Nevada, especially Southern Nevada, has seen tremendous growth in both residential and commercial building over the past several years, and according to Nevada’s leading commercial contractors, there’s no slowdown in sight. CEOs from 13 contracting firms gathered at the Four Seasons Hotel in Las Vegas on February 9th for a roundtable discussion of issues affecting their industry. The topics ranged from difficulties in finding qualified staff, to costs of building materials, bottlenecks in the permitting process and predictions for the future of the market. The roundtable was a part of Nevada Business Journal’s Industry Outlook series. Connie Brennan, publisher of Nevada Business Journal, acted as moderator. Participants were first asked to introduce themselves and give an overview of some of the challenges they face. Following is a condensed version of the roundtable discussion.
Scott Loughridge: At SR Construction, we try to do all design-build or design-assist: churches, offices, medical and hospitals. Our biggest challenge is finding good people, and we’ve been going far and wide. I have headhunters looking; I hired someone in Albuquerque three weeks ago, someone in Louisiana last week, and I’m flying a man in from Iowa tomorrow.
Jeff Vilkin: Tradewinds Construction mostly acts as a subcontractor; in fact, I’ve worked for most of the general contractors here today. Our biggest challenge right now is finding management personnel; the field labor force seems to be more available than it was last summer. And then there are the City of Las Vegas plan checkers and inspectors. There are a select few of them who have taken the word “unreasonable” to a whole new level.
Mike Fauci: I’ve been here since 1959 in business as a commercial contractor. At M. G. Fauci Construction, I do mostly shopping centers, commercial office buildings, auto dealerships and medical office buildings. Our biggest problem for the last few years has been with subcontractors. There are lots of subcontractors out there, but the qualifications are going downhill gradually. If you’re doing very large projects, you may have a lot of union contractors who are a little more qualified, but the average subcontractor nowadays just isn’t qualified.
John Woods: Flagship Construction is a fairly new company in the market. We’ve been here four years; most of our work is at the airport right now, but we’d like to stick around after that job’s done. The biggest problem in our company is finding quality people. It’s tough to find good managers who know what they’re doing and, as Mike already said, the subcontractor base is definitely stretched pretty thin. The quality of the service you get from them and the ability to stay with a schedule has been compromised because they’re stretched so thin.
Pat Schlosser: I’m an area manager for Clark & Sullivan here in Las Vegas. We’re a Nevada-based company with offices in Reno, Sacramento and Vegas and have been here since 1993. We do a lot of public works projects, such as hospitals and jails. I think our biggest challenge is not to overextend ourselves in this busy market. It’s like you’re sitting at a buffet and you don’t want to overeat. You can’t take on more than you can chew because you can’t find the people to handle the work, and there is a shortage of good subcontractors, so it can be dangerous. I heard it said in a seminar that more contractors go broke in a good economy than in a bad one.
Larry Monkarsh: At LM Construction Company, we primarily specialize in big-box industrial, and in tenant improvements within those kinds of buildings. We self-perform all our steel-stud framing, drywall, acoustical ceilings and painting. We’re also a new Butler Builder. Our biggest challenge right now is running numbers for clients. Somebody will come to me and say, “I want to put up a 10,000-square-foot tilt-up. How does that compare to a stick frame stucco building?” So I might be running numbers four and five times with different building materials for the same project, and it becomes very time-consuming. We’ve had one of our better years, but we also have to be careful about taking on too much. Staffing is definitely on the list of challenges. We are scouring the country; I’ve hired people out of Texas, Salt Lake and Boise and paid the relocation fees, so it does get quite costly to get quality staff.
Dick Rizzo: At Perini, a lot of our clients who are based in Las Vegas have brought us to other areas, which has put a huge strain on our staffing here. Just last year, we added almost 65 new people in the Las Vegas office, but as soon as we hired them, we had to relocate them to California to work on Native American (gaming) projects controlled by clients here. I’ve been with the company 28 years, and I don’t ever remember more of an abundance of opportunity. However, I’m afraid we’ll end up taking on more than we can actually do, and we certainly don’t want to damage our reputation, which is what we value most. So it’s a very difficult balance right now. The opportunities are beyond what I could ever have dreamed, and when we say, “I can’t believe they’re actually going to do that project,” they end up doing it, and then we wish we’d had part of it. So our biggest challenge is going to be to try to balance the opportunity with the resources we have and optimize our business plan.
Greg Korte: The Korte Company is a 47-year-old, fully integrated design-build firm. We have our own architecture department back in the St. Louis area, where our roots are. We have three offices: Highland, Ill., St. Louis and Las Vegas. The Korte Company has been operating in Las Vegas for three years, but I’ve been a contractor here for 17 years, so I’m not new to the market. We have a lot of exciting work going on, but I agree the biggest challenge overall is growth, which leads to all the other things that have been mentioned, including the staffing shortage. It’s caused the subcontracting community to be stretched thin, the inspections people and the city building departments to be overextended. It has affected architects, who are stretched so thin that the quality of their plans often suffer. So it’s definitely a boom market right now, but with that comes a lot of unique problems and challenges.
Kevin Burke: Burke & Associates is a locally-based general contractor that’s been here since 1984. We work in a number of different markets, from gaming to the public sector, which is about 30 percent of our work. We do office, retail and infrastructure projects. We did multifamily in the past and continue to work in that market now, although we tend to be pretty conservative there because of the liability for construction defects and concerns with insurance. Like many of you, our biggest challenge is trying to find people. We’re recruiting at the university level, which we haven’t done in quite a few years.
Jim Stuart: Centra is a little unique among the companies here because we’re a developer-owner as well as a contractor. We are a 3 ½-year-old firm. We started in the big-box business with about a million feet of industrial space, and we’re now in the middle of eight different high-rise condo projects and a 2 million-square-foot open-air mall with a mixed-use component. Our biggest frustration is lack of knowledge about these new product types. There’s not much experience in the entire market, so we’re going to watch collectively a lot of mistakes be made, and hopefully learn from those mistakes. Overall, we’re thrilled to death. Never in my life did I believe I would be in a market like we are today, and I believe it’s gaining momentum. When we look back at the last 10 years, they will look like a slow walk in the park compared to the next five. Our toughest single problem is managing costs, so when we deliver a product to the owner and our tenants, those costs are somewhat close to what we budgeted.
Robert Leidig Jr.: Oakview Construction is based in the Midwest, and we’ve been in business for about 48 years. We have operated in Southern Nevada off and on for 15 years, but we’ve been working consistently here for the last six years. Some of our challenges in this growth market are difficulty finding good staff who we can actually get to stick around, and having a good subcontractor base. As someone else mentioned, there’s also a concern about the quality of architectural drawings. We’ve decided to do about 40 percent of our business in design-build so we can help maintain the quality there. We entered the gaming market last year, and now 30 to 35 percent of our gross revenue is from gaming projects. Those clients are now taking us out of the state into other markets.
Robert Potter: Affordable Concepts is a local general contracting company approaching our 20th anniversary. We specialize in small to medium out-of-the-ground construction and tenant improvements. We have a staff of five project managers and 10 superintendents, and I don’t really want to grow much and have to search out-of-state like some of you have mentioned this morning. The general consensus around the table is you can only grow as much as you have the resources to support, and we’re all facing the same problem. All my people have been with me for a long time, so I think we’re going to manage. We’re just going to be more selective and try to pick jobs that have some profit – for a change. (general laughter) We’re going to try to maintain our same project managers and superintendents and just be more selective in picking our projects.
Todd Nigro: I’m president of Nigro Development. My brother and I own a development and construction company; about 60 to 70 percent of our work is for our own account as developers, and the other 30 to 40 is as a design-builder. We specialize in retail, medical office and professional space, as well as some flex space, but not much industrial. It’s been tough getting our arms around the numbers to develop speculative office and retail space, when we have no basis for figuring out what the price is going to be until we actually bid it out and get all the plans back. But we have been lucky enough to have a company that has grown with us, and most of the people who are with us have been here for seven or eight years. We’re not looking at doing anything too different than what we’ve done in the past, except we’re trying to focus our energies on larger projects that we feel have the best chance of success without taking too much additional risk.
Is An End to the Boom in Sight?
Brennan: The consensus seems to be that we’re in a boom town, and Jim (Stuart) indicated he thinks it’s going to escalate in the next five years. Do you see an end to it, Jim?
Stuart: You know, I’ve given up trying to predict. I used to say, “Okay, it’ll last two more years; two more years; okay, two more years,” and finally I’ve just stopped. I think it’s fair to say, though, that what we’re experiencing now is a real transformation unlike anything in the history of our town. Las Vegas is changing from a gambling and resort city to become truly a world-class urban environment, and I don’t think anyone in this room knows how to predict what will happen. One thing is certain – Las Vegas will do it at a pace no city in the history of the world has ever exercised. And I don’t know how you plan for that.
Brennan: But if the cost of land continues to rise, won’t it at some point slow growth?
Stuart: No, I don’t believe it will. The transformation is more than a matter of land prices or construction costs. From our observation, the market has gone from a place where there is organic growth driven by the casino business, to a city where the young, educated working class want to move to be part of the new, urban “cool life” environment. We jokingly call it a “desirability index,” because I don’t know how else to measure it. It would be easy to say Southern California should not sustain $1,000-a-square-foot for suburban homes, yet it can, because people want to live there. So as people start to transform Las Vegas into a marketplace where they want to live, the cost of living is secondary to the fact that they want to be here. That dynamic is going to change a lot of things. We have to totally rethink what product fits on top of $15 dirt for office space, which is unprecedented, but look at Las Vegas Boulevard. I can point up and down the street at property now that sells for $20 million an acre. Five years ago any casino executive would have laughed you out of the room at that price. The other analogy is that we cannot walk into the future looking backwards. We just have to forget everything that’s conditioned us up to this point and start anew, and look at the major urban markets and learn from them to reposition Las Vegas.
Brennan: Do you think the growth will escalate over the next five years, Dick?
Rizzo: Yes. At our annual planning session, professionals fly in from all over the world to tell us what they think. What they’re telling us is that the market is in a transformation, and as a result, you’re going to continue to find growth you didn’t expect, particularly in the condo market. We were all here when the first high-rise condo was built, and everybody said, “They’re crazy. Who’s going to buy them?”
Brennan: The cost of land is not the only thing going up. When you came to our roundtable last year, you said Perini was stockpiling steel to guard against price increases.
Rizzo: We still do. Structural steel prices seem to be stabilizing a little, but then we got hit with a cement issue, then drywall and studs, and we were stockpiling structural studs. We’re sort of over that now. We built some (price) escalation into all of our budgeting with our clients and said, “We think you’re okay. We’re not going to have to buy six months in advance anymore.” I don’t think it’s going to continue like it has been. We are still stockpiling and buying as much in advance as we can in large quantities for our clients, and they’re funding it. Hopefully, by the time we actually guarantee the price, we’ve gone out and purchased most of the items that could have further price growth, so we don’t usually get caught. It’s the only way to protect yourself and protect the clients. We don’t usually get in a situation where clients criticize us for not having the right numbers.
Burke: From our standpoint, it’s been more of an education process with clients, so they understand what’s driving the numbers.
Monkarsh: A lot of clients who come from out-of-state are shocked at both the cost of land and the cost of construction, so education’s a big part of it. We drive them around town and show them what different parcels of land are selling for and how much a similar building cost, and then we welcome them to go check with any other general contractor in town to solidify our story. Out-of-towners coming in who want to cash in on the “gold rush” have to be educated to the land prices, to construction costs and to the actual building product type they need to put on that land to make it worthwhile.
Coping with Staff Shortages
Brennan: Several of you mentioned having trouble finding the right staff people. What level is causing the most problems?
Fauci: Project managers, who in the old days we called estimators, are the hardest to find. Young guys don’t want to learn the estimating systems anymore. They come out of college and try to pass themselves off as project managers, but they’re really civil engineers or structural engineers. Superintendents are easy to find.
Potter: I don’t necessarily agree that superintendents are easy to find. There are a lot of superintendents out there, but the bulk of them are not qualified. In my opinion, a good qualified superintendent is just as difficult to find as a good project manager. They think they’re worth gold, and by the time you figure out that they’re bad, you’ve wasted all that time and probably impacted the schedule.
Brennan: For the benefit of our readers, what does a superintendent do?
Potter: A field superintendent is the person who’s on the project during working hours, and is in charge of the subcontractors’ work processes.
Monkarsh: They’re almost more important than your project manager. If you have a great project manager and a terrible superintendent, the work’s not going to get done.
Potter: True.
Vilkin: We’re also seeing the graying of the industry. There are a lot more options for people beginning their careers now. Construction as a choice of career is a lot further down the list of desirable options than it was 20 years ago, and I think that’s a lot of the challenge.
Leidig: We’ve been bringing superintendents from other parts of the country and other divisions within our firm and then having them work them with new superintendents. After they’re trained, we send our travelers home. That’s how we’re developing local superintendents.
Schlosser: The talent pool in this town for the most part has run dry. Don’t go to the South to find people; go to the Midwest or the East Coast. Guys out here looking for a job lost their old job for a good reason.
Korte: To add to what Jeff was saying, the problem also is a cultural thing in that the graying employees who have been around for awhile know what commitment and company loyalty are like, and they know what being without work is like. A lot of these young guys who have been in the industry for just a year or two – especially if they’ve spent their entire working life in Las Vegas – believe work will always be plentiful. They think, “Why should I kill myself working for you when I can go across the street and work for the next guy for more money?”
Loughridge: We’re seeing that with 30-somethings, because if somebody came out of school 10 or 12 years ago and landed here, they’ve never seen a downturn. They’ve never missed a paycheck, so that leads to a lack of a work ethic
Vilkin: I’ve seen that same philosophy among the tradespeople. They don’t put a value on the fact that they have employment, because anybody wearing a tool belt is pretty much in demand in this town. So that affects quality control, especially for subcontractors.
Can You Fight City Hall?
Brennan: Let’s talk a little bit about City Hall. As the town continues to grow and there are more and more projects, will the cities be able to keep up with the growth? I understand some new building codes are also causing problems.
Korte: The county is doing a good job, for the most part, and I think Henderson is, too. Right now the City of Las Vegas is overwhelmed. They’re trying to crank out a lot of work, and they’re maxed out, especially from an inspection standpoint. We get more rollovers in the City of Las Vegas on our inspections than anywhere else.
Leidig: The City of North Las Vegas is pretty swamped also.
Nigro: We’ve had some personal experience with the new IBC (International Building Code) that came out recently, and it is bad. It’s a set of building codes that local jurisdictions are adopting and modifying based on local building ordinances. Clark County, Henderson and North Las Vegas adopted the 2001 code and the city (of Las Vegas) adopted the 2003 code, so there’s no consistency That makes it difficult to work within the jurisdictions. In addition, every time they adopt a new code, the cost of construction goes up, because the codes are getting more and more strict. We’re designing an office space right now, and the codes affect the way we can lease the space inside because of exiting corridors and things like that. On a 1200-square-foot retail restaurant in a shopping center, the new fire codes can add $15,000 to the cost of tenant improvements. As an industry, we need to be more organized in lobbying the city or the state to have more of a say in how these things are being developed. Right now the solution to all the cost increases is to raise prices, but we can’t continue to pass them on indefinitely. We built office space two years ago and leased it for $1.80 a square foot, and we’re building offices this year and it’s $2.10. Large-scale projects may not notice a small price increase, but the bread-and-butter of our market is mid-level projects, and that market is not going to be able to absorb year after year of price increases the way it has. There’s a lot of pressure on that middle market right now, and it’s causing developments not to get done.
Vilkin: Local governments go through such a learning curve every time there’s a new code adopted. It takes longer to review a set of drawings than if all the building departments were all on the same code, and all the engineers and the architects knew exactly what they were designing for which building department.
Leidig: That’s how the architects are learning this new IBC – by going through plan check.
Brennan: Do you think, generally speaking, the people down at City Hall get it? Do the people working on the plans realize that time is money, but they’re just overwhelmed?
Burke: They don’t get it.
Korte: The problem of getting qualified people isn’t restricted to builders. Architects, engineers, planning departments, inspection departments – everybody is looking for people. Sometimes we make the problem worse because we’re in such a hurry to do it quickly that it doesn’t get done right the first time and it bottlenecks the entire system. People submit an incomplete set of plans just so they can get in line for a permit, so a very dismal set of plans bumbles its way through the permitting process and causes all sorts of problems when it reaches the field. This can take what should be a nicely-paced project and put it into a tailspin.
Loughridge: In addition to permitting slowdowns, we find some real delays within the Water District in checking projects and with Nevada Power getting designs out. Even if permits were done in two weeks, we’d still be waiting on the water district. We’re getting Nevada Power designs that have a $150,000 impact on the budget, and it’s two months after we got the permit, so we have to go back to the owner and try to explain that.
Brennan: Is it taking longer now to get the plans out than it did last year?
Nigro: Yes.
Potter: My lags are much greater in public works than I’ve ever experienced with plan checks for buildings.
Monkarsh: The most important guy today is your civil engineer. You can spend a lot of time waiting for that civil engineer to get all his water district or reclamation district clearances.
Nigro: I sit on the planning commission for the City of Las Vegas, so I get to see a lot of how they work. They’re just as strapped for people as we are. They’re paying more than ever for people who probably aren’t as qualified as they used to be. They’re pushing as hard as they can. And we’re so busy, who has the time to go sit down at the City of Las Vegas or the Henderson office and discuss with them the nuances of the IBC code? But three or four or five years from now, depending on what the environment looks like, we’re going to be living with a code that’s going to have dramatically impacted what it costs to build a product.
