To get a clear look at residential development
expectations in the Truckee Meadows for
the coming year,Greg Peek, vice president of
ERGS Properties
and outgoing president
of the Builders
Association of
Northern Nevada,
points to the travails
of one of the largest
regional homebuilder
in the area.
In 2005 the
height of the building
boom this
developer built almost 2,000 units between its
Reno and Sacramento divisions. The company
predicts it will build just 350 houses between
the two markets during 2009, Peek says.
"Everybody is hopeful that we will start
moving out of this, but companies' internal projections
are as slow as 2008 if not slower,"he
adds."People are becoming a little bit more
realistic and maybe even pessimistic."
Mike Dillon, executive director of the
Builders Association of Northern Nevada, says
two factors will determine if 2009 is as stagnant
a year for building as 2008 proved to be.
"We have high hopes, but the biggest issues
for us are that there might be some kind of economic
stimulus package coming from
Washington, and secondly,we need to get
through much of the inventory that currently
exists due to the foreclosure market," Dillon
says.
Dillon notes that another key aspect of new
development in the region will stem from an
economic recovery that will spur job growth.
"If some jobs are created in this community
in the next year,we
could see people
coming here looking
for homes,"he
says.
In the meantime,
area homebuilders
have
thinned their payrolls
as much as
possible and are
taking on work
they might not have during the boom years.
"Builders are doing what a lot of other people
are doing: cutting their costs,"Dillon says.
"Unfortunately, a lot of that is through staffing
reductions.And they are trying to be creative
with other types of work,whether it is in
remodeling or getting into green building practices
and remarketing themselves."
ERGS Properties is just one of many northern
Nevada companies shelving plans for new
development in 2009. The company, which has
built more than 700 multi-family units in the
Truckee Meadows, has delayed construction of
a 420-unit project that Peek had planned on
starting framing in March.ERGS probably
won't even break ground on the project this
year.
"We looked at the market and decided that
now is not a good time to build,"he says."Credit
has completely dried up, and if it is available it
is extremely expensive."
Investors who are heavy with cash are
spurring land deals, snapping up foreclosed
land from banks and builders unable to make
payments, and positioning themselves for the
next round of building.
Aaron West-Guillen, land specialist with
NAI Alliance, says there was a good amount of
activity in residential land deals between April
and August of 2008,with 16 transactions taking
place.After that period, though,when the stock
market was in total free-fall, deal-making dried
up.
"After August the stock market really took a
hit and everything really quieted down,"West-
Guillen says.
"After the election
we did see an uptick,
and now as more
details of the bailout
plans are being
released and various
industries are being
saved, there does seem
to be more optimism
that we are getting this
thing under control.
That is leading to
investors to keep an eye
open for those opportunities."
West-Guillen says
investors' idea of an
opportunity is "pretty
aggressive"when it
comes to pricing.
"When you are trying to quantify the land
basis for residential projects, it is tied to the
potential sales costs of houses, and when we are
seeing median sales prices deteriorate it continues
to lower land basis,"he says."Whenever
investors are looking to buy they need a certain
amount of security that what they are buying
wont depreciate."
West-Guillen says it's not easy for investors
to get good deals unless they come in with cash.
"In most cases guys who can step up to the
plate with foreclosed opportunities are cash
buyers,"he says."The lack of financing has really
affected more builder-developer types. There
is not a lot of opportunity for them to get back
into the market. The only ones able to buy without
the financing component
available are cash
buyers and vulture
funds."
West-Guillen says
most land deals in 2009
will be paper and finished
lots changing
hands rather than transactions
for raw land.
"We will see these
projects moving around
whether to investors from
banks or from investors
to builders," he says."We
have to work within the
paper and finished-lot
inventory we currently
have in the market."
