Land for Reno-Sparks multifamily projects sees unprecedented development boom
Special to the NNBV
This is the second in a four-part series of stories that published in the November 2018 edition of the Northern Nevada Real Estate Journal, which the Northern Nevada Business View publishes on a quarterly basis to provide various real estate market updates across the region. This story focuses on regional land sales.• Part one is here: Northern Nevada industrial market shows no signs of slowing after solid 3rd quarter
Look to http://www.nnbw.com this week for more stories, or check them all out in the November 2018 print edition of the NNBV, which published Oct. 29.
RENO, Nev. — Although home sales in Northern Nevada are still robust and have led to strong demand for land from regional homebuilders, regional home builders are showing a bit of caution as home sales begin to cool.
Both total sales and new listings in Greater Reno and Sparks in September dipped 22 percent from the prior month, the Reno-Sparks Association of Realtors reports. Through September, there have been 4,508 homes sold across the region. That’s still more than enough for homebuilders to keep eying land for new subdivisions.
Mark Krueger, principal with Archcrest Commercial Partners in Reno, says that some of the cooling in home sales is seasonal, but there’s also a general consensus that Northern Nevada might have finally capped out on escalating housing prices.
“We have had huge price increases, but we are seeing a leveling off of pricing on the new home side,” Krueger says. “Builders are telling me they are experiencing similar traffic that they had in the first half of the year, but people just aren’t committing — a lot of this incoming migration seems to be going into rentals. People who are just starting jobs here want to make sure that they are locked in for the long term before they buy a home.”
From one extreme to the other
Land for multifamily projects has experienced an unprecedented boom in development across Reno and Sparks. Apartment vacancy is at historic lows at around 2 percent, and many of the new multifamily properties are leased out as soon as they get built, Krueger notes.
Homebuilders, meanwhile, face a two-pronged battle against escalating home prices that are stretching the purchasing power of potential buyers coupled with rising construction costs that are making it difficult for developers to tackle future projects.
“Penciling land is difficult,” Krueger says. “Vertical construction costs, along with the horizontal costs to develop lots and streets, continues to rise at very rapid pace. There is definitely pressure on land prices as result of housing prices capping off and construction prices escalating.”
It’s not just a local trend, either, Krueger notes — the nationwide lack of skilled tradesmen has led to increased construction and labor costs in many other markets, and materials costs also have spiked due to trade tariffs.
Ted Stover, senior vice president with Colliers International, says that the cost of new construction is one of the region’s most pressing development issues as Northern Nevada continues to thrive in the post-recession era.
“Across the board, every builder and developer is feeling it, and it’s taking a bit out of their pro formas,” Stoever says. “Labor is skyrocketing. Everyone is hopeful that the cost of construction will level out in the next year with some of the larger projects (in Reno and Sparks) being completed. There just is not a huge pool of general contractors that have the sophistication and financial ability to pull these projects off, and the sub(contractor) base they pull from is very thin.”
Construction labor concerns continue
The availability of construction labor has been a concerning regional issue for several years now, and it’s been exacerbated by the surging regional economy. Stoever says that prior to Tesla announcing it would build its Gigafactory in Northern Nevada in 2014, development was fairly stagnant. Since then, though, it’s been going gangbusters with little sign of slowing.
“Once Tesla announced, the fire hose was on,” he says. “There was no way this community could have foreseen what would happen and prepare for it; these are the challenges we are (facing) now.”
Stoever says that while there are still parcels of land available within city limits, infill opportunities are getting scarce. Reno lies in a bowl, and development already has pushed to the edges of the Truckee Meadows in many different areas, such as Somersett, Arrowcreek and Damonte Ranch. Many developers prefer infill projects because the proximity of services and utilities within city confines reduces construction costs, but land within the Truckee Meadows has gotten extremely expensive — landowners know their properties command a premium.
Development plans on the outskirts of the area, such as Prado Ranch in Lemmon Valley, Daybreak in Damonte Ranch, Estates at West Meadows in Verdi, and the massive 5,000-home StoneGate project on the northwest flanks of Peavine Mountain, have seen heavy community pushback despite the gains the projects could have on the region’s housing pressures.
Opportunity abounds in Spanish Springs
Both regional land experts agree that Spanish Springs likely will experience the most significant growth throughout this current development cycle and could surpass the building boom that’s transformed South Meadows and Damonte Ranch into one of the region’s busiest shopping and housing districts.
With southeast Reno nearing build-out, the region will need the vast amount of lots already approved in Spanish Springs, Krueger says.
“We still have a pretty good lot supply in north sparks – there are a lot of lots in Kiley Ranch and just north of Kiley there still a several thousand lots approved,” he says. “We have a reasonable supply in north Sparks, but everywhere else is more or less just pieces left to fill in. There’s nothing major, at least on the horizon.
“We are not running out of lots, but we need to create a fresh new master plan and expedite approval and gets these projects under development,” Krueger adds. “The entitlement and permitting processes are taking much longer, which leads to longer lead times to bring projects online.”
“I point out many cases of where privately owned companies do just as bad a job as publicly owned companies,” says Reno resident and former teacher Robert (R.D.) Gardner.