The stock market is losing ground, gasoline prices are driving up inflation and the subprime mortgage crisis is squeezing consumer credit like a boa constrictor.
The economic picture isn’t pretty and Wall Street bears are saying it’s going to get uglier. Many observers seem convinced that a recession is imminent if it’s not already here.
George Gekakis has survived tough economic times in the past and he’s confident he’ll weather the next storm.
The general contractor and developer came to Las Vegas 20 years ago from Louisiana, where the economy had tanked after the Organization of Petroleum Exporting Countries slashed oil prices to $10 a barrel, crushing oil and gas producers in Oklahoma, Texas and Louisiana.
Gekakis is building the 238-unit, $30 million Sonoma Palms affordable senior apartments at 3050 N. Jones Blvd. during the worst housing downturn in Las Vegas history, at a time when a glut of rental homes has cannibalized apartment dwellers and pushed apartment vacancy rates to 8 percent.
“That’s what’s hurting multifamily,” he said. “They can get a home with a $3,000 mortgage and they can rent it for $1,000, maybe $1,200. But it’s going to change. In three years, we’re going to have 100,000 jobs.”
Rather than run from the market, now’s a good time to embrace it, Gekakis said. Land prices have peaked and even backed off a little, so major builders such as Ovation and Trammell Crow are “jumping in line right now getting things ready,” he said.
It takes about three years to go through planning and design for multifamily development, Gekakis said. Rents won’t drop over that period, he predicted.
Rent growth slowed to 2.8 percent in Clark County last year, California-based RealFacts reported in a fourth-quarter market overview. The average rent is now $886 a month.
“All you can do is stay lean and don’t own a lot of property,” Gekakis said. “You have to play the market and see where it’s going.”
Economic pressure forced some companies out of business and others to pare operations to bare bones. Nearly 8,000 construction workers were laid off in Nevada, mostly from the residential sector.
“If it wasn’t for big projects on the Strip, I’d be hurting,” said Larry Monkarsh, owner of LM Construction. “I think the industrial market has been kept alive by the gaming sector because home builders don’t take that much industrial space.”
Last year was looking grim until LM Construction signed $35 million worth of construction contracts in November, which made the outlook much brighter going into 2008, Monkarsh said. There’s still an influx of companies coming to Las Vegas and wanting to do business here, he said.
Monkarsh said he’s constantly “shopping” for the best deals on materials and equipment. He’s also taking another look at all aspects of the company to see where he might save money.
“For example, in order to save on varying interest rates, we’ve begun to restructure and consolidate our debt on vehicles and equipment,” he said. “We’ve also gone back to our employees and requested to restructure their compensation packages.”
Monkarsh began positioning LM Construction for a potential downturn last year by making a few key hires, including a purchasing director to control office overhead and save on project cost overruns. He also added two new business development positions to focus on opportunities in both Nevada and southern Utah.
Cedar City’s accessibility to both rail service and Interstate 15, along with the recently announced airport in St. George, Utah, are creating growth and opportunities there, Monkarsh said. His company is already building at Port 15 industrial park in Cedar City.
“When times are tough, businesses have to take a hard look at their numbers,” said Doug Beckley, founder and president of The Beckley Group. “People forget there’s a reason why some companies succeed during tough times and others fail during good times. People blame the outside world, they blame circumstances rather than turn inwardly and be as lean and mean as they can be.”
One of the “rookie mistakes” business owners often make in a slow economy is to reduce spending on sales and marketing, Beckley said. They want to save money, so they fail to invest in marketing that will drive business in the long term.
“Don’t make decisions during tough times that are going to hamstring you when the economy comes back. Don’t close the doors on opportunity,” he said.
For Jordie Primack, chief executive officer of Henderson-based Primack Family Cos., the key to surviving an economic downturn lies in picking up pieces others have left behind.
Southern Nevada’s tremendous growth has brought upscale master-planned communities and billion-dollar megaresorts, but it’s also left small, vacant parcels that aren’t profitable enough for large companies to develop.
Primack specializes in the acquisition and development of these “infill” sites.
This type of revitalization development is more creative, he said. With the changing market, creativity is needed to meet the changing neighborhood demands.
“You have to be more artful. You can’t just walk in like a gorilla. You’ve got to go in and shuck and jive,” he said. “We weren’t trying to be pioneers. We were just looking for opportunity.”
Primack was president of Richmond American Homes and vice president of American Nevada Corp. before forming his own company five years ago. He’s learned to identify property, analyze its profitability potential, acquire the land and get it properly zoned.
“My son (Brett) and I made a decision to withdraw from residential and hit ’em where they ain’t, projects where the big boys wouldn’t develop and our competitors hadn’t thought of it,” Primack said.
He’s renovated old and empty buildings, bringing new development to areas that had long been abandoned. He uses his industry experience and vision to make the most of these challenging and budget-based projects.
For example, he found a site in an older part of Henderson with six acres on one side of Warm Springs Road and six acres on the other side, abutting rural estate zoning. He couldn’t get apartments approved, so he went with 80 single-family detached homes on compact lots.
Beazer Homes came in and bought the land after Primack had “set the table.”
He has another project — two fourplexes and a duplex — on slightly more than a half acre off Boulder Highway and Sunset Road, an area that hadn’t seen any new development in 30 years.
Monkarsh of LM Construction said he went through a down cycle after the Sept. 11, 2001, terrorist attacks. That’s when he devised a new way of doing business and interacting with clients.
“Often in a downturn the pace of projects slows down, but we have to maintain our work force so they’re ready to go when our clients are,” he said. “If we need to take on small projects in the meantime to help a client out of a bind, we’ll do that to maintain the relationship and make sure they call us when things do turn around.”
This story first appeared in the Business Press. Hubble Smith writes for the Business Press’ sister publication, the Las Vegas Review-Journal. He can be reached at email@example.com or 383-0491.