Las Vegas Sun

March 28, 2024

Developers becoming aggressive to stay afloat in hard times

naiop

Steve Marcus

An ironworker guides a girder on Metro Police headquarters at Martin Luther King Jr. Boulevard and Alta Drive.

Even though construction has come to a virtual standstill in Las Vegas, local developers said there is still plenty to keep them busy while they wait for the economy to rebound.

Developers said the limited opportunities they have to construct office or industrial projects are either government buildings or companies that need a building specifically suited for their operations. Speculative construction has been halted because of the high vacancy rates and difficulty in getting lenders to finance projects.

That means focusing on the properties that developers have already built and are managing, said Rod Martin, vice president of Majestic Realty Co., who spoke June 17 at a forum on what developers are doing now. It was sponsored by the Southern Nevada chapter of NAIOP, the real estate development organization. Developers talked about the importance of upgrading properties and making them more energy efficient and attractive to lease.

“We are concentrating on preserving the asset values of our portfolio and maintaining and nurturing our relations with the brokerage community,” Martin said. “It is no different from the good times in that you have to attend to the core business of preserving the values of your (existing portfolio of buildings). If you don’t do that, you won’t be able to take on new projects.”

Rick Myers, president of Thomas & Mack Development Group, said his firm is working a lot with banks that have repossessed commercial properties. It’s a segment that will grow because more and more properties will be taken over by lenders, he said. In the last nine months, Myers said he has been involved in 50 transactions worth $70 million.

“Whatever you were doing before, it is about ‘how can we apply my skills?’ ” Myers said. “We are all real estate people.”

Myers said his job is 80 percent different from what it was two years ago and one big change is the relationship between lenders and developers.

“Talking to your lenders used to be 10 percent of what you do, and now it can be 70 percent of what you do,” Myers said. “We didn’t used to (as an industry) talk a lot to our lenders. We got our loans and built our buildings and didn’t think about it. Now it is a whole new ballgame.”

Developers said lenders are starting to enforce what is in the loan documents in terms of approval of leases over a certain square footage to ensure enough revenue is being generated.

Developers said brokers are trying to get better lease terms for their clients, but said their hands are tied on how low they can go because their lenders want sufficient revenue generated.

“We keep them informed of what we are doing, and we get a quick response. They are working with us,” said John Ramous, vice president of operations of Harsch Investment.

“The old saying was nobody was worrying about it if you paid the mortgage, but that is not the case any more,” said Phillip Ralston, executive vice president of American Nevada Company.

Ralston said when it comes to tenants, larger companies are getting through the economic downturn better than smaller ones and they are trying to take advantage and increase their market share. The business environment is starting to stabilize, he said.

Myers said more tenants are being cautious with prospective landlords by talking to their lenders to see how stable they are. There have been situations where tenants move into a building with a great lease deal, only to have the office space repossessed and the tenant on the street, he said.

Martin said new construction will be dictated by market conditions and financing. Lenders once provided up to 85 to 90 percent of financing, but today that may be only 60 percent. Developers don’t want to dip into their equity, he said.

Myers said banks will react if there are opportunities out there.

Much of the emphasis by developers is finding businesses that want buildings constructed rather than converting existing space, developers said.

Many like Thomas & Mack are going after government work. It is the development manager of Metro Police headquarters under construction. It oversees the architectural work and construction.

“From a demand perspective, we are going to who are the end users,” Myers said. “Instead of looking for homebuilders to lease space or general contractors to lease space, now we are looking for what the government is doing. You have the stimulus funds out there and developers are going to be going after that instead of sitting and waiting.”

Ramous said he’s seeing interest for space increase from exhibition companies and firms from Canada, which wasn’t the case during the economic boom. They are lured by the values in real estate, he said.

Martin said there are a lot of companies that wouldn’t come to Las Vegas three years ago that are interested or even coming because of the price reduction in real estate.

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