Kevin Higgins

By Buck Wargo

Friday, April 17, 2009 | 2 a.m.

On first glance, he can be confused with Steve Carell of “The Office,” but Kevin Higgins isn’t acting as he tries to cope with a difficult commercial real estate market.

The 47-year-old Higgins, senior vice president of Voit Commercial where he is the broker of record, said he’s a realist when he tells clients of the tough times that lie ahead for the industry.

The worst has yet to come, but in that hardship will come opportunity when the time is right, Higgins said.

Higgins and his wife, Ana Marie, have three children: Jake, Kelsey and Collin. He has lived in Las Vegas for 40 years since his parents moved here from the Chicago area.

Higgins, former president of the Southern Nevada chapter of the National Association of Industrial and Office Properties, is the current president of the local chapter of the Society of Office and Industrial Realtors.

A specialist in industrial real estate, Higgins started his career in Las Vegas in 1985 after graduating from USC with a degree in real estate and finance. He started at Coldwell Banker Commercial before launching the Voit office in 2002.

IBLV: What did you do at Coldwell?

Higgins: Industrial real estate — the same thing I have been doing for the last 24 years. It grew over time. It was leasing and sales and investment sales. What I got familiar with and comfortable with was the investment and development end of commercial real estate — understanding that this is not just a good piece of real estate, wherever it might be, but what it took to develop it — the engineering, the design, the architecture — what people were looking for as far as building specifics, but also construction costs. I understood that if I could get 45 cents a square foot and it cost me X dollars to build, I could maybe pay Y for the land. Knowing that certainly helps me to sell a developer a more compelling case to buy the property than someone saying, “Hey, look, here is a good piece of property and it is X dollars.” They don’t know if it could work or what it could work for, but it looks nice.

You can’t equate what you do to being a Realtor for housing?

Not at all. I have never been in the field of selling houses. You are dealing with typically a different set of parameters rather than the gut-driven “I like it because it’s in the right neighborhood, or I like it because of the architecture, the pretty carpet or the number of bedrooms.” You are dealing with people who are in business looking to create a return. They are not necessarily concerned with where it is in town or does it have to be the prettiest building on the block, which doesn’t make sense from a business perspective.

What type of clients do you represent?

I have worked with every major developer in town at one time or another from an industrial standpoint — Prologis, EJM, Harsch, CIP and you name it as far as development organizations. As far as tenants in buildings or sales — Home Depot and Levi’s, brand names like that.

How did you start off at Coldwell?

It was a proving ground over time. I was doing smaller leases and smaller sales of land and buildings, primarily industrial. I evolved into larger land transactions, larger lease transactions, larger investment transactions and, over time, gradually gravitated to the large deals.

What does that encompass?

You are dealing with architects, and dealing with numbers and calculations and ratios, and I think there is a bit of sophistication to it, quite candidly. I am not knocking the residential side. The clients are expecting more out of you than just showing the property. They want you to be their adviser and consultant and wear many hats. Many years ago, I laughed with my partner that we should be paid as consultants. Not only do we sell land, we tell them what to build and how to build it down to what color commodes they should be putting in there. We literally do things from A to Z.

What attracted you to industrial in the first place rather than office or retail?

It was the luck of the draw. I was looking for a job. There was an opening for a trainee at Coldwell Banker, CB Richard Ellis now. I filled a slot and that person was in the industrial field. That was it. I sort of liked it. I liked the fact I could get outside and could look at land and be anywhere in the valley. I was dealing with people from all walks of life, all facets of life and all income levels.

Do you remember your first deal?

My first deal was probably a small lease. Generally, you start in leasing and you gain a comfort level. You gain an understanding of it and you gradually work into sales — smaller buildings or smaller pieces of land.

So in your profession, you start easy and work your way up?

Less complicated I would say. Today, I look at it, and the smaller deals are more complicated than the big deals because you are dealing with someone who is counting the pennies instead of watching the dollars.

Do you put money in deals?

That was one of the reasons I left CB at the time. Since I have left, I have developed properties on my own and co-managed properties. I have done construction management for developments here. We bought, with syndication and partners, land and buildings.

Do you still have them?

I was lucky enough to sell off every one but one, and it is a piece of land. We are in it fine. We own it cash. It is an industrial piece of land that we bought outright a number of years ago. I could sell it now for what I’m into it, but we don’t need to sell it.

What was it like to start in the industry in the mid-1980s?

It was a very small playing field. There were a few local brokerage houses, but, by and large, Coldwell Banker had all of the major players. We had six or eight industrial people and those were the leading people in the market. We were the go-to shop for sure. At that point, your world is not as big or not as open. Remember the time in the mid-1980s, Las Vegas wasn’t thought of as it is today. You had a little over half a million people here, if I am not mistaken, and primarily you were dealing with smaller companies — local and regional developers. You didn’t have anything like the megaresort. The Mirage didn’t come on line until 1989-1990, and the town was still run the old way and not by public companies. It was a different sort of town, for sure, back then.

What was the pace?

Cell phones didn’t exist back then or if they did, they were almost the size of a car battery and you needed a strap to hold it. We likened it to the World War II movies with the walkie-talkies. Federal Express wasn’t really here and faxes were not here. The computer wasn’t in vogue. If I had to look up a property, I did it in microfiche, which was six months to a year and a half old sometimes. The information wasn’t as current, but it didn’t have to be as current because the pace of deals wasn’t as quick and instantaneous as it is today. Deals took six months and 12 months and escrow was 180 days. The world seemed a little slower at the time. When you went away on vacation, you went away on vacation. Nobody could get a hold of you. You weren’t getting a fax. You weren’t getting a FedEx. You weren’t being text messaged or e-mailed on the cell phone. It was a much slower pace certainly.

When did things change?

In the late 1980s we started to see some larger regional players taking a look at the town to develop and some larger tenants looking at the town or more sophisticated names that we didn’t have here. Along with that came the fax and the cell phone, even though they were the small brick about two inches wide and eight inches high, and it started to pick up the pace. We became about the information and timeliness of the information. Technology was ever-increasing so that made everyone accessible. The spotlight started to come on with Las Vegas reaching 1 million people.

How does your area of industrial compare with other commercial sectors?

I think that there is a difference. A lot of people in the other categories of commercial property — you have some who do tenant representation and that’s all they do. Some who just do land sales, and that’s all they do. They don’t help with the leasing or the design. Then you have people who strictly do investment sales. They are strictly numbers driven. You have people who just do multifamily apartments. Certainly, I would say when we first started on a local basis, commercial was a wide-open field. Someone would do it all. They would do industrial, office and retail. Coldwell Banker was where they would specialize and put you in a category. I think that’s where we gained a lot of our expertise. We were focusing on a smaller aspect of the commercial field and became the pros at it as opposed to someone trying to grab whatever they could.

Is it necessary to specialize?

It is too difficult to be on top of everything the way you need to be. You can’t be the retail guy and do all of the Home Depots or the shopping centers, and the pro in office can’t be the multifamily or industrial guy. Certainly, I think one of the things that people go astray with is they tend to be myopic in their thinking and say, “I am just an industrial person.” That it doesn’t matter what happens in retail. That it doesn’t matter what happens in office. That it doesn’t matter what happens in apartments, and that it doesn’t matter what happens in residential. I like to think that while I am specializing in industrial and back office, I understand how everything interplays with each other and how it affects what I do. How the gaming affects what I do. You need to look beyond your small little world. To talk to these people coming from out of town, they don’t just want to hear, “Show me some industrial land or industrial buildings.” They want to know how gaming is doing and how many new rooms are coming on line. Who are the big grocery stores in town and what does the average apartment go for? They want to understand things for their employees and contractors. That has helped me out in the long run.

What spin do you give them these days?

My spin is not a positive one. My spin, if you can call it spin — good, bad or indifferent — I don’t like to play games with people. I don’t like to tell them what they want to hear because I am from here. I plan on raising my kids here and I plan on being here a long time and my reputation means something to me. If they want a yes man, they are talking to the wrong guy. It has cost me sometimes in listings because they don’t like to hear a dose of reality. My take on the market right now is it is going to get worse before it gets better. Whether it is office, industrial, retail or apartments, land or gaming, we are going to see foreclosures, bankruptcies, stores closing, bank sales and bank auctions. We are going to see a lot of that happen in the short future, just like the housing market and the financial market where they have yet to find their bottom. We are just starting that. The residential market is 2 1/2 years into it, roughly. Well, we are a year into it for commercial, maybe. I think you are just hearing signs from the outside — not from the inside because we have been talking about it internally for the past year.

For what sectors?

It is across the board. Right now, you are varying vacancies. The office vacancy is anywhere from 20 to 25 percent, depending on whether you count the sublease spaces or not. The industrial vacancies are around 9.5 and 10ish right now, depending on who you talk to. There is a significant difference but when you have no activity as far as new development with nothing planned and you have an economy that’s softening. The contractors don’t work and the engineers don’t work, the architects don’t work. The brokers don’t work. It starts to snowball. The developers aren’t there any longer. No one is buying land for speculation and no one is buying land for development. Tenants aren’t moving. In fact, they might start renegotiating their leases to a lower number if they stay or going out of business. It makes it a difficult environment, and I think personally what needs to happen in the rest of the economy that they are not letting happen, you can’t prop it up forever. Throwing money at it isn’t the solution because if I was trying to sell you a piece of property today, you are going to want to know, they might have to hold off for five years. And they want a certain return on that. They are going to have to buy that pretty cheap. Today, you look at land prices and they aren’t that cheap. You look at building prices, and they aren’t that cheap. You might think, “Let’s go buy this office building or industrial building, this retail building. That prices sounds really cheap. It’s vacant and we can fill it up.” The problem is who is going to fill it up with because there is a very little leasing going on. Who are you going to sell it to? There is very little buying going on. And at what rate if you fill it up. Is it really going to give you a return for what you paid for it. How cheap is cheap. I think we have just begun to feel that in the lease rates and some of the drops across the board in office, industrial and retail and the land prices.

What’s prompting the foreclosures?

It depends on the property type. For instance with land, the reason commercial land is getting foreclosed upon is they paid $20 a square foot for it lets say in it heyday and they financed $15 of it and that was two years ago. They can’t get any financing to build on it because what do you build on it? You are not going to build office. You are not going to build retail. You are not going to build industrial. You are not going to build multifamily. You can’t build anything, and even if you wanted to build anything, you can’t get a loan. The developer doesn’t have any more money to put up for the development. He’s not doing anything. All of a sudden, you have a lender, whether it be a commercial bank, a regional bank or small local bank or a hard money lender, they are going to want my $15, saying your year’s up or your two years are up. They been trying to work it out the last 12 to 18 months. Everyone is realizing there is nothing to wait before because it is not getting any better. The guy says, “I will sell the piece of property, but it is not worth $7. There is no buyer for it.” The guy who has the loan can’t sell it to pay off the lender, so the lender is saying, “I am going to take it back, and they are going to deal with whomever.” They are just starting to talk.

What are they talking about?

Someone says I could buy that for $3 a foot, for $5 or whatever the number is and hold on to it for five years because I might have to because this is an interesting recession/depression we are going through. And I want a return of X. If I want a 20 percent return, can make that $3 into $6 at least. Can I make that $5 into $10. That’s what the thought process is just starting to come to. Can I make a return and do I want to risk the cash I got or do I wait until that $5 becomes $2.

What is happening?

Right now, it is hard to put a value on anything. It is hard to say, “Hey, this office building we are sitting in is worth X because what’s the land worth underneath it?” I don’t know. What are the building construction costs? Well, they’re going down. Isn’t the cash flow from the tenants worth something? Really? Are the tenants going to be here in a month or six months from now because you are seeing tenants move out? It is a very tough predicament that we are getting into. The last 12 to 18 months the lenders and institutions, the private-equity guys are working out their problems, and I think every day when you read about defaults, there are more and more. More and more the banks are talking about what they are going to have to do, if not the banks having trouble themselves, which I think we will see more of. The crystal ball is not very positive over the next 12 to 18 months.

Are lease rates going to keep falling?

I don’t know. That is like asking the housing guys 2 1/2 years ago how far it was going to go. They never believed it was going to drop as low as it is. The good thing about it from an industrial standpoint, there is virtually no development going on right now. That is a good thing. The good part about it is that the vacancy could certainly rise, but it is going to rise to a certain level because there is going to be no new product. It is still going to be a struggle for the next couple of years because a bunch of new people are not moving to town. It is people moving around town for the right rent, or they are lowering the square footage they are taking or they are giving some back to the landlord.

What is going to happen?

I think at some level when everyone starts to understand this. One there is already private investment money already talking to the banks and saying I want to buy it for 10 cents on the dollar. The bank needs to get it back first, and the banks need to come to the realization that I can’t get my $15 out of this. They are going to go, “Wait a minute, this is worth $15.” Then, you have to go through the education process that it isn’t worth $15. The only one that wants to buy it is the guy that will pay them $1.50. At a certain point, just like the residential, where people were buying these residential lots and the buyers were coming in and would buy that but essentially for the value of the improvements, and not the land. Land for free — that is what’s starting to be talked about in some of these developments ... where it is like the land under the buildings is almost worthless. It is just starting to happen, but there has to be a meaningful wholesale drop in pricing for the private equity and larger institutional money to get off the sidelines.

What about office?

The office, on the other hand, is in a worse predicament because the office side has that 20 to 25 percent vacancy, has another couple of million square feet coming on line, which could mean another 5 percent, and there is virtually no absorption. You look out there and say, “Wow, you are looking at 6 (million) to 7 million square feet of office product out there and in our best year, I think we were doing 2 1/2 or so million, maybe 2 million.” That could be a three-year supply right there.

Retail is also a tough market because what you are seeing is an economic spiral. That big tenant, the grocery store, is moving out. They create a hole in that otherwise great center and then what happens is the other people start to have problems because not as many people come to see them, and the little guys, the small food chains, the small sandwich shops, the hair shops, the insurance shops and the nail shops, it just starts to trickle down where they are very much affected. Who is going to fill that grocery center vacancy? There are not a lot of new startup companies. The national people who may have taken in the past as far as a competitor, he’s not expanding. It exacerbates itself. It is more of existing centers having issues and what they do with their product and what the landlord does to keep those people in there. The problem just keeps compounding.

Where will the foreclosures be?

Certainly land, because we were a speculator’s market and it was frothy and there was so much out there. There will be certainly be industrial projects. They will primarily be in two aspects. One is free-standing buildings — these complexes that had to build for $200 or so a foot, and the market is not there anymore. They can’t lease them out because they have to lease them out at a $1 and something, and that doesn’t make sense for an industrial building because no one is going to lease it. So they are struck. That will come.

What else?

And from the standpoint of an existing building that does have tenants in it, the issues might start becoming that he has a loan that’s coming due in the next year or so but tenants are moving out of his building, and he can’t get a new loan because now the new lease rates don’t support that price in his building to where he can pay off the other loan. That’s when things will start happening on tenanted buildings. The same thing with office and retail. I think there is more office building that out there that are empty that have issues. There are shopping centers that have vacancy issues where someone moved out or the pads in the front were never built out.

What have been some of the major foreclosures?

They haven’t been yet. You are just starting to see the notices of default come across. I don’t think anyone has their hands around it. Title companies send us a notice of here is a default for this week, the next week. You see them progressively getting larger and larger. Right now, with a notice of default, you are 90 to 120 days out from it potentially being taken back. Everyone is going to do everything they can in that 90 to 120 days to not let that happen. After the first of the year is when you started to see those things going on. All of a sudden, 120 days from January and February starts to put it in May and June. That’s when you start to see it progressively get worse.

When that happens, what is going to happen to this market?

That’s why I say it is going to get worse before it gets better. It is going to be worse for a number of individual developers and investors. What it will do is create opportunity just like everything. Out of adversity comes opportunity. But it has to go there first because no one knows where the bottom is right now. No one knows if that is a great deal or right. I have a feeling at a certain point that if I am selling you a piece of dirt that’s $2 a foot, I can say to you that in five years you can certainly get $4 a foot for that. Now, a piece of dirt that’s $10, do I think it’s going to be back at $20 again? I don’t know that we’ll ever see that. I don’t know that the Strip will ever see $30 million an acre again. It could be, but I am not going to bet by buying something for $15 million an acre. That is the dilemma we have to go through. I don’t think I am a pessimist. I am a realist at the end of the day. We are on the front line. We see what’s happening. I hear what’s happening. The tenants are calling us or not calling us. The buyers are calling us or likely not calling us. Investors are likely not calling us because they are on the sidelines. Users aren’t calling us. When I call investor relations or developer relations, they say they are not building right now. We are holding our cash. We think there is going to be opportunity down the road.

What type of foreclosures are happening now?

We are handling a number of defaulted properties. We working with the lender who is getting the property back. Most of them are smaller free-standing buildings, single-tenant buildings that are coming back or land right now. But you are going to see whole complexes start to come where a guy with 10 office buildings can’t sell or lease them or a guy with 10 industrial buildings that couldn’t sell or lease them.

Who are you working with on foreclosures?

I am working with the actual lender who got it back or who is getting it back, and they are saying, “Kevin, I am going to get this back in 90 days, what happens?” Or “Kevin, I just got this back. Can you put it on the market? What is it worth?”

When did you start getting involved in this?

I called them all a year ago and asked, “Where is your workout department?” They said, “What? We don’t have one.” This was a short year ago. They didn’t understand. Then I asked for someone over 40 years old, and that didn’t work. Most of the banks did not have this setup.

The banks aren’t saying much about individual properties?

The banks don’t want to tell you until they have it. They don’t want to tell you that I think I am going to get this back. They don’t want the world to know what’s going on. They might put it off for a while. We don’t want this problem today because what if it’s at $15 a square foot. If I sell it now for $3 or a $1.50, there is no way I make up any portion of that difference. If I hold onto it for a couple of years, maybe, maybe I get $7 back or $10 back. Am I better off selling it today or tomorrow? That all depends on the institution.

Will Las Vegas be ground zero for commercial foreclosures like it was for housing?

We are so small relative to other communities in size and scope to a Southern California or an Arizona. We will feel it, but I don’t think the commercial market is as large as the residential market was in sheer number and effect on everyday people, as it would be in Southern California, where their commercial market is billions of square feet instead of a hundred-odd million square feet. In Phoenix, I am hearing stories of building after building — big ones, bigger than we even have here — are empty, empty, empty.

What is it going to do to lenders?

I don’t know the exact numbers, but I think the commercial real estate market is going to have a significant effect on the total national economy that people are just now starting to realize. I don’t know how the government props that up or if they should. At some point, you have to get on with it, and peel that Band-Aid off, and feel pain for a while and deal with it after that. There are going to be financial institutions that are going to fail. There is more to come, and I think commercial real estate will help that, unfortunately.

What is the fallout from all this?

You are seeing that now. Architects who have closed shop. I just came from a meeting in which a mortgage banker closed up shop. I think you will see less people in the real estate industry. That happened in the residential, as well. You had that huge shrinkage, and you will see that as well in the commercial real estate market, in every facet, whether it is architects and engineers, accountants and attorneys. It is going to go through the field. It is already starting to happen. This problem is not new.

How far down is your business?

It was down in 2008, probably 60-plus percent (transaction volume), and it is down from there. That is the sign of the times. I can’t make people buy. I can’t make people lease. If we are down this much, I have to think a lot of people are worse off much more than us because we work and handle some very successful projects standing on their own and doing very well.

Sounds like a tough time for your profession, isn’t it?

There is no question about it. I don’t want to create any doom and gloom, but there are realities. It is not a bed of roses, but what you make of it. If I came in thinking it was all doom and gloom, I would never want to come into the office. Out of the tragedy comes an opportunity. I am looking for the opportunity so when the time is right, whether it is private-equity partners or whether it is institutional buyers or developers, I can turn to them and say, “Client, the time is right, and now it is time to go in.” In the meantime, I talk to banks, and I talk to owners of property. I tell them if you want to get things sold or leased, prices have to come down and it is not coming back real soon. For most, it is a very difficult talk to have because brokers are supposed to be eternally optimistic. Unfortunately, there is this belief that brokers are always pumping you full of sunshine all the time. A lot of them are, to take listings and get their sign out there. That’s not what I’m about. It is a difficult first conversation to have and tell that person, the $20 (a square foot) you paid for it, and you put in $5 million and you got a loan for $12 (million) to $15 million that isn’t worth $5 million. The building you were selling for $250 a square foot a year ago, you are lucky if you get $100 today. And there is not going to be a bunch of people running to buy that. And the lease rate that was 60 cents a year ago is now at 45 cents. Those who get it and understand it are lowering their prices and getting the deal. A number are saying we are doing what it takes right now and being aggressive. They will say, “I will do that 24-month deal. I will do it at that rate. I will give that free rent. I want to keep my building occupied and paid for, and in three years from now, I can worry about where the rates are and what is the economy looking at and, hopefully, it is better. I will live to fight another day.”

How long will it take for a turnaround?

I don’t see anything happening this year or next. What is normal? I don’t know. I don’t see it getting anywhere positive in 2009. I am hoping a year from now is when the opportunities come, there is aggressive buying going on in the second quarter or second half of 2010. But to where people are leasing on a daily basis or selling on a daily basis, I don’t see that happening right away. It could be 2011 before we return to some type of normalcy where people aren’t just trying to bottom feed. Right now, people are looking to bottom feed, but there is nothing to feed on yet. And it is going to take awhile to go through the process and get out to the world. It is going to be a short window to bottom feed.

Can you be wrong?

If I am wrong, I might be slightly wrong about the timing. It could be six months better or six months worse. Don’t go out and spend that money just yet, and if you have a job, hang onto it.

Why should the general public care?

They don’t care how many vacancies are in this building. But when major financial institutions all over the country are saying, “Great, we are bending a knee and we have this wave coming in the next three years of not only foreclosures but loan renewals of commercial real estate that have nowhere to go,” they will care because the economy will care, and I wouldn’t be surprised if Washington tries to do something to stem the tide there. I think it will be big enough, unfortunately.

Even in this market, what about the concerns about the shortage of industrial land?

That is a longer-term deal, but the fact is if I wanted to go out and build an industrial park two years from now, I don’t have a number of alternatives, whether it is North Las Vegas, the airport or the southwest or Henderson. I can go to the airport and I have a hard time finding you a 2 1/2 acre piece to sell you at any price. In Henderson, there are only a few pieces and North Las Vegas a few more. In the airport area, there could be a few more, but there has to be a wholesale drop in prices for that to happen.

Brian Wargo covers real estate and development for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 259-4011 or at [email protected].