Commercial Real Estate Brokers: A View From the Top

It’s an interesting time to be a commercial real estate broker in Nevada. Demand is high across the state in almost every sector. Retail follows rooftops, and rooftops are proliferating both north and south, but with the new mixed-use developments in metro areas, it’s a chicken-and-egg question: which comes first: retail to lure residents to condominium projects, or residents to support retailers occupying those spaces?

The office market is hot in both ends of the state, with new, mixed-use projects generating high levels of interest and activity. Meanwhile, industrial land moves farther and farther from city cores as demand continues to the point where once overlooked buildings and parcels are getting a second lease on life. In the land market, some sellers are pricing themselves out of the market despite demand, which begs the question: if the only game in town is too expensive, will people find another town?

Nevada Business Journal decided to talk with some of the top-producing real estate brokers in the state. We asked them about their specialties, the trends they’re seeing and how they’re handling changes in the market. Here are their answers.

Kevin Higgins, SIOR

Voit Commercial Brokerage

Higgins has been in Nevada for 37 years, in commercial real estate for 21 years, and at Voit for 3.5 years, specializing in industrial properties. He was recently awarded the National Association of Industrial and Office Properties (NAIOP) Industrial Broker of the Year award.

Working in the Southern Nevada industrial real estate market, Higgins is seeing a situation in which a shrinking supply of land, coupled with increasing construction costs, are driving lease rates and sale prices up. One result is a trend toward mixed-use developments not traditionally seen in the Las Vegas Valley – industrial/office or industrial/office/retail uses.

Even as supply shrinks, demand continues. Currently, 4.5 million square feet of industrial product is under construction, and demand is exceeding that figure. Projects continue to substantially lease out or sell out before completion. If land can be found for an industrial project, the skyrocketing costs for that acreage forces developers to charge substantially higher lease rates. Compounding the problem, rising construction costs also have to be factored into the equation.

“The industrial market’s a very strange place right now,” said Higgins. “You have low vacancy and high demand. You have skittish developers planning on paying a set price, and land sellers thinking they’re selling too cheap.” Sellers will set a price, have it met, and then counter for more, said Higgins. “It’s seller’s remorse before they even sell, and it makes the job incredibly difficult.” Land owners fear they’re selling too cheaply; and buyers are balking at the increased price. Higgins pointed out, “At the end of the day, it all comes down to what someone will pay me in rent if I build this project.”

Paul Perkins

Alliance Commercial Real Estate Services LLC

Along with teammates Mike Hoeck and Dave Simonsen, Paul Perkins recently received the Industrial Broker of the Year award at the Summit Awards sponsored by CCIM and CREW. Perkins has been in real estate since 1969, starting with Coldwell Banker Commercial in Southern California. He moved his family to Nevada in 1977 and soon started seeing changes in the market that he felt would justify specializing in commercial real estate. Perkins was one of the first specialists in what was then a small market.

In 1986 Coldwell Banker decided to open a satellite office in Reno and asked Perkins and Gary Johnson to start it. Later, Perkins, Johnson and 17 other brokers formed the Colliers International office in Reno and in May 2005, Perkins and several brokers from Colliers formed Alliance Commercial.

Perkins has watched Northern Nevada’s credibility grow with industrial land users. “I recall when large companies would look at us briefly and almost with disdain and move on to California,” he said. “Not that we didn’t have any large companies, but we didn’t have acceptance as a distribution hub. Today we’re on everybody’s radar for industrial property. Counter to national trends, Northern Nevada continues to experience an increase in manufacturing and assembly.”

Industrial land prices in Northern Nevada present a good news/bad news scenario. The bad news: industrial land close to city cores is all but priced out of the market at $9 a square foot. The good news: head 10 to 12 miles out of town and it’s running $2.25 a square foot. In comparison to Salt Lake City, Las Vegas, Phoenix and Sacramento, Reno is still lower in terms of land prices and lease rates, so even at the region’s highest prices, it is still competitive.

Tim Ruffin, SIOR, CCIM

Colliers International

Tim Ruffin recently received the Summit award for top office broker in Northern Nevada, and the award for the largest lease transaction in the area for representing the federal government (General Services Administration) in a build-to-suit, 35,000-square-foot building in South Reno.

South Reno’s popularity as a location for new office development continues to rise, while downtown Reno offices are experiencing 20 percent vacancy. Ruffin works specifically in office real estate. “Office is all I do,” he explained. “If it doesn’t have an office building on it or isn’t going to have an office building on it, I don’t handle it.”

Ruffin has handled office properties in Northern Nevada since 1997 and has closed deals representing over 2 million square feet of office space in that time. Lately, he has noticed a shift away from big leases related to home building (engineering firms, title and mortgage companies) because of the slowdown in the residential market. Picking up the slack are gold mining companies that have operations in Eastern Nevada but want corporate offices in Reno.

“Being a commercial real estate broker is an interesting job,” said Ruffin. “It’s a sales job, representing landlords and helping buyers acquire the real estate they need. But you also have to be involved in the community to understand the market – should you build a project in this location, or is there a better use that would make more sense for the community?”

Charles W. Witters, SIOR

Lee & Associates

Charles Witters has worked in commercial real estate for more than 20 years, and won the NAIOP award for top office broker in Las Vegas for the last seven out of eight years. He joined Lee & Associates in 1984 and helped found the Ontario, Calif. office in 1987. He has been a member of the NAIOP Southern Nevada chapter for 12 years and is also a member of the Society for Industrial and Office Realtors (SIOR).

Lease rates for offices in Southern Nevada are increasing more than they ever have in the past, according to Witters. They are being driven up by increased land prices and construction costs, but also by tenant improvement costs. “I’d say in nine out of 10 of my deals in brand new space, the actual tenant improvement costs come in above the tenant improvement allowance,” he said. “Then I am back negotiating again on ways to cover the tenant improvement overage. Every broker is running into that.”

Office real estate is becoming a tricky business in Southern Nevada. Developers and land owners who bought their land some time ago at lower costs, now stand a better chance of actually building their projects than those who came into their land in the last six to 12 months. Developers who paid significantly more for land need higher lease rates to get a return on their investment. If they can’t get the lease rates they need, Witters said there’s a good chance they won’t get a construction loan.

Roxanne J. Stevenson, CSM

Colliers International

Roxanne Stevenson helped found the Reno office of Grubb & Ellis in 1995 and has been specializing in retail real estate in Northern Nevada since then. Over the last few years she’s watched the area bloom with new residential developments and new residents, and now she’s seeing the corresponding growth of retail. Two of the largest growth areas in Reno for both residential and retail development are Spanish Springs and South Reno, with everything from neighborhood shopping centers to one of the biggest new retail venues in the area, the Sierra Summit at Mt. Rose.

According to Stevenson, the proliferation of Super Wal-Mart stores and other cost-savings outlets in Reno has fostered a trend moving away from grocery store-anchored neighborhood shopping centers to power centers or lifestyle centers – those retail centers with Best Buy, Bed Bath & Beyond, Cost Plus and other big-box and discount stores. Another part of the same trend is the emergence of specialty stores and upscale niche grocery stores like Whole Foods.

Stevenson has served as the Northern Nevada Operations Director of International Council of Shopping Centers (ICSC) for eight years, and serves on the Advisory Boards for the Small Business Development Center. Stevenson is also a member of Commercial Women in Real Estate, Certified Commercial Investment Members Association and EDAWN.

“I’m proud to have been one of the first people to specialize in retail in our market,” said Stevenson. “I started before anyone else and I’ve trained a lot of my competitors.”

Michael Gleason

ROI Commercial Real Estate

Mike Gleason has spent 22 years in leasing and development of shopping centers, most of them in Las Vegas. He worked for Pan Pacific Development, opening its Las Vegas office in 1989, and in 1992 formed ROI Commercial Real Estate, Inc. with his business partner Dan Adamson. Currently Gleason is the exclusive leasing agent of more than 2 million square feet of retail projects in Las Vegas, where he is seeing interesting changes.

With the high price of land, rising construction costs and interest rates, it’s difficult for quality retailers to find deals that make sense, said Gleason. Mixed-use developments might be the answer, and they might not – in order for retailers to move into projects, there has to be a large enough residential base for them to make a profit. If vacancy runs high during the week and units are filled only on the weekends, retailers lose out.

Mixed-use in downtown may be a different issue. Some people will want to live in a downtown environment, but the question, said Gleason, is, “Which do you build first? Can you build the condos before you have the retail? Do you need to have the office component first? I think you need to have them all. The problem is, if either retail or residential is missing, the mixed-use project doesn’t work.” The idea behind mixed-use development is that residents don’t need to drive to access services and amenities, he said, adding, “If you look at some of the projects in the southwest part of Las Vegas where they’re building the condo towers, there’s no retail there right now. The closest thing you can walk to is a hospital.”

Mark Kruger

Grubb & Ellis

Mark Kruger has been in real estate a total of 25 years, roughly 13 of them in the Sacramento market, where he specialized primarily in industrial land and building sales. He has spent the last 12 years in residential land sales, 10 of those in the Reno market and nine at Grubb & Ellis.

This means he was here for the last five or six years when the residential market in Reno was red hot. It’s starting to cool now, and so are land sales; Kruger has seen some resistance to land prices by homebuilders, who are having to offer more incentives to buyers. But he hasn’t seen any major adjustments yet on land prices, and said he’s seeing more land hitting the market now than he has in the last five years, which should result in some downward pressure on pricing.

The biggest supply of land currently available in the Reno area is still between Sparks and Spanish Springs, 90 percent of which is zoned for residential. Infill parcels and expansion into Verdi to the west of Reno will create room for another 3,000 housing units. As a result of the land squeeze, Reno is expanding north toward Cold Springs, and Sparks is heading east toward McCarran Ranch.

“Over the last couple years we’ve been averaging a little over 4,000 homes a year,” said Kruger. “We’re expecting a little less than that this year, but we still have quite a bit of residential development remaining at that pace.” Kruger recently sold Stonebrook, a new master-planned community in Spanish Springs, a sale that totaled almost 1,200 units. Just prior to Stonebrook, Kruger was instrumental in the sale of D’Andrea Ranch, representing approximately 550 units.

Kruger began his career as a broker, then went into development for a few years, where he said he learned to appreciate what builder/developers need when looking at land. He returned to the land business and made it a goal to provide the information builders need. Kruger’s philosophy has been a success – he was named the Summit land broker of the year.

Keith Spencer

First Vice President

Keith Spencer filled out one application after college and he never looked back. He is currently celebrating 21 years in commercial real estate at CB Richard Ellis, specializing in commercial land.

Working with land in Southern Nevada involves working with a commodity in high demand with a scarce supply. Spencer reported seeing changes that include the move to mixed-use developments on the Las Vegas resort corridor and west of I-15, as well as a trend to use more infill locations. There has even been a movement to demolish old structures when building new, rather than looking for raw land. Combine the cost of raw land with construction costs, and it makes more sense to look at property that already has all the infrastructure on it – sewer, water, electrical – than to search out raw land and bring in all the services.

“I think it will become more of the norm to make more efficient use of infill locations as we try to avoid commute times and expense,” he said. “As we’re surpassing $3 a gallon for fuel and as we become more congested, those distances translate into sitting in your car for longer periods of time. That’s part of the reasoning behind mixed-use developments, which incorporate services and employment where people reside.”

Industrial, office, retail or raw land – commercial real estate is changing across the face of Nevada and Nevada’s brokers are keeping pace.