Oregon real estate magnate Jordan Schnitzer is one of the biggest landlords in Las Vegas, with millions of square feet of warehouses under his control.
He hasn’t built a local industrial project since the recession. But now, with the market heating up, Schnitzer is breaking ground again.
Schnitzer, owner of Portland-based Harsch Investment Properties, is expanding Henderson Commerce Center, an industrial park at Warm Springs and Eastgate roads, with a 240,000-square-foot building. No tenants are lined up yet.
Harsch officials and others gathered at the expansion site Monday for a groundbreaking ceremony. As planned, the building would have 12 units, most of which would be around 20,000 square feet each.
The project is expected to be finished by the end of the year.
Southern Nevada’s industrial market has gained speed the past few years with rising rents, shrinking vacancies and increased development. Many investors are starting construction — or at least planning to — without tenants in place first, figuring demand for space is strong enough that their buildings won’t sit empty for long, or at all.
Two years ago, the Las Vegas Global Economic Alliance, a business booster, released a report saying dozens of companies that considered moving to the valley picked other cities largely because of a dearth of big, available industrial properties. Today, however, more than a few real estate pros question whether developers are building too many such projects.
Schnitzer’s company owns and operates 23 million square feet of real estate in six Western states. According to VEGAS INC research, Harsch was the largest commercial-property landlord in the valley as of mid-2015 with more than 8 million square feet under ownership, mostly comprising industrial space. (The list did not include casino operators.)
Schnitzer and John Ramous, senior vice president and Las Vegas regional manager at Harsch, spoke about the market with VEGAS INC after the groundbreaking. Edited excerpts:
How long have you been planning this expansion?
Schnitzer: We’ve been planning this for 15 years. It was originally planned to be a couple of buildings, and when the recession hit, it was just put on hold.
Landlords around the valley lost tenants during the recession. At its best, what was your local portfolio’s vacancy rate, and what was it at the worst?
Schnitzer: We were about 94 percent occupied, and it dropped to 78 percent. This recession, not only did it increase the vacancy, the rents went down dramatically, too.
Did you lose any properties to foreclosure or through bankruptcy?
Schnitzer: No. In our 65 years, we’ve never had a default, never missed a dime to anybody.
What did you do to fill the empty space once the recession hit?
Ramous: One of the things that got us through it was looking for large tenants for short-term leases. In Henderson, we had a telecommunications company that took, at the peak, about 250,000 to 300,000 square feet on a month-to-month basis. That certainly helped us. It was a lower rent, month-to-month, so it served them very well, too.
Schnitzer: When the times get tough, you do whatever it takes to keep your existing tenants and try to attract new tenants. Remember, everybody else had vacancies, so there was huge competition. Businesses weren’t growing; they were shutting their doors and collapsing. You fight hard to survive.
How did Las Vegas compare to the other markets where you own properties?
Schnitzer: Vegas was hit worse. You had about 120,000 workers in the construction business, and that dropped to about 36,000 during the recession. Most other markets that we were in are much older areas — San Francisco, Seattle, Portland, San Diego. They all got hit really hard too, but Las Vegas just had significant weakness with its dependency on the construction industry.
Right now, there’s a lot of warehouse construction in the valley and even more being planned. Do you think there is too much development, and do you think there are too many speculative projects?
Ramous: A lot of the projects right now are big-box, so they’re not divisible even close to a project like this. They’re not going to divide it down to less than 100,000 square feet. But the cost of construction is extremely high for building this type of property and smaller — to build the walls and office spaces and the amenities Jordan puts in.
Schnitzer: When you’re building a big warehouse, you’re building four walls with a lot of air in between. Do I think the market’s going to get overbuilt with big-box? Yes. This is a business where you go through a recession, demand starts rising, a few gutsy people start building some properties, whether it’s apartments, retail, office, industrial, and other people say, ‘We should do it too,’ and it all goes right up the curve to get ready for another recession.
Is it easier or tougher to fill a building that’s divided into 10,000- or 20,000-square-foot spaces or an open, 150,000-square-foot building?
Schnitzer: It all depends upon the market. If the market’s strong, you’ll fill both; if the market’s not strong, then you struggle to fill either.
Ramous: Right now, there’s a lack of what we’re building. Maybe that will push rates a bit higher, but it’s limited.
How does Las Vegas compare to your other markets, in terms of the construction pipeline, rents, vacancies?
Schnitzer: It depends what kind of property type you’re talking about, but generally, all of the markets are extremely strong. Unemployment has gone down everywhere. There’s been a huge improvement.
Does it worry you that Las Vegas, even though its unemployment rate has come down a lot, still has one of the highest jobless rates of any large metro area in the country? Does that give you any cause for concern?
Schnitzer: Everything gives me cause for concern. When you stop being concerned, you get cocky and you get in trouble. I’ve been a strong believer in Las Vegas since the ‘90s, and I’m just as confident about its future growth now as I was then. At the same time, you learn from these recessions. This is a business where people expand like crazy, get in trouble, use third-party money, give a project back to the bank, and then they try to do it all over again. That’s not our strategy.