Sunday, February 19, 2006

Sustained, 20-Year Boom Leaves Vegas Showing the Strain

Sustained, 20-Year Boom Leaves Vegas Showing the StrainRising costs hit real estate, construction capacity and utilities ( - 02/20/06)

By Tony Illia with William J. Angelo Aileen Cho and Joann Gonchar

Homes Sweet Homes. Runaway residential growth is driving commercial development and straining infrastructure. (Photo by AP/Wideworld)
Like a middle-aged rake too long on the party circuit, Las Vegas is starting to show the strain of 20 years of unrelieved excess. Roads are congested, schools crowded, water supplies dwindling and the pressures of growth are distorting the market for construction labor and contracting capacity.
Construction prices are rising along with soaring real-estate prices, driving the Manhattanization of the city. But in the tight market, local bidders are choosing their targets while the high-rise growth is attracting outsiders with experience in vertical construction.
Since 2000, Clark County has grown by 401,940 people, roughly the population equivalent of Oakland, Calif. By 2024, Jeff Hardcastle, Nevada’s state demographer, expects the county to reach 2.75 million residents, 36.3% more than today. The newcomers have fueled a robust housing market that saw a record 38,517 new single-family detached home sales in 2005, up 30.7% from the previous year, reports Dennis Smith, president of Home Builders Research Inc., Las Vegas. The median new single-family detached home sold for $345,130 in 2005, 53.1% more than just five years ago, he says.
Clark County land values have risen more than 300% in the last four years, with asking prices now ranging from $900,000 to $1 million per acre, say local builders. The 2002 stock market contraction drove many people to invest in real estate, resulting in a flood of REIT and speculation activity, says John Restrepo, principal of Restrepo Consulting Group, a Las Vegas real-estate research firm.
School Daze. Billions of dollars spent, billions more to come on education facilities for fast-growing area. (Photo courtesy of Clark County School District)
Under provisions of a 1998 local law, the U.S. Bureau of Land Management is divesting federal lands in Clark County. To date, 13,000 acres of government land have passed into private hands. The auction monies are returned to the state General Education Fund and Southern Nevada Water Authority as well as parks and protecting environmentally sensitive areas. Yet some developers still feel the process is too slow to keep pace with the rate of growth.
Ron Lynn, building director for Clark County Development Services, agrees. “We have had a series of record years, virtually unending growth since 1983,” he says. “This cycle starts with residential building, which drives commercial expansion.” The tight land market is fueling a vertical building boom in the Vegas Valley, which until recently had been defined by urban sprawl. There are 107 mid- and high-rise condo and condo-hotel projects, totaling 79,000 units, proposed, planned or under construction in the Las Vegas Valley, says Restrepo.
Nearly $25 billion worth of resort expansions are planned by 2009, the Las Vegas Convention and Visitors Authority reports. Another $6.45 billion worth of projects are tentatively proposed through 2009. Topping them all will be MGM Mirage Inc.’s Project CityCenter development, a $7-billion, 18-million-sq-ft hotel, condominium, casino and entertainment complex (ENR 12/5/05 p. 16). Main resort construction will begin in April, with a phased opening in 2009 and 2010. But the condo market is starting to show signs of exhaustion in the face of soaring real-estate costs. In July, one developer canceled a $600-million condo-hotel project; last month saw cancellation of a $325-million condo. Other developers are flipping properties rather than build (ENR 1/23 p. 15).
Mismatched. Population growth has been rapid in Clark County, but electricity demand has grown even faster, reflecting intense use of power for air conditioning, computers and other devices of modern life. Assembly Bill 3, passed last year, requires utilities to encourage efficient use of energy among customers to reduce demand growth. By 2015, 20% of utility retail sales must be renewable energy or energy-efficiency reductions.
Labor Gains
CityCenter construction will employ over 7,000 workers at peak activity, or about one-third of southern Nevada’s total building trade work force, says Richard Rizzo, chairman of Perini Building Co., a unit of Perini Corp., Framingham, Mass. The company has been importing workers from out-of-state, paying 10 to 15% over scale, plus moving expenses, to ramp up manpower.
Local trade unions are gaining enrollment across the board. “We increased our membership by 900 to 1,200 people last year,” says Tommy White, secretary-treasurer for the Laborers’ Local 872, which represents over 4,000 members in Clark County. “And we’re projecting to add up to 2,000 more members by 2007.” The Laborers chartered a new local, 702, in November for light-commercial and residential work.

Both the carpenters and the laborers allow migration where needed without penalizing members or levying additional dues. The Southwest Regional Council of Carpenters has around 8,800 people in Clark County, a number that is expected to top 10,000 during 2006-07, says Marc Fuhrman, the council’s senior administrative assistant. “It’s the guys from the Rust Belt, places like Michigan, Wisconsin and Ohio, who are coming to Las Vegas,” he says.
The overheated construction market has sparked intense competition for labor, contractors and materials. Contractor demand for project managers and management staff has resulted in poaching among local firms, a “disturbing” practice that has strained relations among subcontractors and rivals, says Frank Martin, president and CEO of Martin-Harris Construction, Las Vegas. His firm uses recruiters and national ads to secure new management talent, but keeps locals off limits. Martin-Harris, like others, pays moving and living expenses, and offers signing bonuses to get top recruits.
Shoving Numbers Out
The bidding climate too has changed. Many companies prefer private-negotiated work over the traditional low-bid approach in public jobs.
“Contractors are just shoving numbers out there with high profit margins because they have so much work,” says Tim Lockett, assistant construction director at University of Nevada-Las Vegas. “Recently we estimated costs of $285 per sq ft on a student services addition and the bid came in at $452 per sq ft.” To adapt, officials are redesigning, reducing scope or going CM at-risk with a guaranteed maximum price. “We’re also looking at private developers for lease-purchase options,” he says.
County projects similarly are being hard hit. Clark County is experiencing shortages in PVC conduit and traffic signal poles, and shrinking bid lists are drawing 50% fewer bidders than in years past. Resort operators and private developers pay bigger fees and offer better contract terms. Right-of-way acquisition and infrastructure construction are not keeping pace. “A lot of growth is taking place before infrastructure is in place,” says Bobby Shelton, county spokesman.
The county’s development services office issued over 90,000 construction permits and completed over 740,000 inspections in 2005, says Ron Lynn, Development Services building director. Plan review now takes five to six weeks to complete—50% longer than in recent years. Finding “technically competent people” has been tough, says Lynn. He’ll spend $4 million this year outsourcing plan reviews.
Busy constructors are hand-picking jobs and prequalifying owners because they can’t afford to risk subcontractor availability if the project isn’t real, Martin says. The region’s work volume has attracted out-of-state builders such as Tutor-Saliba Corp., Sylmar, Calif., and New York City-based Bovis Lend Lease LMB and Turner Construction, among others. But owners are fooling themselves hiring such companies, since everyone is still forced to use the same local subcontractor pool, which is 15 to 18% overtaxed, Martin says. Beyond start dates, schedules, owners, and financing, some subs will refuse a job because of the project’s managers and superintendents.
Schools Take LEED
Clark County School District has become more accommodating to the workloads and sub availability. It now schedules construction bids before school board meetings in order to quickly award contracts, and it has extended completion dates. Clark County School District, the nation’s fifth largest with 291,510 students, is growing by about 15,000 students annually. District officials are nearing the end of a 10-year, $3.5-billion, 88-school, bond program (ENR 9/19/05 p. 34). Upon completion of the bond program in 2008, officials plan to seek approval of another bond to build 120 more schools by 2018.
The school district is trying to control operating costs by using less water and energy. It is revamping design guidelines to cap energy requirements for new schools at 30,000 Btu per sq ft, or half of what older schools use. It also is pursuing Leadership in Energy and Environmental Design (LEED) certification, the rating system developed by the U.S. Green Building Council to measure building sustainability, at some of its new schools.
Last summer, legislators passed a law requiring all state-funded projects to meet basic LEED certification. Nevada is only the second state in the nation to pass such legislation. Private developers who achieve a LEED Silver rating or higher now qualify for up to a 10-year, 50% property tax cut.
Rage for Roads
With nearly 7,000 new residents each month in 2005, pressure on Clark County’s roads is growing. The Regional Transportation Commission estimates that every 1,000 new residents add 750 more vehicles to traffic. Officials are pursuing alternative financing schemes to expedite construction. Las Vegas area voters approved a tax-backed ballot initiative in 2002 for $2.6 billion in transportation improvements, including 425 miles of high-speed vehicles lanes on local highways and synchronized traffic lights.
The Nevada Transportation Board last September approved a record $1-billion statewide road and highways construction program for the next fiscal year, with roughly 47% of that money headed to southern Nevada. Projects include the $95-million U.S. 95 widening between Valley View and Rainbow boulevards in Las Vegas. It’s the largest single-road job in state history, says NDOT.
Welcome to Las Vegas. McCarran will reach its capacity before new airport opens in 2017. (Photo courtesy of Clark County Department of Aviation)
McCarran International Airport saw over 44 million passengers in 2005, 6.8% more than in 2004. And despite $2.4 billion in expansions, it’s expected to reach its 53-million-passenger capacity before a new $4-billion facility opens just south of Las Vegas in 2017 (ENR 10/17/05, p. 17). Every new room the city adds brings another 320 passengers through McCarran, says county Aviation Director Randall Walker.
Nevada secured a 30.1% funding increase in the last federal transportation bill, yet it still falls $4 billion short of its need over the next 10 years, say state officials. Gov. Kenny Guinn (R) has created a Blue Ribbon Task Force to study future highway projects and funding options. The “task force is exploring public-private partnerships and managed lanes,” says Jeff Fontaine, director of the Nevada Dept. of Transportation. “We’ve never done one in Nevada.” The findings will be reported in July.
Glitz and Dazzle. The glamour, night life and excitement of the Strip drew 38.2 million visitors in 2005 and their money is fueling the area’s boom. (Photo courtesy of The Las Vegas News Bureau)
Changing market dynamics are squeezing transportation construction at this critical time. “The per capita fuel consumption is declining while the per capita miles are increasing for a lower amount of revenue—so that creates a problem,” says Fontaine.
But Las Vegas will remain Las Vegas, come traffic jams or low water. Its round-the-clock night life continues to draw fun-seekers and the money they spend draws newcomers willing to pay for schools, roads and water
. And the middle-aged roué rolls on to the next party.


Anonymous Anonymous said...

Water in the ground is not the only problem. See the flooding around the valley is devastating. Too fast a growth with too poor planning!

10:28 PM  

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