It’s apparent by the turmoil at the starting gate that things are heating up.  They’re jostling for position.  They’ve prepared,
and they’re ready to enter the race.  “The latest talk at Pimlico?” you ask.  Absolutely not—it’s the race that’s occurring in the Truckee Meadows as builders prepare and position themselves
for an industry recovery: who will be Number One?
   There’s a lot of movement in the background, and much of it is in the purchase—and to a lesser extent, the development—of lots where construction had either ceased or been returned to the
bank or lender.  All of this positioning can mean only one thing—builders are preparing to build.

Getting back to basics.
   There’s no doubt—the paradigm has changed.  Builders and developers are facing new terms for lending, new requirements by financial institutions to close deals, and increased scrutiny regarding product and demographics by financial partners and institutions.  Builders who once enjoyed “the art of the deal” over lunch now find their entrepreneurial spirit stifled by the new rules.  But everyone’s playing by them, and sharpening their pencils as they plan their tomorrows.

What’s happening today—and what might happen tomorrow?
   Builders who are working on future products can expect to find greater scrutiny and an almost microscopic inspection of all proposed projects.  Given past history, builders will be expected to be better operators, and they may be expected to provide in-depth market studies of their buyers’ profiles and their target market.  Builders will be expected to justify their product mix.  A well-known builder, once asked how they knew the 2,000+ sf, one- and two-story product they were planning to build would sell, replied “we just know by demand.”  The days of seat-of-the-pants development are gone.
   Investors willing to venture into the market in the future will want a lot more assurances than in the past.  Expect more 3rd party reviews before funds are disbursed.  Expect tougher voucher controls.  Lenders know first-hand the horror stories: disbursements with no construction.  A Las Vegas builder received $16 million for roads and curbs—today, the site still sits covered with sagebrush.  No roads or curbs are in place.  The money was simply…spent.
   While “green” is said to be in demand, has a builder investigated to be sure that their buyers are willing—and able—to spend extra for a green home?  Can they operate their companies tighter and more efficiently than ever before?  Can the deliver a better product and affordable pricing?  All of these questions must be answered by builders and developers before money is given to build.

What’s up with the California/Nevada relationship?
   Builders who want to build in the future know that California has always been a tough market.  Given the financial picture with our sister to the west, it’s apparent that it’s becoming too cost prohibitive to build in California.  Excessive fees are making it more and more challenging to build an affordable home.  And with the number of distressed properties still on the market in California (and Nevada), new homes must compete and provide a great deal of value over those foreclosures and bank-owned houses.
   Builders from California are looking to Nevada, as they have found themselves getting beaten up by public builders for finished lots in northern California and its desirable sub-markets—Elk Grove, Folsom and Roseville.  These builders are being cautious, but they’re discovering that the there is the potential for substantial gains in Northern Nevada—there is less competition on the eastern side of the Sierras, and the market is not as heated as it is in California.
   The challenge is this:  do northern Nevada’s builders purchase lots, or do they leave them for the “new California blood”?  Only time will tell, but there is great risk by sitting on the sidelines waiting to see what others are doing.  Lot prices are trending upward, and while they are still low, expect to see fee increases as counties are expected to go to the Legislature for fee increase approval.

(Ron Cobb is a founding member of Commercial Partners of Nevada, LLC, and currently serves as the firm’s Managing Principal.  Formerly with CB Richard Ellis, where he established the Land Services Group in 2004, Ron has brokered the sale of over $200 million in real estate since that time.  With significant experience in both the public and private sector, he is an acknowledged expert in all phases of development, as well as construction and brokerage. Contact Ron at Commercial Partners of Nevada at 775-329-4000 or via email at ron@commercialpartnersnv.com)

Ron Cobb
Founding Member of Commercial Partners of Nevada, LLC

Courtesy of Aerial Imaging