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Two factors are leading to renewed interest in constructing multi-family developments, especially high-rise projects, according to Jeremy Aguero. The first is price pressure caused by the high cost of land. The second is legislation passed this year in Nevada, which has eased concerns about construction-defect lawsuits. Aguero fears many people will be priced out of the housing market in 2004. Residential housing prices in 2003 rose 13 percent over the previous year, and show no signs of slowing down. "By the end of 2004, the price of an average new house may well reach $250,000," he said. "Many people will find themselves in trouble when interest rates go up, because they mortgaged their homes to the very limit of their available credit. When interest rates go up, people with adjustable-rate mortgages will be living in houses they can’t afford." Aguero’s partner, Brian Gordon, said the 30-year fixed home mortgage rate, which is now around 5.9 percent, will not go up drastically in 2004, but an increase to 7 percent in 2004 is likely.

The Housing Market-Northern Nevada

Colliers International sells land to residential developers in Northern Nevada. Tim Ruffin stated, "If you can find residential land, you can sell it." He reported the residential market is so hot that potential homebuyers are willing to put up a $5,000 deposit for a lottery in hopes they will get chosen to purchase a home. Ruffin predicted the Truckee Meadows valley will be built out within eight years, and homebuyers will have to look either south or east for new homes. Residential projects are already being developed in Fernley, a 30-minute drive east of the city.

Manufacturing

When it comes to manufacturing, Nevada is affected by the same forces as the rest of the nation, according to Ray Bacon, executive director of the Nevada Manufacturers Association. Bacon explained that, as the economy improves, there will be increased demand for consumer goods. Unfortunately, the vast majority of these products are made overseas, so increased demand will not affect U.S. manufacturers until the producers of these goods – whether in China, Mexico or elsewhere – run out of capacity and need to buy more machinery to increase production. Only then will the U.S. see an upswing in manufacturing, said Bacon, since we produce "the goods that make the goods." He pointed out the U.S. has made "quantum leaps" in productivity due to systems changes, automation and optimization of equipment, so the manufacturing sector can now do more with less. "The wild card in this is whether manufacturers overseas are also experiencing gains in productivity," said Bacon. "We have no way of knowing. If they are becoming more efficient, they may not run out of capacity after all. In that case, they won’t need more U.S. machinery."

Looking at the various sectors of the Nevada manufacturing scene, Bacon said gaming-related suppliers, such as International Game Technology, "appear to be doing fine," due to the national and worldwide expansion of gaming. As the national economy improves, domestic producers of consumer goods, such as Hidden Valley, which has a salad dressing plant in Northern Nevada, should experience more demand for their products. For specialty suppliers, said Bacon, the 2004 outlook will depend on the health of the individual market segments they serve. Construction-related manufacturers, such as sheetrock suppliers and window manufacturers like Milgard, "should do okay, as long as construction stays up," said Bacon. However, he pointed out that the recent federal investigation of Southern Nevada politicians for corruption and taking bribes may have far-reaching effects on the Southern Nevada development community. "I suspect that, once they’re done with the strip clubs, they’ll start investigating ties between these politicians and real estate developers," said Bacon. "Who was getting bribed for pushing which developments through the zoning and permitting process? If that happens, all bets are off for the future of the construction industry. Who would pay in advance for a house if the developer was facing a federal indictment?"

Healthcare

There is little doubt Nevadans will face challenges with healthcare in 2004. Individuals will struggle to find affordable care for their families and may find it more difficult to find a doctor to meet specialized needs. Business owners providing healthcare benefits will be squeezed between employees’ demands for better coverage and ever-increasing insurance premiums. For Nevada’s hospitals, 2004 will also be a year of challenge. Bill Welch, president/CEO of the Nevada Hospital Association, reported that hospitals are building and expanding across the state to meet demands of a growing population. In Southern Nevada, Spring Valley Hospital recently opened, Southern Hills Hospital will open next quarter, and St. Rose will soon break ground for another hospital near the I-215 Beltway. Mesa View Regional Hospital in Mesquite will open next summer, and Carson Tahoe Hospital is building a new campus in Carson City. In Reno, St. Mary’s and Washoe Medical Center are both expanding. Welch reported that Washoe Health System is partnering with a California company to build a hospital in the Gardnerville/Minden area.

"While the hospital industry continues to expand capacity and update technology to meet demands for services, that’s only one piece of the puzzle," said Welch. "We now have to recruit licensed healthcare professionals to provide the services we need – from pharmacists and therapists to physicians and nurses." Finding these people means offering attractive salaries. Coupled with outlays for capital improvements, this increased payroll burden is hurting hospitals’ bottom lines in an environment when payers and managed care plans are trying to cut costs by reducing reimbursement rates. In addition, Nevada’s Medicaid rates have not increased since 2001.

Anther factor adding to the hospitals’ woes is the growing number of uninsured – a trend seen not only in Nevada, but across the country. "Hospitals often foot the bill for uninsured people who use the hospital emergency room as their primary care provider," Welch pointed out.

An initiative on the 2004 ballot holds some hope for easing the medical malpractice crisis in Nevada, said Welch. By expanding tort reform, he hopes this measure will make it easier for Nevada’s physicians to stay here, and will also help in efforts to recruit professionals to the state.

Economic Development

Lt. Gov. Lorraine Hunt, chair of the Nevada Commission on Economic Development, said she is "very bullish" about Nevada’s 2004 outlook. "California is still doing us a favor by making things difficult for businesses," she said. "We have seen a lot of new business activity, especially coming in from California." Hopeful signs include the construction of new resorts and timeshare projects in Southern Nevada, as well as the opening of the Truckee Whitewater Park in Reno. Hunt said her recent trip to China to promote Nevada laid the groundwork for future business dealings, including discussions about air cargo and charter passenger flights into the Reno and Las Vegas airports. "We are also exporting our expertise," said Hunt, who explained that Chinese executives involved in planning the 2006 Olympic games in Beijing may travel to Las Vegas for intensive classes at the UNLV College of Hotel Administration. UNLV instructors may also travel to China to conduct classes, with revenues accruing to the state’s university system.

NCED, EDAWN, the Nevada Development Authority (NDA) and other public and private partners have sponsored a marketing campaign targeted at California businesses, pointing out the advantages of moving to Nevada. The print ads’ bold headlines, "You’re Out of Business", which attracted the attention of national and regional media outlets, have resulted in over 115 news articles, coverage valued by Chuck Alvey of EDAWN at $2.8 million. More importantly, said Alvey, EDAWN received 26 leads from companies as diverse as manufacturers, call centers, distribution facilities, software companies and food processing plants interested in finding out more about Nevada. EDAWN’s goal for the fiscal year from July 2003 to June 2004 was to generate $160 million in economic impact for the Reno/Sparks/Tahoe area. Alvey reported the agency reached the $130 million mark before the end of November 2003.

Somer Hollingsworth is president of the Nevada Development Authority (NDA), which promotes economic development in Southern Nevada. Hollingsworth said, "We don’t see any slowdown in companies looking at Southern Nevada. We’re as busy as we’ve been in the last five years." He reports "tremendous interest" from companies interested in relocating, especially those from California, both north and south. "The trend is increasing," said Hollingsworth. The skyrocketing cost of California’s workman’s comp insurance premiums is often mentioned as a factor in causing business owners to look to their eastern neighbor. Hollingsworth sees no quick solution to that crisis. In addition, he said, "The problem is bigger than that. Remember, for 25 years California has been developing a culture based on building social programs – programs paid for by business owners." He estimates that, even though a new California governor has taken office, it will take at least three to five years to "slow the train down", assuming Gov. Schwarzenegger gets the full cooperation of the Legislature, which is a big assumption to make. "Some California political insiders we’ve spoken with put that number at closer to 10 years," said Hollingsworth.

Business owners are now reaching the breaking point, said the NDA president. "At the beginning of 2003, the people calling us could be described as ‘inquisitive’. Now, it’s more an attitude of, ‘Get me out of here now, before I go bankrupt.’ They’ve seen our advertisements and we seem to have hit a nerve. There’s a real sense of urgency. Our biggest problem is not convincing them to come here – it’s finding them a building or a piece of land to locate on." Hollingsworth is also optimistic about the resort industry in Southern Nevada, saying 2004 will be a "turnaround year" for travel and tourism in the Las Vegas area.

To 2005 and Beyond

"I believe 2004 will be better than 2001, 2002 or 2003," declared Keith Schwer. Richard Lee stated confidently, "We’ve had Sept. 11; we’ve had a brief lull; we’re through all that. I believe 2004 will be the year we get ready to rock-and-roll in 2005."

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Author: K. Foley, Nevada Business Journal