Par Tolles discusses 2021 New Year Outlook on Nevada Newsmakers

Aired Wednesday, January 6, 2021. Below is a transcript of the conversation between Par Tolles and Nevada Newsmakers host, Sam Shad.


Sam: I’m back on Nevada Newsmakers. We're always pleased to welcome back to the program Part Tolles. He is the head of Tolles Development Company and was just awarded “Developer of The Year” by Northern Nevada Business Weekly. Congratulations. Par: Thank you, I appreciate that. Sam: I look at 2021, for business, as an exceptional opportunity because there is going to be so much pent-up demand in so many areas, but I think the thing that stunned me the most in 2020, being such a horrible year in so many ways, was the boom in the housing, did that surprise you? Par: Yeah, a lot of things have surprised me. Sam: Well, let's start down the list. Par: There were 270 homes available in December in Northern Nevada or in Washoe County. There were 770 available a year ago. So, you are right, the booming housing - we're not a single-family housing developer - but the tidal wave of influx from California is on and we're in the beginning of the wave so we can't build houses fast enough. It's really remarkable and, by the way, the median house price was $250 a foot in December so we have a nice price escalation. We can argue whether it's good or bad, but the inventory is really lacking. Sam: So, we knew from the numbers put out by so many different groups including EDAWN and the state demographer that we were going to need 50,000 homes over the next 10 years. Has that number now gone up in terms of need? Par: I think so. I think Mike Kazmierski's (EDAWN) been beating that drum for a long time and his forecasts are playing out correctly. I think we've really found that we've become a COVID town. COVID’s been actually a good thing from a real estate standpoint for Reno. Call us a zoom town or COVID-friendly town or whatever you want to call it…the amount of people coming in that discovered Reno during COVID, I mean the majority of the people that I talked to in our retail portfolio they had some of their best Decembers ever because they were open and the amount of “Sacramentoans” and Bay Area folks that were coming over to actually shop and have a normalcy of life had really boosted their numbers in December and I think they have now discovered what Reno is and now that one of the spouses can work remote they are actually thinking about moving here. Sam: We'll get back to some of your points here in a moment. I remember as a kid thinking that I was going to move to Reno, I’d be here a couple of years and then I’d be going to San Francisco or LA because those were the places to be back in the 70s and early 80s. I couldn't imagine for one second thinking of moving to LA or San Francisco and in particular San Francisco. I love that city but the homelessness, the taxation, all the things that we know about that are bad there I can't imagine why anybody who has the ability to move wouldn't want to move. Par: Yeah, I agree I mean you and I have similar paths. I moved from San Francisco to Reno in 1994 if you can believe that the Bay Area was in a recessionary real estate period in the early 90s and Reno looked a little bit more opportunistic which is why I moved. I think the fact that over vacation or in the last 30 days you had Hewlett-Packard, the Godfather of Silicon Valley, moved to Houston. You've had Oracle announce their move I think to Austin. Elon Musk, of course announced his move to Austin. There's a real tipping point in what's happening in California right now and the ability, with technology, to really have some of these very important signature companies start to plant their flags outside of the state. Sam: The interesting thing for me - I read Nancy Brune's piece in the Nevada Independent about why Texas is winning. It did surprise me especially with companies like Tesla that are already operating in a major way in Nevada that they chose Texas. Is it more of an Austin thing where Austin is the hip place nationwide that everybody's looking at that place as a little weird but that's a fun thing versus Nevada? Par: I think there's three things. I think there's a tax benefit in Texas. They're very pro-business and they will provide incentives for people to move there. There's a location incentive - if you're an Elon Musk that has to hit the East coast and the West coast on a regular basis, I think the ability to be centrally located and have those flight times to both coasts are really advantageous. Also I think there's the labor force. I think Nevada particularly, I would say both Southern and Northern Nevada, lack a tech labor base that allows for somebody that works for a high-tech company, if they lose their job they can walk across the street and get another job. We don't have that here in Northern Nevada. We built the Microsoft /Intuit campus back in the early 2000s and I thought that was really the tipping point for Northern Nevada and that we would see an inflow of companies like that and it didn't happen and I think then we went into the recession, I think the Tesla factor now has really built up a skilled manufacturing base so you're seeing other companies that feel comfortable moving here because there's a labor base that can support it. My hope is you'll start to see more white-collar engineering jobs follow suit. I think it's been distribution skilled manufacturing and now you'll see some tech jobs that will discover Northern Nevada and we'll build up that labor base. Sam: With Brian Sandoval now as President of UNR it would seem to be a huge leg up to that based on what he did as Governor in attempting to attract high-tech firms to Nevada. Par: I could not agree more. I think Governor Sandoval's position at the University is just such a beacon as he can reinvigorate his rolodex from when he was Governor, and you know he's going to have an important voice in Nevada. I think he's going to really help us down the road. Sam: Is it the responsibility of businesses to go to the Universities and the Community Colleges and say "this is the workforce we need and here's how we're prepared to assist you in developing that workforce" and even to K-12? Par: Yes, I think that's what Stanford, Berkeley, some of the really known Bay Area Universities, they had great liaisons to the business and the tech community and they worked in unison to really help develop that infrastructure. I think if we do the same…I drove around UNR over vacation and haven't done it in a while and was just overwhelmed at what's happened there and the beauty of that university and the sophistication that's starting to bud there and if Governor Sandoval can take the infrastructure that's there and really create this ecosystem that has started but really mature it, I think our best days are really ahead of us.

Sam: You know we've had Robert Lang on the program from Brookings Institution, David Damore, both of whom have been very concerned that Northern Nevada has been getting more in the way of incentives than Southern Nevada and that there's an inequity in that system and to an extent blame the system. Ryann Juden was on the program,

who's the city manager for North Las Vegas and said we just want to see a

sense of fairness. Lance Gilman was on the program saying it's competitive. What's your position on all this?

Sam: I think I’m in Lance's camp. I think you've said this many times on your show that Lance had the foresight to put infrastructure into a large park with their own money and that was the chicken if you will and the egg was their success with the Tahoe-Reno Industrial Center and with that came the ability to use incentives to actually help them mature that park. I think it is competitive, I think companies will evaluate

labor-based incentives environments both in Northern and Southern Nevada

and choose accordingly - I’m very pro-incentive. There needs to be a governor on incentives, but the ability for Tesla to change the dynamic of Northern Nevada which was encouraged through incentives can't be overestimated enough or underestimated enough. It's just been incredibly beneficial to this part of the state.

Sam: Yeah, you were talking about developing into it and Microsoft back in

the day… for those of us that were following the Tahoe Reno Industrial Center

we thought the Walmart distribution plant was going to be the big incentive to drive people to the area because the purveyors to Walmart would buy up land around that plant and that would be the growth of it. That wasn't the case at all…

Par: No, I mean I remember when Walmart made their announcement, planted their flag, it was a million square foot building - the largest building that had ever been built in Reno. Who would have known that Tesla would then announce a future 15 million square foot building?

Sam: Which is still unbelievable…

Par: Hard to get your mind around but yeah that was the kickoff for what has been this distribution moving into skill manufacturing and then hopefully beyond.

Sam: So if you're talking to your compatriots in Southern Nevada, what do you say to them because my suggestion was you need to find somebody who's willing to invest a hundred million dollars in a business park in southern Nevada. Ryann Juden's point was that they don't have just one owner at Apex they have multiple owners who, we’ve heard the story before, don't agree on hardly anything especially putting up large amounts of money with maybe a payback maybe not. What's your advice to them because they obviously need to diversify, and I don't think there's anybody I've ever talked to in Northern Nevada in development that's ever said we think all the money should come to Northern Nevada. I've never heard that.

Par: No, I haven't either. I think you have to realize the advantage that Northern Nevada has from a location standpoint too. I mean we've been a much more vibrant industrial hub because we can hit 11 western states overnight in Southern Nevada. If you're distributing to Arizona or Southern California then Vegas has an advantage of being in Southern Nevada in Las Vegas, but we will always be a more important hub of industrial and manufacturing just because of where we're located than Southern Nevada. So, I think Southern Nevada can get their fair share and I think they're a larger city and so they will continue to attract jobs that need a broader base of employment but I don't think they're going to compete on par with Northern Nevada ever really from an industrial standpoint.

Sam: Let's take a break we'll come back with more with Par Tolles after this

time out

Sam: This is Nevada Newsmakers. I am back on Nevada Newsmakers as we continue our conversation with “Developer of the year” Par Tolles of Tolles Development Company

and one of our proud sponsors, thank you for that. So it seems to me as I look at

the business outlook that businesses are not planning for what's going to

happen in the next two months, they've been planning what's going to happen in the next five years and so it seems like none of the major construction projects have slowed down or stopped at this point in time. Everything seems to be continuing. The last time you were on the program you said that your funders were continuing to have faith in Northern Nevada. Is that still the case?

Par: Yes, and I think I mentioned on the last show the four food groups, if you will, of real estate in Nevada. You have industrial multifamily which are still gangbusters. Then you have retail and hospitality which have slowed down. I think office has remained remarkably stable. I think the vacancy rates have not been injured as much as they have in other primary markets. It's so ironic to think that a year ago if you owned a high rise in San Francisco that was the prize possession. Now you don't want to own a high rise in San Francisco or in any major city and if you have a suburban office building in a secondary market that's en vogue and the investment capital sees that as a safer investment. I think experiential retail will continue to do okay. Obviously big box small retail - we talked about that even before COVID - will continue to slow and be repurposed and I think hospitality is really the interesting one. We broke ground on a Hyatt hotel at The Summit Mall which is in south Reno and we put it on hold in late March when we saw things progressing poorly and we're now evaluating whether or not it's time to build that hotel. Leisure travel, I think, is going to come to Northern Nevada and is going to make up for the slow comeback of business travel and that's an evaluation we continue to look at and my hope is that we'll break ground in the spring (on that hotel).

Sam: I heard this interview with the head of United Airlines, and he was being asked about business travel coming back and his response was great. He said the first time that somebody who did a zoom meeting loses a deal to somebody who showed up in person, business travel will be back full-on.

Par: That's great. I hadn't heard that but that's a great line. If you really want to get one up on your competitor, you're going to be the one that is willing to travel and I think you've traveled a little bit over the last year. I have felt very safe, but I think as we come out of this with the vaccine being rolled out, business travel will come back slower. The overnight to San Jose may be replaced by a zoom call but eventually I think in the next 18 to 24 months we're going to see it at least 80 percent back and as we move in to 2023 it's going to come back to hopefully where it was back in 2009.

Sam: It was interesting to see how rapidly the local gaming came back not just in Nevada but across the country, that pent up demand. I think that once you release that pent-up demand for the older folks - when I say older folks maybe 50-plus - versus the younger people who are still doing what they do because they're young people and they're going to do what they do but I think that's going to be a very rapid transition. I think we may be surprised at how quickly that moves, and I think you've only got to look at the traffic leaving Las Vegas on the weekends, an 11-mile backup this past weekend coming out of Las Vegas and Southern California. I mean people are ready to do this. We just got back from a trip to Sedona. I was comfortable with everything: the hotel, the flight, all of that was fine. The only place I felt uncomfortable, this is kind of weird, was on the bus coming back from the rent-a-car place to the airport. They had separated the bus driver but there wasn't any real separation and there was a large group that was standing and sitting next to me and I just turned my face towards the plastic guard because I did not feel comfortable with that. That was the only time in an 11-day period of going to restaurants, going on tourism type things, traveling that I felt uncomfortable at all.

Par: I agree with you about business travel coming back, I guess my biggest worry is the convention business. Our state is built on conventions and it's that conventions are groups of large people so I think the individual business travel, if you're coming here for a meeting, it will pop back very quickly. I think it's already starting to come back but how we make vaccine available equals convention.

Sam: …and rapid testing.

Par: ….and rapid testing.

Sam: Joe Rogan has talked about this on his podcast that he wants to open a comedy club in Austin and if you can do a 15-minute rapid testing where you can test everybody before they go into a comedy show so that people are comfortable that everybody in that comedy room has been cleared and that they don't have COVID then nobody will have a problem with 200 people being in the comedy club. The restaurants, for people that don't know you develop restaurants, offices and large commercial industrial complexes. The restaurant business was obviously devastated for a long time and you did a fantastic job of supporting your customers not only by doing rent-free for a long time but also by literally going in and buying lunches for lots of different groups to help keep them afloat. How are they doing at this point?

Par: I think that 25% are keeping their heads above water. You know now that to-go business has been normalized and they've gotten streamlined, they know what they're doing, most of our restaurants have been able to keep their heads above water so I’m looking forward to us moving back to the 50 percent and I’m hoping that's around the corner. But again I’m going to repeat it, the influx of Californians coming here to have a normal weekend, that to-go business and the ability for the governor to - I know he's walking a tightrope here - but his ability to keep us open has helped them survive but you know that can only last for so long.

Sam: Are you optimistic that the new administration is going to be able to get something through a second phase beyond a trillion-dollar funding package that will help businesses further?

Par: I understand the stimulus check to a point. I’m really interested and that's one thing I’m going to do this week is really understand this new stimulus package and what is included for small business, is there going to be another PPP loan? Is there access for small businesses to receive funds that can help them survive this? What I would expect will be a little bit of a “Christmas wave” here coming in the first quarter but you know that's going to be counteracted with the vaccine, but our small businesses continue to need help.

Sam: All right let's take another break. We'll be right back.

Sam: This is Nevada Newsmakers. I’m back on Nevada Newsmakers as we continue our conversation with Par Tolles, “Developer of the Year” of Tolles Development Company. Quick answers - your biggest hope for 2021, and your biggest fear?

Par: My biggest hope is for a rapid evolution of the vaccine and distribution, as well as rapid testing. My biggest fear is, as I mentioned before, the slow comeback of the convention business in the state.

Sam: And that’s where we have to leave it. Always a pleasure to have you on the program. Happy New Year my friend.

Par: Yeah you too thank you.