castaneda: There’s winners and losers. For example, restaurants seem to be doing very well, coffee shops, certain classes and categories. But big box retail is being forced to downsize as they adapt to market conditions.
Sevigny: I agree, going back to COVID, it did hurt [smaller retailers]. I have a lot of small retail tenants, mom and pop style. It hurt them to be closed for so long and now they can’t always get the inventory and supplies they need. They’re all open and functioning, but it has [impacted] them. And personally, I do 90 percent of my shopping online. Groceries are probably the only one you go get in person.
Bauman: We’re seeing in our portfolio a lot of downsizing of the office environment. We are seeing a lot of recovery from the medical and associated medical industry. They are going in and taking up more and more square footage. It wasn’t available at a good price five years ago and now it’s becoming more available and pricing is better. We’re seeing a huge influx of the medical industry taking over suites. COVID has forced a lot of ingenuity, the treatment of the air quality, the infrared lighting, things of that nature. It’s gotten a lot of owners to realize that they’re going to have to do something and upgrade in order to be marketable. So, we’re seeing a lot of our owners coming to us and saying, what can we do? Do we install automatic elevators or touchless elevators? What investment do we bring into this to accommodate post-COVID awareness and yet make the building attractive and marketable?
Laramee: Overall, the vacancy rate has increased slightly in office, but you’re going to find there is always a flight to quality. Amenitized spaces are what’s helping bringing employees back to the offices. People are going to those spaces that have amenities and great locations. This is such an employee dominated market right now, everybody’s being as accommodating as they can to where they’re going to hire people and where they’re going to office as a result. It’s all one big storm at the moment that’s driving it into, honestly, a positive direction. I see a lot of employees that have worked from home for the last two years want to come back to the office.
Levy: [For] my group, we try to make it more of an exciting destination. We bring in lunch, we bring in classes, to lure people into the office to make it a place they want to be. Certainly, [we] didn’t do that before COVID to this extent.
Castaneda: One ray of light within the office sector, it’s probably one of the few areas that all investor classes have been just clamoring for value at. With industrial and multifamily being almost impossible to even acquire offices, it has kind of become an opportunity for some investor class that is a little bit more willing to look outside their comfort zone.
How are Rising Interest Rates and Inflation Impacting your Industry?
Castaneda: It’s a reality. [In terms of] staffing and trying to find qualified individuals and vendors that will perform the functions, inflation is very much at the heart of that issue. We’re finding we’re having to pay staff considerably more and we’re not necessarily able to pass through those fees to our end user clients. We’re feeling a little bit of a squeeze in that area.
Jardine: [Interest rates] are definitely going up and they affect everything. When an investor purchases the property and they’re paying a higher interest rate, then they’re more inclined to pass it on to their tenants. That affects tenants and interest rate affects housing costs. If they are trying to stabilize the market, I don’t know it’s going to work. It’s a touchy subject.
Is there a Difference Working with Out-of-Market Owners Versus Local?
Sevigny: It is a little different. We’re split 50/50, either local or out of state. Specifically, I talk to one weekly in California, where cost is much higher. He’s surprised sometimes when we can come in with a repair or item that needs to be done that is less [expensive]. But I can’t say there’s a huge difference, whether they’re local or out of state.
Laramee: The market is always driving our clients, whether local or national. They’ll follow those rates and the tenant improvement (TI) allowances and all of those different impacts. Every client is tied into the local brokerage community, and they push or drive the market depending on what they’re selling. And so, the brokers are the ones really leading that. As a result, almost everybody’s on the same page.
Is Homelessness an Issue for Property Managers?
Simmons: The homeless in every property is a challenge. It’s not just downtown, it’s at shopping centers and office buildings where they try to access and use the restrooms for their personal needs. It’s everywhere. There are a lot of things we can do. Washoe County has the HOPE (homeless outreach proactive engagement) program. When you contact them, they send their team out to try and make contact to assist the person. After the third time [coming out to the property], they will clean up any encampment that may be left. That was a great thing I found out last week. But there are a lot of people that are panhandling on the property, whether it be on the sidewalk or on the exit island. Controlling that and ensuring that they don’t hurt themselves being on those Islands because that is still your property [is a challenge]. A lot of security teams will talk to them from their cars but won’t get out of the car. Then we’re back to calling Reno PD (police department) and sometimes they respond, sometimes they don’t.
Jardine: It is a real difficult thing because you don’t know if that person is going to be threatening or not threatening. It’s hard, male or female, to go out there and ask a person to leave your property. We direct our tenants to call the police immediately. the city of Reno has a phone number in which you can call to help with that, but it’s really a deterrent. If there’s not any dark spaces in which they can sleep and there’s not any water spigots or electrical outlets in which they can use, they’re less interested in hanging out at your property. They’re not getting anything from it, minus a place to sleep. We just try to make sure that, as hard as that sounds, to keep it not a convenient place to be.
Simmons: And then, cleaning up the mess after the homeless have left your building, it’s not nice to talk about. It’s a very ugly subject because the items that are left behind are things that nobody, outside of being in a full containment suit, should have to deal with. [And so], we have to try and coordinate with the vendor saying, “I’m sorry, but you’re going to need a pressure washer and some chemicals.”
Castaneda: It has gotten a lot better since COVID. During COVID, local law enforcement really didn’t take a very active stance against the homeless population. [Not] even for criminal acts, they weren’t taking them up to jail. But it has gotten considerably better, especially in northern Nevada. They’ve built a large shelter, so there are a lot more resources and they’re starting to adapt to the houseless population. For example, in Reno, they have ambassadors as part of the Downtown Reno Partnership. These ambassadors go out and interface with the homeless community and try to offer them medical, mental health, food, housing to point them in the right direction and actually help them get off the streets.