Q-and-A: Rising costs a rising challenge for Nevada commercial development

RENO, Nev. — This year, the city of Reno celebrates its 150th anniversary. With that in mind, the Northern Nevada Business Weekly spoke with a few long-standing companies that have been doing business for decades in and around the Reno area.

One such company is McKenzie Properties, which is celebrating its 65th anniversary in Reno. A family-owned company, McKenzie Properties has built multiple schools, downtown buildings like Circus Circus Reno, buildings at the University of Nevada, Reno, and much more. In all, McKenzie Properties has built over $1 billion in projects.

The NNBW recently sat down with Todd McKenzie, principal of McKenzie Properties, to talk about the past, present and future of business in and around the Biggest Little City.

NNBW: How long have you guys been doing business in Reno?

Todd McKenzie: Sixty-five years this year. We started in 1953. My grandpa started it as a construction company — McKenzie Construction. He just built for other folks. And then in the ’70s and ’80s, we kind of started morphing to just building for ourselves, and that’s what we do today. We buy land or buy a building, and build something; lease it out, manage it and own it for the long term.

NNBW: How long have you been with the company?

McKenzie: I’ve been here 13 years.

NNBW: How have you seen the city of Reno evolve?

McKenzie: It’s way more balanced. When I started in 2005, we were still kind of on an upward trajectory, but the economy was still declining from gaming. That decline had started, but at the time, I think 25 percent of our workforce was construction-related. And if you get a hiccup in the economy, which we did, and that goes away, which it did, that’s a huge hit to the economy. So I think now as we’re coming back, it’s just more balanced. Coming out of the recession, we’re seeing a lot more of the three major sectors coming: technology, healthcare and finance. More and more of those jobs are coming into the area, whereas 40 years ago, 80 percent of the economy was gaming-related.

So it’s just more balanced and more of an entrepreneurial town. And obviously with all the big companies — Tesla, and Google, and all of those folks coming — it’s just a more broad, balanced economy. And more sustainable, too.

NNBW: What’s the biggest change you’ve seen in the building industry the last few decades?

McKenzie: The biggest change is probably the prices. The more challenging aspect of building is land prices are way up and building costs are way up right now, so it’s more difficult. I think probably the biggest change from when I started to now is the availability of the lending environment. Banks are a lot more restrictive; it’s harder to get construction financing. We used to be able to just get a loan and build a building with no tenants, no big deal — we’ll just fill it up and worry about it later. And banks would lend on that. Now, not so much.

NNBW: What are some of the biggest challenges the building industry faces right now?

McKenzie: Costs. It’s just the simple equation of land costs and building costs equals what it costs to build. Whatever it is — industrial, office, retail — those are all skyrocketing. Lumber is absolutely going off the charts, I think steel is up 30 percent in the last couple of years, and land prices are really high, which affects everything. So that is the biggest challenge because rents are just not quite where they need to be on the commercial side for office development.

We need more office development here. If you take a look at the existing Class A inventory, I think there’s roughly 350,000 square feet of Class A inventory. If we had roughly 1,200 new jobs that would all be wiped out. Our total inventory—so A, B and C — is 800,000 square feet, I think. That’s a little over 3,000 new jobs, and it’s all wiped out. So the need for Class A office product is coming. But the rents aren’t quite there to motivate people to build on the scale that we need to be building because there’s a disconnect on rental rates and costs.

NNBW: What’s the biggest challenge facing Reno and Northern Nevada as a whole when it comes to the economy?

McKenzie: Infrastructure, for sure. Just keeping up with schools and healthcare and the roads and just everything needed to sustain and support population growth.

NNBW: How do you think city officials and community players should tackle the housing issue to set up the region for success decades down the road?

McKenzie: Well, if there’s a demand, the supply is going to meet it. I think right now homebuilders and multi-family builders are finding a way to address the housing needs the best they can. I think from a planning perspective, they have been doing a lot with the (City of Reno) master plan and working with developers in opening up new areas to build.

I think just the continuation of working as a partnership to address the needs is how we need to go going forward. No one person can wave a magic wand. It’s such a complex beast, and there’s so many different areas, we’ve just all got to be smart about it in planning and what we build, and focusing on some more density, as well. And I’d love to see more building downtown, which isn’t happening, but that’d be nice.

NNBW: What makes Reno-Sparks, Northern Nevada such a great area to do business?

McKenzie: Obviously the tax-advantages, the business-friendly climate, the can-do attitude … there are just amazing talented people here that want to work together and want to collaborate on great new ideas. The spirit of the community here is just phenomenal.

Editor’s Note: This interview has been edited and condensed for clarity.