Builders and developers statewide are holding on and doing what they need to survive along with the rest of America. While some see promise just up ahead, others are already turning their sights to 2012.
In the meantime, savvy players are tightening their belts, keeping their eyes and ears open for both private and public works projects, looking to the lingering promise of alternative energy and, well, trying to stay positive.
“Right now everyone realizes that there is not going to be an easy or a quick turnaround,” notes David Simard, President of Marnell Properties, the Las Vegas developer whose projects have ranged from office parks to industrial complexes and shopping centers. “There has definitely been a shift among the folks I’m talking to here in the state as to just how they’ve done business planning and their strategies in the past. Their strategic thinking moving forward has definitely changed.”
“We are seeing that things are improving,” says Cary Richardson, Vice President of business operations for Miles Construction in Carson City. “We’re seeing projects coming back alive that were previously shelved. We have a list of projects ongoing.”
Another thing that Richardson and his colleagues have noted is people taking advantage of reduced pricing in anticipation of the economic recovery. An example of this has been the $6.5 million project for Schluter Systems, the global ceramic tile components and accessories manufacturer whose manufacturing for the U.S. is done in Plattsburg, NY. “We’re building their distribution and training center at the Tahoe-Reno Industrial Center. It is gold certified, with all kinds of unique green technologies.”
In addition, Miles executives have begun to see projects – Richardson prefers not to identify them — that were on hold for a couple of years that are back. “The ones that we’re seeing coming back are a combination of commercial, light industrial and some retail,” Richardson said.
Builders and developers will survive “by the hair of their chinny-chin-chins,” according to Larry Monkarsh of LM Construction Co., LLC in Las Vegas. “Everybody is experiencing the bewilderment of our new reality. We only do private-sector work, we do not chase the government work. We are seeing new projects now, smaller infill projects in specific areas that this valley still needs to add — assisted living, medical, fast food, etc.”
Many players across Nevada, Simard reports, are looking much more closely at what they can do internally to achieve cost savings. “They’re basically looking at alternatives that they typically have not explored, whether it’s development or asset selection. They’re considering projects they may not have even looked at in the past. An example would be a developer who may just have focused on a Class ‘A’ retail who may now be looking at ‘B’ retail because now it pencils out and it makes sense for them as they’re trying to survive.” There are, after all, “a lot fewer businesses out there right now,” Simard added.
Simard says that his firm, like many others, has ramped up its marketing efforts, a step he considers critical in tough times. “A lot of times the first thing to go when the times start getting bad is marketing,” he said. For the balance of 2011 and into 2012, he projects, “we’re going to be seeing that companies are going to be a lot more aggressive in who they market and their overall marketing programs, because there are gong to be fewer guys out there. The phone isn’t going to be ringing and there won’t be anybody knocking on your door, so it makes a lot more sense to get out there and say, ‘Hey, we’re still around, we’re still doing business, and we want your business.’”
Marnell is going to its existing tenants, Simard reveals, and saying to them, “‘Now that rates are good and construction costs have become reasonable have you looked at prospects spanning into the future?’ We’ve had some success with that, as well.”
Builders and developers have survived, according to Boyd Martin, President of Associated General Contractors (AGC) South, by making “substantial cutbacks in staffing and other non-essential overhead expenses. Most are working harder than ever for a lower return.”
AGC South is working on mostly private sector projects, though Martin is quick to note that “that is not the norm. I think most contractors are pursuing public works projects in Nevada as well as the surrounding states. The biggest issue holding back private sector projects even tenant improvement, remodel and retrofit projects, is funding, says Martin.
Public Works?
“A lot of contractors, from what I understand, are still relying on public works,” says Richardson. “We do not. We do have several projects that we’re doing for public entities as construction managers. But that market — chasing the Obama bucks by having enough acronyms at the end of your name for disadvantaged, disabled, veteran and all that — that’s a pretty tough one right now. Everybody seems to think that’s the direction to go, so for us that ship’s already sailed. There are too many people chasing that.”
“I’m more familiar with Northern Nevada, of course, but I think Las Vegas recently joined our misery,” notes John Madole, Executive Director of Associated General Contractors North, which represents Northern Nevada’s top general contractors and building professionals. “It’s pretty tough. There’s not very much work and there are a lot of contractors still.”
The organization is currently promoting the Building Jobs Coalition, which it participates in, together with more than a dozen associations representing architects, consulting engineers, labor and more. The Coalition – which includes Associated Builders and Contractors (ABC); the Construction Financial Management Association Las Vegas Chapter (CFMA); the Nevada Chapter American Institute of Architects (AIA); The Northern Nevada Building Trades Council and other groups — promotes legislation that would, among other things, help generate some public works projects.
The need is obvious: As of October 2010, the group says, the construction sector accounted for 60,500 jobs in Nevada, with roughly six out of every 10 construction jobs having been eliminated since the economy peaked in late 2006. Over the past year, the industry has shed 20 percent of its workforce, or 14,700 positions, not including tens of thousands of additional jobs lost in the design, engineering, planning and support businesses throughout the state.
“But of course,” Madole is quick to add, “some of those projects require revenue to support public works bonds, so we would just have to see how [legislators] wrestle with all their other fiscal problems.”
The coalition’s answer: creating a $100-million revenue stream to enable the state to bond $1 billion worth of construction work. “There are different figures,” Madole explains, “but somewhere between 15,000 and 28,000 people would return to work as a result of that.”
Madole says he and his coalition colleagues are relying on both public and private projects. “The problem with the private is that most of the banks are still not lending. We’ve got empty warehouses and stores from one end of town to the other. Residential is in the tank and over-built, so there just isn’t that much private work out there right now.”
To the coalition’s way of thinking, public projects should be attended to sooner rather than later. “Right now you could build a public works project for about 65 cents on the dollar, so it would be a good investment for the taxpayers to invest in things we know we’ll need over the next few years at a discount, and pay them off with the bonds.”
Simard says the new industry buzzword has become ‘private-public partnerships.’ “I definitely think that whether you’re looking at it from the government’s or the developers’ side, it’s critical. I know we’re reaching out to government entities, and they are reaching out to us. It’s going to be much more of a partnership moving forward,” he added.
What those projects are going to be, he confesses, he is not sure. But it’s something his firm has been looking at along with many others in the state who are wondering how they can make certain that such projects make sense. “Whether that’s the government entity with the land or a new hospital or fire station, what can we do together to make this project makes sense?”
Alternative Energy
“There are some [alternative energy projects] out there,” Madole confirms. I know there are some windmills and some solar, that sort of thing, but I’m not so sure that the alternative energy is quite as lucrative” as some thought. “I know there is some geothermal going on, but certainly not enough to absorb all the slack in our industry.”
Madole says he is “hoping that something will begin to happen” to generate projects. “In 2011 I don’t see a lot emerging; maybe some small things. I see a little bit happening. But it’s probably going to be next year before we start seeing a little more activity.” He remains, however, less than certain about that prediction. “It’s a little scary: some of these economic forecasts say they don’t even know if 2012 will be that much better.”
Marnell’s management believes there is a huge potential for alternative energy projects in Nevada. “I think we need to look beyond just the actual land for the projects and focus on the other aspects that supply the alternative energy,” Simard says. “Not just building the safe solar farm but asking, ‘Who’s manufacturing the solar arrays? Who’s the distributor? Who’s doing the R&D for the next generation of solar arrays?’ Here in Nevada, obviously, solar and geothermal and wind are big items for alternative energy. But there is an entire other side of that sector, and we need to tap into it, as well. I definitely think that is going to be big moving forward.”
Will the months ahead see a spate of new projects? “I wish I knew the answer to that,” Simard volunteered. “I don’t know at this time. I know there is a big push; there is obviously a huge potential for that, but what I’m reading is always, ‘We’re looking at putting up this new solar farm,’ ‘We’re looking at putting up this new wind farm.’ That’s great. We haven’t done any of those projects, but I’d like to tap the folks who are associated with those projects. Why not get the manufacturing and distribution here in Nevada, as well?”
Richardson feels the promise of alternative energy projects was “overblown. You had a lot of people who came in and went out. But there are some people who survived, and some technologies that, with the subsidies, are going forward.” One company with which Miles is working that he says has some legs to it is called Avatar, a maker of bio-digesters. “They go to all these dairy farms that are having a lot of issues with the amount of methane and how they treat the manure. They take that manure and they turn it into methane gas, which is then converted into electricity and put back into the grid. And then what’s left of the manure can be utilized for fertilizer,” Richardson explains. The project isn’t solely an alternative energy one, he concedes, “but the alternative energy is a plus.”
“I don’t know if I would say that there has been a substantial shift to alternative energy projects to ‘chase the money,’” notes Martin. “There is, however, a definite shift to building green in order to realize cost savings over time from an operational standpoint.” Martin confesses that he doesn’t know when Nevada will start seeing new projects. “There are many differing opinions. I do strongly believe that until stable funding sources for both private and public sector construction projects are available, no significant progress will be made in getting projects of any kind off of the drawing board.”
Monkarsh says he and his colleagues have yet to see the alternative energy products and services sector “developing the way it should be here in Nevada. There just isn’t the money available.”
All said, the mood at Miles remains optimistic. “We are busy,” Richardson reports. “It is a good sign. You can tell that it’s very fragile, though.” Commodity pricing remains a real concern, as steel and copper prices go through the roof “and now fuel pricing is going through the roof. We’re very concerned that is going to derail – I wouldn’t necessarily call it a recovery – whatever the economy currently is doing. We can’t be having this commodity pricing and fuel increases. It will take these projects that are just now going forward with aggressive owners willing to take the risk… and it will derail them and put it back on the shelf again,” Richardson added.
