Homebuilders hope for stimulus, await regional recovery

To get a clear look at residential development

expectations in the Truckee Meadows for

the coming year,Greg Peek, vice president of

ERGS Properties

and outgoing president

of the Builders

Association of

Northern Nevada,

points to the travails

of one of the largest

regional homebuilder

in the area.

In 2005 the

height of the building

boom this

developer built almost 2,000 units between its

Reno and Sacramento divisions. The company

predicts it will build just 350 houses between

the two markets during 2009, Peek says.

"Everybody is hopeful that we will start

moving out of this, but companies' internal projections

are as slow as 2008 if not slower,"he

adds."People are becoming a little bit more

realistic and maybe even pessimistic."

Mike Dillon, executive director of the

Builders Association of Northern Nevada, says

two factors will determine if 2009 is as stagnant

a year for building as 2008 proved to be.

"We have high hopes, but the biggest issues

for us are that there might be some kind of economic

stimulus package coming from

Washington, and secondly,we need to get

through much of the inventory that currently

exists due to the foreclosure market," Dillon

says.

Dillon notes that another key aspect of new

development in the region will stem from an

economic recovery that will spur job growth.

"If some jobs are created in this community

in the next year,we

could see people

coming here looking

for homes,"he

says.

In the meantime,

area homebuilders

have

thinned their payrolls

as much as

possible and are

taking on work

they might not have during the boom years.

"Builders are doing what a lot of other people

are doing: cutting their costs,"Dillon says.

"Unfortunately, a lot of that is through staffing

reductions.And they are trying to be creative

with other types of work,whether it is in

remodeling or getting into green building practices

and remarketing themselves."

ERGS Properties is just one of many northern

Nevada companies shelving plans for new

development in 2009. The company, which has

built more than 700 multi-family units in the

Truckee Meadows, has delayed construction of

a 420-unit project that Peek had planned on

starting framing in March.ERGS probably

won't even break ground on the project this

year.

"We looked at the market and decided that

now is not a good time to build,"he says."Credit

has completely dried up, and if it is available it

is extremely expensive."

Investors who are heavy with cash are

spurring land deals, snapping up foreclosed

land from banks and builders unable to make

payments, and positioning themselves for the

next round of building.

Aaron West-Guillen, land specialist with

NAI Alliance, says there was a good amount of

activity in residential land deals between April

and August of 2008,with 16 transactions taking

place.After that period, though,when the stock

market was in total free-fall, deal-making dried

up.

"After August the stock market really took a

hit and everything really quieted down,"West-

Guillen says.

"After the election

we did see an uptick,

and now as more

details of the bailout

plans are being

released and various

industries are being

saved, there does seem

to be more optimism

that we are getting this

thing under control.

That is leading to

investors to keep an eye

open for those opportunities."

West-Guillen says

investors' idea of an

opportunity is "pretty

aggressive"when it

comes to pricing.

"When you are trying to quantify the land

basis for residential projects, it is tied to the

potential sales costs of houses, and when we are

seeing median sales prices deteriorate it continues

to lower land basis,"he says."Whenever

investors are looking to buy they need a certain

amount of security that what they are buying

wont depreciate."

West-Guillen says it's not easy for investors

to get good deals unless they come in with cash.

"In most cases guys who can step up to the

plate with foreclosed opportunities are cash

buyers,"he says."The lack of financing has really

affected more builder-developer types. There

is not a lot of opportunity for them to get back

into the market. The only ones able to buy without

the financing component

available are cash

buyers and vulture

funds."

West-Guillen says

most land deals in 2009

will be paper and finished

lots changing

hands rather than transactions

for raw land.

"We will see these

projects moving around

whether to investors from

banks or from investors

to builders," he says."We

have to work within the

paper and finished-lot

inventory we currently

have in the market."