Takeaways – FORECAST 2019 IREM | CCIM Palms Hotel

January 21, 2019
TAKEAWAYS
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By Robert Perkins, CPM – Director | Property Management Services – MDL Group

I attended the 2019 IREM | CCIM Forecast event January 17, 2019. Below are my notes from the event for those who are interested and were not able to attend. Overall, it was a great program that provided relevant economic perspectives from some serious industry players on what’s happening to Las Vegas in 2019 and beyond. Enjoy!

Barbara Crane, CCIM is the current CCIM National President. Barbara opened the program with a few remarks.

– She spoke about strong economic fundamentals.

– She said there are plenty of new development opportunities.

– She stated that multifamily still the strongest sector of the market.

– She feels that interest rates are keeping folks out of houses which is a contributing factor driving multifamily growth.

– She feels that tech innovations are making economy stronger.

– She said the population/workforce growth in sunshine states like Nevada remain strong.

– She worries about government-imposed problems on us like tariffs and immigration. The conversation is a self-fulfilling prophecy for a slowdown in national economic activity.

– She warns that the new FASB accounting rules are a big negative. (FASB states that all tenants must recognize lease obligations on their balance sheets which they never did before.) Barbara feels that this may show a difference of debt to equity ratios of companies which could ultimately affect reporting to shareholders and adversely affect stock valuations. She also voiced a concern that tenants may want to shorten their leases obligations as a result which would adversely affect landlords as lenders may not understand it.

– Bottom Line: 2019 is going to be a great year. Volatility yes. Recession no.

The next speaker was the VP of IREM. Jolene Terry-Phinney, CPM

– She brought up IREM’s rebranding and focus on diversity and student scholars.

– She stated that they are forecasting 20,500 new real estate jobs by 2024.

– IREM is getting international! She said they have been pinning tons of new CPMs abroad.

Now for the goods….

Don Snyder, UNLV – Moderator

Matthew Vance – CBRE Economist

John Guedry – CEO Bank of Nevada

Alan SnelLVSPORTSBIZ.com

Scot Rutledge – Argentum Partners (cannabis guy)

Bret Holmes – Advanced Management Group (apartment guy)

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Q: What gives you the most positive thoughts for 2019?

A: Matthew Vance – Across all sectors, vacancy rates are low. No sectors will have a supply overhang. See sustained growth.

A: John Guedry – Demand and growth. Growth has created demand. Helped vacancy rates and rental rates.

A: Alan Snel – Sports related. Very bullish. Raiders Stadium going to drive everything. Legalization of sports betting will be huge for NCAA basketball tournament. E-Sports is going to be one of the hottest topics. Football stadium driving events that haven’t been here before. Investment in new events is key.

A: Bret Holmes – We are going to be good past 2020. There is a lot of buyers vs. sellers in housing market. Occupancy higher. Overall 2019 we will continue to keep growing.

A: Scot Rutledge – Nevada’s implementation of cannabis is gold standard for industry. Half a Billion Dollars in retail sales. 10,000+ new jobs. 69 new licenses for dispensaries in Nevada. Social use venues need to be addressed. He thinks 2019 to 2020 we will start seeing these venues.

Q: What is most likely to keep you awake at night?

A: Matthew Vance – The way policy makers react to volatility in the market. He wants to see FED stay strong to interest rates.

A: Alan Snel – Growth that is too fast could stress some new teams in terms of payback on these large venues.

A: Scot Rutledge – How industry continues to grow. Smaller industry. Doubling the size of retail piece. Slow growth is better than too fast.

A: Bret Holmes – Staffing. Finding good quality people is tough to find.

A: John Guedry – Politics over policy as it relates to consumer confidence. Human capital of economic diversification plan is going to be a challenge and will limit the success of this plan. Cyber security keeps him awake at night.

Q: Let’s talk about the Washington political scene.

A: Matthew Vance – Tax and jobs act has had a muted impact on overall economy. On the consumer side, he is seeing higher take home pay and he spends it. At the corporate level, lots of stock buy backs and non-simulative actions. Increased financial regulation will limit liquidity and overall stock of wealth. Infrastructure spending needs to be focused. Airports are king. No trains. Driverless cars will make trains obsolete.

A: John Guedry – This flows into a lot of areas. When we were entering recession, financial reform was fixed by guys who sat on the board of banking legislation. Limitations on lending beyond capital < 1% capital on hand. Good for small banks, not good for well-run banks. Mega companies who do everything – the too big to fail companies – are not good. A lot of these banks failed because of bad leadership at the top. The recent tax reform had a muted effect with the exception of consumers. Corporations should have pushed money to consumers but some used it for stock buy backs. The new tax plan didn’t fix the problem. How do we lower rates and truly make significant change? We need to fix that first. Project Neon will solve a lot of traffic problems huge kudos to those responsible for the local infrastructure investment.

A: Scot Rutledge – Not good overall. 50/50 we get some things done. In the end we need to end federal prohibition on cannabis. Publicly traded companies going into this market. Professionals in the market now and it is big business.

A: Don Snyder – Uncertainty in the political environment is frustrating.

Q: Emerging markets as it relates to sports. What is your feeling on it?

A: Alan Snel – Golden Knights huge success. Changed how the entertainment interacts with the community. Changed the entertainment between periods – rock show type experience. Raiders have huge brand loyalty. Professional soccer start in downtown in LV where 7-10 fans are from Hispanic community. He is guessing that the NBA will be here in 2023. MLB going to be tough as public subsidies are running dry.

A: John Guedry – For top companies, there’s not a single city in the U.S. whose headquarters doesn’t have an NFL team. Golden Knights executed playbook perfectly. Rooted themselves here in Vegas. Bought homes and engaged in community. Continued growth of professional sports will only help LV. Jeremy Aguero did a forecast on the Raiders Stadium. He assumed $1 Billion in new revenue from stadium business. The bond is paid by non-locals via room tax and he thinks that the $1 Billion number could be much larger.

A: Scot Rutledge – Development of Raiders stadium is exciting. Professional athletes and cannabis will see more partnerships.

A: Bret Holmes – As it relates to multi-family, large institutional investors wouldn’t invest in markets without a professional sports team. This was a big criteria for a lot of them so we are seeing more investment for the big players.

A: Don Snyder – Believes that the stadium is the missing link to a more robust visitor volume. Stadium is 65,000+ seats will attract new events. Impact of visitor volume will have a tremendous impact on economy. Sports and Entertainment Capital of the World. UNLV creating an International Sports Center.

Q: Will we see larger companies start a national consolidation in the cannabis industry?  

A: Scot Rutledge – Absolutely. When these companies can fully trade in the US markets, there will be a huge investment in capital into the industry. We are starting to see it now in Canada.

A: Alan Snel – Tick Segerblom says there will be a pot lounge at the Raiders stadium. Tick is a huge proponent of the cannabis industry.

A: Scot Rutledge – IREM invited him to talk about effect on CRE. He has a client that is doubling the size of their cultivation square footage from 25,000SF to 50,000SF just to meet current demand. We need to update local codes as some areas of town are not willing to have these type uses. Landlords are not willing to lease to users. Federal issues are also contributing to this but we will see more change in CRE.

A: Matthew Vance – CBRE publicly traded. Lot of brokers want to participate in industry. Brokers can’t participate because it would be aiding and abating a felony. However, CRE effect was minimal in Denver because these cultivation properties went into building no one wanted anyway and this industry had a immaterial effect on CRE.

A: John Guedry –If landlords have less than 50% of income coming from weed sources, some banks are now accepting landlord deposits from cannabis tenants. He sees that publicly traded companies will be able to accept deposits in the future. Banking industry wants to see this issue solved. In interim, challenges still occur. Payments in cash is a huge risk. He gives a very qualified yes to accepting landlord deposits with additional information.

Q: What about the smell of cannabis?

A: Scot Rutledge – Cultivation areas are out of the major areas like Apex. Smoking weed everywhere is a nuisance. We need to fix the consumption problem with social use venues.

Q: How is the apartment market – what can we see ahead?

A: Matthew Vance – Southwest states will see increase in Population. Las Vegas’ share will be 75 new houses per day for next 5 years. 27,000 new households every year for the next 5 years.

A: Bret Holmes – Affordability. Only new developments are A class units. We need to solve affordability. Supply and demand are well balanced. Lots of intelligent lending. Big determining factor is seeing the Raiders Stadium done, demand will continue, and he doesn’t see a slowdown for several years.

A: Matthew Vance – He disagreed with Brett. He said supply is going to be a problem. Continued growth will bode well for CRE. Multifamily will continue to see growth with greater number of people coming to city. Demand is going to swamp supply for several years and there will be an absolute shortage in mid-income/work force housing in huge short supply.

A: John Guedry – Seeing a lot more class A. Land cost is up. Material costs are up. Labor cost up. Affordable projects don’t pencil. Housing market rental rates are being driven up by institutional investors. Watch utility connections versus permits to get an insight in over supply. Cost to build and impact of single-family rents. We need to focus on how we make our market more diverse and see mid-level affordable projects. Construction defect could come back. Cost to build needs to come down so interest rates are in line with investment goals and then you will see more affordable multi-family housing.

A: Matthew Vance – Multifamily – if you want low prices, you need to back off demand and increase supply. You can’t have both.

Q: Retail is evolving – Amazon effect etc. Where do you see it going?

A: John Guedry – Banks are starting to shorten amortization schedule so properties are not over-leveraged. Destination type uses is what they are lending on. Restaurants, auto centers, movie theaters. Trying to understand where retail is evolving is tough to call and out of his forte.

A: Matthew Vance – e-commerce effect is very real. It is growing. It’s not even 10% of retail sales. It is having an impact. Forcing retailers to evolve to the changing consumers. Amazon effect is strongest on the industrial buildings; not retail buildings. The next disruption will be in the grocery space with the adoption of online grocery store chains. Adoption of this category will dramatically change the market. Huge demand now for vertical cold storage. Whole Foods and Kroger positioning themselves to do more online grocery sales.

Q: Jobs – Overall market trends, changes we see happening and how technology is affecting job market.

A: Matthew Vance – LV is seeing movement of companies more than previous cycles. Companies are chasing talent. CRE expenses are low on the list. Employment/talent is king. $1 in savings for labor is $16 equivalent to rents in CRE. LV is positioned in a better way. When you have low employment, it is a hindrance. LV has a higher unemployment than other mature markets who came out of the Great Recession prior to LV. His forecast sees continued job growth. Firms can come to Nevada because a higher unemployment and their ability to find a workforce.

A: John Guedry – Agree with Matt. 24-hour work force here bodes well against other markets. Challenge is that we don’t stack up well against other markets. Post-secondary education is at 20% in Nevada where other markets are much much higher. What sectors should we be growing in? Healthcare. Nevada could be a renewable energy exporter; solar and wind in the south; geothermal in the north. How do we get the workforce to obtain these jobs? These Jobs provide skill sets to that our employment doesn’t offer right now. Hold legislators accountable to put cannabis money into schools as it was intended.

Q: Healthcare. Where are we at in that regard? We are way behind where do we need to be?

A: Matthew Vance – Healthcare will be the foremost sector for growth. Medical office/community live work play situations.

A: Don Snyder – Said that Kansas City area has two university schools of medicine who graduate 200-250 doctors per year. Our school will graduate 60. We are way behind. School is very important to our economy and meeting the needs of our community.

Q: Should we be worried about a recession?

A: Matthew Vance – Yes. Consider Japan. They haven’t seen a recession in years and have stagnant growth. We want quick recession and have companies come out leaner. Consumer spending/consumer confidence is pushing GPD growth right now. He is anticipating a very shallow 2021 recession.

A: Alan Snel – Economic diversity. LV is an interesting market to crack regarding sports. 300,000 people already here In Feb. Is a Super Bowl good for us adding even more people during this time of year? Youth and amateurs sport an interesting view and what our venues have to offer. Major league sports are expensive. We need to tap the breaks a little on the professional sports.

A: Scot Rutledge – We are going to see some interesting things in 2020. Younger tourists – nightlife going through a shift. Cannabis lounges will be interesting. Outdoor recreation in Southern Nevada. Experiential tourism. Last in first out. Not worried about recession.

A: Bret Holmes – 2020-2021 will be weaker. Nothing in 2019. From multi-family perspective, they are preparing for lower rents and are expecting a shallow reset.

A: John Guedry – Hard to predict recessions. LV has been through 5 recessions since 1984. First 4, easy. We learned a lot from the last one but we haven’t fully recovered from recession as we haven’t even reached a peak. We are flat. $14B worth of projects along Strip. Massive. A lot of jobs. Positive, we didn’t recover all construction jobs which is good, so we didn’t depend on this segment of the economy now. We will be less impacted than other markets. He feels positive about where we are currently. Feels like we are in the 5th inning and we will feel it differently than other markets.

A: Don Snyder – Political risk needs to be watched.

Q: How does professional sport affect UNLV?

A: Alan Snel – UNLV is moving into the Raiders stadium. They will feel pressure to have more success again. We need to see more success to attract top recruits.

Q: Politics. Legislation is going back into session and Nevada going blue. What is the effect?

A: Scot Rutledge – We have moderate Democrat in Governor’s office. He called it the “3rd term of Brian Sandoval.” Sisolak will be smart about top priorities (education and healthcare). Sisolak is pro-business as commissioner and will continue to be as governor. Southern Nevada sitting pretty right now.

A: Bret Holmes – Affordable housing needs to be a focus in this session.

Q: Technologies like open door – when will it be in CRE?

A: Matthew Vance – Its coming now. We need to see narratives about industry change on how brokers do business.

 

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