Industry FocusBuilders & Developers

 

From the Great Recession to the COVID pandemic, builders and developers in Nevada, like many other industries, have experienced years of challenging ups and downs. Interest rates, available land and governmental roadblocks can all become major hurdles to project completion in construction and planning. While navigating these issues, organizational leaders are also concerned with their succession plans.

Recently, executives representing builders and developers in Nevada met at a roundtable sponsored by Nevada State Bank to discuss these hurdles and possible solutions.
Connie Brennan, publisher and CEO of Nevada Business Magazine, served as moderator for the event. These monthly roundtables bring together different industries to connect leaders, share ideas and inform readers.

How Are External Factors Affecting Building and Developing in Nevada?

Rod Martin: One of the things in the industrial sector that we need to pay attention to is the tariffs on China. Thus far, there’s a lot of angst amongst Chinese-based companies. As we all know, a lot of the Inland Empire development in recent years, winds up being leased to Chinese 3PLs (third-party logistics companies), particularly in the last two years. They’re taking down large amounts of square footage. That’s what the fear is with respect to the trade war or anything along those lines. If we see a major slowdown in those Chinese companies that are bringing products here to the US, that’s going to ultimately spill over to all markets. It’s certainly something that we all need to be mindful about. The other thing is, anything that eventually can be linked to a recession becomes the death knell for all of us.

Jeff LaPour: I don’t see how [tariffs don’t affect us] at some level, but I’m hopeful that it’s on the minimal side of things. We’re seeing the response from the first two, Canada and Mexico, which I think is what everyone was hoping for and suspected could happen. China, on the other hand, is probably going to have to play out for a while.

Par Tolles: Even if we’re less worried about tariffs, capital is worried about tariffs. If you have a pro forma that’s been approved by a bank or an investment committee in the last two weeks, they’re wondering if the numbers are going to hold. Returns are already pretty razor thin. I had that conversation just yesterday. Until we get some more stability on costing, it is worrisome.

Guy Martin: I’m not as worried about the tariffs. I’m worried about the rebuild that southern California will require [after the recent fires]. That is a way bigger current risk to southern Nevada’s construction cost than anything else. Southern California will start spending the federal government’s money to rebuild in the next six to nine months. They will spend three to four times to rebuild than what you’ll pay here. You think deals are tight now? Take the major commodity in a custom home or an apartment and double its price. Those trucks will drive right past Las Vegas, and they will go to southern California. That’s stacked on top of the tariffs because greater than 80 percent of our lumber comes from Canada. I think the fires are actually going to jam us up more, not so much on construction material availability, but just on cost.

Shawn Danoski: The biggest variable and hardest to plan for is navigating the government regulations to get a project started and then in navigating it and closing a project out. Both of those are consistently moving a lot right now, and it’s hard to plan and prepare, and they become very expensive.

Bret Loughridge: A major challenge with construction, design and developing is speed to market due to uncertainty. Our industry needs a way to figure out how to ensure that. Most other industries have figured that out and, at some point, it’s going to come to a head.

John Cannito: Execution is the biggest challenge that we’re going to have over the next couple of years. Picking and choosing what jobs to do [is difficult]. It just seems like the market, unlike Arizona and California, is extremely busy. And, subcontractor capacity is a challenge.

How Worried Are You About Land Availability?

Tyler Jones: Affordability in general [is a challenge], but land constraints, are probably the biggest driver of that.

Phillip Dunning: Land is a very serious issue. Currently, we have a limited supply of land. The way it’s transferred through SNPLMA (Southern Nevada Public Land Management Act) to the public for use and consumption is a very slow, tedious, expensive process. Many of us in this room can’t buy [land] at auction because of lack of entitlements and the amount of time it takes to get entitled once you do own the land. Once we run out of the current SNPLMA boundary zones, and without a new Lands Act, we have a finite amount of land that’s available. That drives the supply and demand side [and] increases the cost. Even though we’ve had, let’s say, a pullback of new construction starts in the industrial market, we haven’t seen land prices subside to help us get to the yields we need in order to acquire new land and new projects. Until something drastically changes in the market, whether it’s availability of land, lending, construction costs or just an incredible run-up on lease rates, we’re going to be in the same boat for quite some time. I’m very hopeful that our legislature will pass a new bill expanding our current boundary zone, and that would be very helpful for us.

Dan Morgan: We had a lands bill that went through the United States Senate subcommittee that got dropped in the last session of the last Congress. Our land situation in Washoe County is very precarious. We’ve got a lot of topography, and we’re pushing up against a lot of that topography. Infrastructure and development costs are very significant for those lands. We’ll be working really hard with our Congressional delegation to find a lands bill solution for northern Nevada. Right now, we probably have, I would estimate, about five years of entitled or zoned residential available. The key to unlocking all that and getting it to market is infrastructure. And infrastructure costs are so high right now. The Governor’s housing bill, that’s being worked on, [has] a lot of components that would help address a lot of this. We’ve got a lot of moving parts in the residential single family and multifamily in northern Nevada right now.

Where is the Next Generation Going to Come From For These Industries?

Guy Martin: One of the struggles we’re facing right now is succession planning at every level within our company, within our subcontractors, within our trade partners, you name it. There is a huge turnover of companies being bought and sold, and they’re hard to keep track of. There’s no succession and I think that’s a risk to our market.

Neil Sansone: We hear constantly from general contractors that all the good subcontractors left and there’s not a big replenishment of those really good trades.

Guy Martin: We spent generations telling kids that craft and trade was where you landed as a second or third choice. Our company does very deliberate things [to promote trade as a career]. We have an entire campaign that says, “When craft and trade is too hard for you, there’s always college.” The bottom line is, these buildings don’t build themselves. If tomorrow, all of a sudden, there is affordable land or cheap money [we’d still have an issue]; we are struggling to fill the needs we have today. In the next 24 to 36 months, you’re not going to change two generations of programming and bring back the nobility in craft and trade to fix the problem. Frankly, and I’m perfectly willing to be wrong, even my developer friends at the table, want builders as their contractors, not contractors as their builders. There’s a difference. We come from craft and trade. We come from dirty hands. We come from dirty boots. That’s how the best of the best is being built. We’ve spent two generations pushing that down. We’ve got to fix it. I think everybody is trying to, but it’s not an easy thing.

Cannito: That’s huge stuff, being able to find trade labor. It’s not the sexiness of being an engineer or an office person that we’re having trouble attracting people to. It’s the people who are actually going to do the building.

Guy Martin: I think this industry is sexy as hell.

How Are Market Segments Faring?

Industrial

Dunning: New starts have drastically slowed down. We have a pretty strong supply currently on the market. We have an increasing vacancy rate as we delivered over 14 million square feet in 2024. We’re anticipating another 6 to 8 million square feet in 2025 to be delivered on the market. That’s anticipated to push the vacancy rate north of 10 percent. With that, we’ll see no new construction starts, or very limited construction starts, through ’25 and maybe even early ’26.

Tolles: Reno is a little bit healthier. If you look at just straight vacancy on a report, it says 13 percent. If you take out Fernley [and] everything under 50,000 square feet, you’re probably around seven and a half to eight. There are deals still getting approved. Leasing is slow. The pace of business and expansion is slow and it’s worrisome. There’s a lot of consolidation, but there’s not a lot of expansion.

Rod Martin: I agree. Probably since April or May of 2024, the demand really started to slow. To me, we’re in just the traditional oversupply marketplace, and it’s going to get worse before it gets better.

Retail

Sansone: Retail demand is still strong. Some of these consolidations we’re seeing are small businesses who are just post-COVID. We’ve seen a lot of what I would call, “the missing middle”. There’s a lot of new small business startups that are doing well and there’s larger chains that do well or establish local small businesses with a great presence throughout the valley. Some of the people get squeezed out of the middle in between. But overall, the demand is strong. There’s a lot of new interesting concepts. Vegas is becoming a bigger entertainment destination for a lot of people and, as a result, we’re seeing this expansion in the type of retail tenants, which trickles down to the cost of the overall tenant, the experience of construction, which trickles to rent.

Danoski: What I’ve seen in the retail and the quick-serve restaurant market is probably more new brands looking at our market today than I can remember. It’s the growth of our valley and the variety of our valley is changing, so it’s attracting a whole new market.

Residential

Jones: We operate exclusively in the luxury segment. In our segment, I’d say there’s a very strong demand. We had a pretty slow second half of the year last year leading into the election. People tend to not make big decisions when there’s a contentious election coming up. That was relatively normal. High net worth individuals are [coming from] California and the number one reason is taxes. There’s also a lot of other factors that are driving the appeal to Las Vegas with everything else we have going on between sports, the train coming to Las Vegas and potentially a movie studio. There’s a lot of momentum. On the more affordable side, it’s a little bit more difficult. The cost of land and financing costs really impacts people in the median home price. Las Vegas is no longer an affordable place to live. We’re flipped to the other side of that. That’s going to be a challenge for the service community and people in that segment. We’re very cautiously optimistic right now.

Morgan: The demand up here, at that high end, we’re seeing a lot of volume and velocity there, too. High net worth individuals are not mortgaging anything. There are a lot of cash transactions. In those lower levels, we have significant upward price pressure. I think that on the residential side of things, it’s important for everybody to know that, statewide, in excess of 50 percent of currently owned single family homes in the state of Nevada are sitting on a subpar 4 percent interest rate or below. The demand is really high. You’ve got a whole bunch of the resale market locked so that people can’t move to the newer construction. You have demand for the newer construction, and our average price point in northern Nevada is right at $600,000 for a single-family home. The next 12 to 18 months are going to be interesting.

Office

LaPour: There’s demand [for office, but] we’re not doing office because a lot of the country isn’t back in the office. The capital sources are tied to popular opinion rather than case by case. It’s a weird situation and I’ve never seen it before, ever. The buildings are full and we can’t get a refinance without a substantial amount of capital being contributed. You can’t sell the building, and you can’t build a new one. Talk about inflation, the office market rates in a few years are going to be higher than I think anybody could ever imagine them being. Not at a giant scale, but on a case-by-case basis.

Guy Martin: The face of office is changing because COVID taught us that a lot of jobs can be done more efficiently and automated. If you had to have, pre-COVID, 200 people in your office to do what you do, you only need 50 to do it now. If you have a product or service that even remotely touches technology, when you said, “come back to the office,” you only need 25 to 30 percent of the people to show up.

Do You Require Workers To Be in the Office?

Cannito: Always did. We always do.

Rod Martin: We want people in the office. The benefit that’s gained by having people in the office are younger people that get exposed to so much more in the areas of expertise. And, there is more experience our company has in various facets, from development, brokerage, management and construction. Having that spill over amongst the disciplines is invaluable.

Loughridge: You can’t swing a hammer from home. There’s a relationship aspect of what we do. It’s a lot more relationship than transactional. You’re not going to make a widget. You’re not standing on an assembly line. You’re working with people. As an industry, we have to change and be more efficient. That’s the only thing that’s going to solve all of these issues. We have to do more with less. We’ve been able to get through because we’ve had resources. Now we’re at a point where, maybe that doesn’t work.