NEVADA BUSINESS MAGAZINE: Economic Forecast 2016: Increasing Stability and Growth

By Chris Sieroty

According to analysts, Nevada’s economy will continue to show improvement in 2016, but with a few new wrinkles thrown in. Rising wages will mean more disposable income, which in turn boosts consumer spending. Job creation, described as the single best indicator of economic growth, is expected to add more than 52,000 workers to company payrolls this year, according to the Nevada Department of Employment, Training and Rehabilitation (DETR).

While tourism and hospitality have helped sustain the state’s economic growth in the last few years, housing is expected to be even stronger as prices have stabilized and fewer homes are falling into foreclosure.

“We are growing again,” said Stephen Miller, director of the Center for Business and Economic Research at UNLV. “We are not quite back to where we were at the peak, before the recession. We are in the seventh year of recovery.”

Miller described Nevada as “ground zero” for the recession. But, Tesla Motors coming on board this year, Switch and new casino developments on the Strip are good news for Nevada’s recovery, he said.

Economists and industry analysts agree that, moving into 2016, the state’s economy is now stable with the possibility of posting a 3 percent growth rate by the end of the year. So, what will the state’s main industries do this year to reach that 3 percent growth rate?

Gaming and Tourism

Las Vegas continues to experience strong visitor volume and, in 2014, even posted a record-breaking 41.1 million tourists. This year tourism is on pace to beat that record. However, casino revenue figures took a small dip in Nevada last year.

Rossi Ralenkotter, president and CEO of the Las Vegas Convention and Visitors Authority, couldn’t estimate visitor totals for 2016, but said he does, “anticipate major events like the presidential debate and a robust convention calendar will attract large amounts of visitors to our city.”

He also attributed the Strip’s continued growth, despite a crowded casino industry nationwide, to the uniqueness of what Las Vegas has to offer.

“Las Vegas is more than a destination, it’s an experience,” said Ralenkotter. “Much like our visitors’ interest, Las Vegas is a destination that is constantly changing and evolving. Whether you’re interested in the latest gaming, production, concert, sporting event or another form of entertainment, there is always something new to see in Las Vegas and an activity to suit every taste.”

That diversity of offerings has had a mixed impact on gaming revenues. Casinos statewide collected just over $11 billion in 2014, which was down 1.14 percent from 2013. The Strip totaled $6.37 billion, down 2.08 percent from 2013, according to the Nevada Gaming Control Board.

Ralenkotter expected conventions and the election year to lead the way in 2016. But what new projects will help attract new and returning visitors to the Strip? In 2014, Las Vegas benefited from the openings of the Cromwell and SLS Las Vegas among other projects.

And, Ralenkotter said the city has more than $7 billion in projects planned or under construction over the next few years.

“[In 2015], we saw the opening of the Grand Bazaar Shops at Bally’s, Omnia nightclub at Caesars Palace, Rock in Rio festival grounds and the first phase of the Mandalay Bay Convention Center just to name a few,” Ralenkotter said. “[In 2016], MGM Resorts International will have several new venues including a 20,000 seat arena.”

He said convention attendance was up more than 5.3 percent over the 5 million convention delegates last year. McCarran International Airport is also helping visitor numbers as arrivals and departures surged nearly 6 percent at the start of the fourth quarter.

Reno-Tahoe International Airport continued to post positive growth for 2015, with the latest figures for total passengers up 4.3 percent.

“In terms of visitor counts, we are slightly ahead of where we were last year,” said Jennifer Cunningham, interim managing director of the Reno-Sparks Convention and Visitors Authority. “We expect 4.7 million visitors, which is just above last year’s 4.6 million visitors.”

Cunningham also expects that number will rise as the Northern Nevada economy recovers. However, she said, the region’s hotels are already enjoying a 9.1 percent increase in their average daily room rate.

As of December, the average daily room rate was $94.52. Those rates are a result of a combination of factors including some upgrades, an improving economy, more conventions and an influx of company executives considering relocating to Reno.

Real Estate

After the devastation Nevada’s housing market suffered during the recession, Southern Nevada experienced increased stability in its real estate market last year, and that stability is expected to continue into 2016.

“Think back to the roller coaster ride when home prices were rising and land values were approaching a million dollars an acre,” said Brian Gordon, a principal with Applied Analysis. “Then the recession brought with it falling home values and foreclosures for the better part of a decade. Now, prices are more realistic. The real estate market is more sustainable.”

Gordon said, overall, the Southern Nevada real estate market experienced increased stability in 2015, and he expected that trend to continue into 2016. He described housing prices as more sustainable, with price appreciation averaging about 10 percent, down from the pre-recession high of 30 percent.

Entering the new year, the median price of an existing single-family home sold in Southern Nevada was just above $220,000, compared with $200,000 at the end of 2014. Home prices have bounced back steadily since bottoming out at $118,000 in January of 2012, but are still off from their highs in June 2006 of $315,000.

Going forward into 2016, Gordon believes the underlying fundamentals of the local economy remain sound with population and employment growth rates above the national average, and the region’s core tourism industry pressing forward with all-time high visitor volumes.

“Expectations for the economic climate bode well for the Southern Nevada real estate market,” Gordon said. “From a housing perspective, the number of home sales has remained elevated while supply-side conditions have remained in check.”

He added that price points have continued to rise and, while the pace of price appreciation may slow this year, overall pricing trends are expected to remain positive. Gordon said the recovering housing market has led to fewer homeowners being underwater and the risk of foreclosures and bank-owned assets flooding the market has greatly diminished.

For the first part of the fourth-quarter of 2015, 6.7 percent of all local sales were short sales, which is down from 10.6 percent from the same period in 2014, according to the Greater Las Vegas Association of Realtors (GLVAR).

Gordon did caution the “supply-demand balance” for vacant land has held prices at a premium relative to the devastation created during the economic downturn.

“Home builders are finding it difficult to identify, acquire and improve land price points that make financial sense,” Gordon said. “Elevated land prices are forcing higher densities and many of the challenges faced during the economic boom of the early to mid-2000s. Higher land prices are also being passed along to the end buyer of new homes, which is creating challenges from a pricing perspective.”

Gordon said that Bureau of Land Management (BLM) public land auctions may be one solution to increase the availability of land at more competitive prices. He said this will be “a key issue to monitor in 2016 and beyond.

In Northern Nevada, Telsa Motors $5 billion battery factory and the businesses following the electric car maker continue to have an impact on the region’s housing market.

The median sales price of an existing single family home in Washoe County is $280,000, $294,866 in Reno and $264,000 in Sparks. The median sales price in Fernley was just over $173,500.

“Those are healthy numbers,” said Brian Bonnenfant, project manager of The Center for Regional Studies at the University of Nevada, Reno (UNR). “We are way better off than we were three to four years ago.”

Economic Development

The same could be said for Nevada’s efforts at economic diversification. Nevada’s economy had been driven for years by gaming and construction. The reliance on those two industries drove the state into economic devastation when the recession hit.

Economic development officials say they’ve learned their lesson. Now, the state’s new motto is “economic diversity.”

Gaming revenues have improved modestly and construction jobs have begun to return as the Strip experiences $7 billion in new projects over the next few years. In addition, companies are looking to set up shop in Northern Nevada in particular. But, are these efforts paying off?

According to Mike Kazmierski, CEO of the Economic Development Authority of Western Nevada (EDAWN), they are. He said Northern Nevada expects continued significant growth in 2016 as more companies take advantage of Nevada’s tax friendly environment.

Kazmierski said EDAWN has focused its efforts on lobbying technology, data, logistics, e-commerce and manufacturing companies to the region. He said their success is measured by the number of companies who visit Northern Nevada on a monthly basis and his organization’s close rate.

In 2015, EDAWN averaged 10 to 12 company visits per month, up from four visits a month, while the closure rate is about 70 percent.

“Those numbers are not expected to decline,” Kazmierski said. “This is before Tesla hires anyone.”

To illustrate his point, Kazmierski highlighted the three latest deals to be publicized. He said Quality Bicycle Products will add 50 jobs when it opens a Reno distribution center, and BI Nutraceuticals will open a manufacturing and distribution center in Reno and hire up to 120 employees.

Meanwhile, eBay Inc. will build its fourth data center at the Tahoe-Reno Industrial Center. Kazmierski said the new companies created more than 3,000 jobs last year, a trend the he expected would continue this year.

Kazmierski cautioned that housing is a concern, especially as apartments and homes are needed to house construction and other employees. He said the housing shortage will be helped by “some repurposing of old casinos and new houses are on the way.”

In Southern Nevada, the region’s top economic development official characterized 2016 as a year of “cautious optimisim.”

“Every negative indicator continues to ratchet downward, and we’re finally seeing some positive wage growth for Nevadans,” said Jonas Peterson, president and CEO of the Las Vegas Global Economic Alliance (LVGEA).

Weekly wages in Nevada averaged $854 during the second quarter of 2015, up 2.5 percent from the $833 for the same period in 2014, according to DETR.

Peterson said Southern Nevada has some “pretty big opportunities” for development, with the catch being landing “some large economic development clients.” He said absent more problems overseas, Las Vegas should see continued growth through 2016.

Among the companies to relocate to Southern Nevada in 2015 was Premium Waters Inc. which will invest $10.7 million in a local plant and hire 29 employees. eBay will also expand its data center operations in Las Vegas, and expects to spend $182 million on the project.

“We have opportunities to attract many different types of companies, but in the short-term we’re best poised to attract light manufacturers and distributors,” Peterson said.

One example is Faraday Future, an electric car company that recently announced it will invest $1 billion to build a 900-acre factory at Apex in North Las Vegas. Peterson didn’t discuss Faraday, but said Southern Nevada would benefit from an influx of jobs and capital.

“That’s a positive,” Peterson said. “But these projects are few and far between. When we become aware of opportunities, we are definitely going to eagerly explore those, but we’re also focused on developing our own talent pool of young entrepreneurs who could go on to create the next Fortune 500 company right here in Las Vegas.”

Peterson said his organization can’t simply, “go hunt the white whale while ignoring the other fish in the sea.”

Gordon added that a, “massive investment of this nature could help bolster Southern Nevada’s manufacturing profile and generate a significant ripple effect.”

The Faraday project is expected to bring 4,500 jobs to Southern Nevada. Additionally, the company is projected to create 13,000 direct and indirect jobs and generate $760 million in tax revenue over 20 years.

Retail

While weekly wages have risen modestly and the unemployment rate has declined over the last year, retail analysts say that an increase in take home pay has translated into increased consumer spending over the holiday season.

Bryan Wachter, senior vice president with the Retail Association of Nevada, said he expects that consumer confidence to carry the retail sector into 2016. He said taxable retail sales for the 2014-15 fiscal year (latest available data) were $50.7 billion, which was an all-time high and a 6.3 percent increase over the previous fiscal year.

“Consumer confidence is up,” Wachter said. “When we were in the recession, consumers cut back on spending. They are spending money now. They want to spend money.”

Wachter said consumers may not be where they want to be financially, but they are more confident this year because they believe they’ll still have a job when the bills come due. He added that over the last three years, a lack of confidence in the job market has kept spending down.

“Consumer debt increases … that’s a good thing,” Wachter said. “Credit card debt is a down payment in the future. That spells some confidence [that] people will have some income.”

Though the Retail Association hasn’t released its growth projections for retail sales in 2016, Wachter did say holiday hiring was up slightly and was expected to reach 6,500 in Nevada, with about 10 percent of those employees carrying on in full-time positions.

Looking To The Future

Experts believe that growth in Nevada will continue to be steady, as there are no strong signals in the economy for a recession similar to 2008, or even the technology bubble of the early 2000s.

Both Peterson and Kazmierski expect more companies to move to Nevada, creating even more job opportunities and moving the state toward a more diversified economy.

“Diversity in the economy is going to reflect a broader make-up of industries than we currently see,” Peterson said. “I think there’s a major misconception that a diversified economy means that we’ve somehow forsaken our number one industry – gaming and tourism.”

Peterson explained the region has a major opportunity to leverage its dominance in gaming and tourism to attract ancillary industries.

“From there, we have natural growth opportunities in logistics and distribution due to our geographic location at the crossroads of the Southwest,” he said.

All in all, experts agree that 2016 is looking bright for Nevada. From increased diversification to recovering industries and an abundance of cautious optimism, all signs point to a healthy economy for the Silver State.

LAS VEGAS BUSINESS PRESS: Las Vegas bankers look ahead to 2016

By Chris Sieroty

Special to the Las Vegas Business Press

January 3 – 7:00 p.m.

It’s the start of a New Year, and plenty of industry analysts have already been quoted about how the Las Vegas economic recovery will affect the local banking industry.

Even with the Federal Reserve raising interest rates last month for the first time in a decade, most analysts believe more increases will arrive this year. And that those rate hikes are a sign of strength of the U.S. economy.

But what other changes are on the horizon for 2016, and how is a more stringent regulatory environment affecting banks in Southern Nevada?

John Wilcox, senior vice president and regional banking manager with City National Bank; Gene Galloway, president and CEO of Plaza Bank; Terry Shirey, president and CEO of Nevada State Bank, and George Smith, Nevada president with Bank of America, share their thoughts.

Q: What is the most important trend that will drive the banking industry in 2016?

Wilcox: Technology will be more of a driving force in banking as a way to become more efficient and responsive to its clients. With shrinking margins, utilizing technology will be a critical part of maintaining profitability at necessary levels.

Galloway: Clearly, the regulatory environment continues to be a challenge. Additionally, we are seeing more banks reaching on credit structure and pricing. I guess it is true bankers have short memories.

Shirey: Interest rates. Whether or not the Fed’s 0.25 percent increase was the start of a long-term trend of increasing rates or a blip in a prolonged period of low interest rates will drive a lot of what you see in banking, and will also tell us a lot about the strength of the U.S. economy.

Smith: It’s all about convenience in 2016. Customers are electing to make their lives easier through technology and the convenience of self-service banking. It’s a different industry than just a few years ago — customers access, pay and spend online, and are using their mobile devices more than ever, and it will keep growing. Nationally, Bank of America has 32 million mobile banking and online users, with 18 million customers actively using our mobile banking platform alone — and that number grows at a rate of over 5,500 users a day. We also have ATMs with live, U.S.-based tellers that bank after our branches close and open, processing more types of transactions than standard ATMs. It’s a self-service platform our customers appreciate as an additional option for their banking needs. Technology-wise, already, our users are able to sign-in using fingerprint authentication, and use their wearable devices like the Apple watch to set same-day financial center appointments with specialists and view balances and recent transactions.

Q: What else can we expect to see in 2016?

Wilcox: We’ll see a market responding to an increasing interest rate environment for the first time in a decade. This will motivate businesses to get off the sidelines and invest in growth from pent up demand. This will help businesses, consumers and the banking industry.

Galloway: Continued improvement in the overall economic conditions. This improvement will be overshadowed by the elections coming up and the uncertainty surrounding them.

Shirey: The continued evolution of consumer banking as mobile adoption accelerates, ATMs become “smarter,” and the way consumers use branches and interact with their money continues to change. Those banks that embrace the changes and insist on providing means for their clients to bank the way they want will be the most successful. What won’t change in all of this is the importance of relationships and the value of having local bankers to help find solutions and solve problems for their customers.

Smith: Our customer service centers are creating jobs in Las Vegas, such as our call center in Summerlin that’s adding upwards of 200 new jobs in 2016. This call center focuses on our clients’ digital needs and we pick up service calls from all over the western United States. There are also two large casino deals on The Strip being discussed, and we could see a ripple effect on the economy as a result. In, 2016, we’ll be integrating Merrill Lynch advisors in the vast majority of our financial centers along with other lending specialist like mortgage and small business experts, so that our customers will be able to see an expert advisor in their local branch, which will be a huge asset to them.

Q: The post-2008 regulatory environment continues to evolve. What are the most significant changes that have arrived or are on their way?

Wilcox: The Ability to Repay, or ATR, has changed the way banks have to document and underwrite its borrowers in order to verify income and source of repayment. This has created some challenges with clients. However, as all banks continue to educate their clients about these changes, this will become less of an issue.

Galloway: Banks are still working through the impact of Dodd-Frank. This coupled with the heightened importance of cybersecurity will continue to impact many banks.

Shirey: The stricter mortgage underwriting standards, in particular the “ability to repay” rules mandated by Dodd-Frank that took effect this past year have had the largest client impact. Many smaller banks got out of the mortgage business altogether given the high cost of compliance. We have adapted to the changes and have found a way to provide a good client experience, but the new process is not as simple as it once was.

Smith: We’re a more straightforward company because we’ve exited businesses and sold assets that did not fit our client-focused strategy, and we’ve put most of our legacy issues behind us. We’re a stronger, more sound company because we’ve built record levels of capital and liquidity and strengthened our risk management practices. All of these efforts have allowed us to focus on our customers and clients like never before, and to deliver the full power of our resources and global reach to help them achieve their goals. Through stronger relationships with customers and clients, and better connectivity across our teams, we’re building strong, financially secure communities and growing responsibly.

Q: If you could change one thing about the banking business, what would it be?

Wilcox: Well most bankers would probably comment first on the regulatory environment. However, the ability for banks to attract young people as a career choice is a growing challenge. Banks need to invest in the future of its industry by attracting, training and mentoring the future leaders of its industry.

Galloway: I would say the blame game. Congress blames the banks, the consumer blames the banks. I can assure you the normal community bank did not cause all the pain that has been endured over the past few years.

Shirey: I would love to see a regulatory and economic environment that supported more new banks. There have only been three new banks chartered in the United States since 2010.

Smith: Reflecting on the past, I wish Las Vegas did not have to experience the financial crisis of 2008 in the manner it did. It impacted everyone and our community unfortunately paid a deep price. In terms of banking, the stronger banks survived – these banks had a long, slow and steady climb, but have returned to a strong footing. The aftermath is that the legitimate, well-capitalized banks are here to service customers. With new regulations, banks are much more capitalized because the laws have changed. It’s ultimately a much better environment for the consumer.

Q: How would you describe the current state of the Las Vegas economy and what impact do you think it will have on your business going into 2016?

Wilcox: It’s like a runner who is warmed up and is in the starting block waiting for the gun to go off. Some have jumped the gun and some are still waiting for a signal to jump in. Those businesses that are engaged in growth strategies now will be the winners. City National is excited about future opportunities, which is why it’s making significant investments in its Nevada operations. City National is very bullish about the future of the Nevada economy.

Galloway: Las Vegas continues to improve in all areas. Unemployment is continuing its downward trend; there is greater business and consumer confidence. Commercial real estate is continuing its recovery. Tourism is approaching all-time record levels. Plus we are seeing an increase in the number of nongaming industries moving into Nevada overall. This bodes well for our future. Lastly, we are returning to consistent level of net level of new in-migration to Las Vegas. Done right, I see 2016 as a very good year for community banking and Las Vegas in general.

Shirey: There is a lot to be positive about as we enter 2016. Real estate values and the metrics along the Strip corridor continue to trend in a positive direction. These two sectors of our economy have always been incredibly important to the Valley’s economy, so this bodes well. We are still near the top of many of the wrong lists (foreclosures, homes under water) but we are much better positioned than two years ago. Plus, we are starting to see economic development efforts beginning to bear fruit with the recent Faraday announcement. In general, what is good news for economy is good news for banking in Las Vegas, and vice versa.

Smith: The economy is steadily growing but it is not robust. The impact on us will be bullish for the most part. There is a slow growth in construction, mid-level construction specifically. You’ve seen a lot of clients really defer buying machinery or holding off on doing things because they are concerned about the economy. Now people have a bit more confidence and we’ve seen equipment financing tick up a bit. Housing is also generally up a bit, as builders are building more homes.

LAS VEGAS BUSINESS PRESS: Ruling won’t slow push for marijuana banking in Nevada

By Chris Sieroty

Special to the Las Vegas Business Press

January 18, 2016 – 4:14am

The booming marijuana industry in Colorado suffered a setback this month when a federal judge in Denver dismissed a credit union’s lawsuit seeking to access the nation’s financial system.

Fourth Corner Credit Union had challenged a decision by the U.S. Federal Reserve Bank of Kansas City that barred the credit union from taking deposits or issuing credit to marijuana dispensaries or grow facilities.

The credit union was chartered by Colorado in 2014, two years after voters decided to legalize recreational marijuana. In dismissing Fourth Corner’s lawsuit U.S. District Judge R. Brooke Jackson pointed out marijuana is still illegal under federal law.

Jackson added that financial institutions that deal with money made by medical or recreational marijuana businesses could be breaking the law.

So, the ruling leaves two questions.

One, what’s next for Fourth Corner Credit Union? That is still to be determined.

The second question is, how does Jackson’s ruling affect the group behind the effort to license Battle Born Credit Union in Nevada? Randi Thompson, a lobbyist and owner of Randi Thompson Consulting in Reno, told the Las Vegas Business Press the judge’s decision won’t impact their efforts to open a credit union that services marijuana businesses.

“We have taken a different path,” Thompson said. “We have learned from Fourth Corner’s experience and have reached out to the Federal Reserve in San Francisco.”

She said the seven people trying to form the credit union have reached out to state and federal banking regulators to share their business plan. Thompson said the difference between Colorado and Nevada is that Nevada allows credit union to have private insurance.

Fourth Corner had sought and was rejected by the National Credit Union Administration in their attempt to get federal insurance.

“You can’t go to the Fed without insurance,” Thompson said. “The judge had to follow federal law.”

Thompson hopes for a different outcome when Battle Born Credit Union seeks approval from the Federal Reserve in San Francisco. She said the “Fed in Kansas City is a little more conservative than the one in San Francisco.”

“They are open to seeing our application,” Thompson said.

In an interview with the Business Press in August, Thompson said she was hopeful Battle Born would open by the end of 2015. She told the Business Press this month that the process is in a holding pattern while “we deal with our compliance strategy.”

Thompson said it was crucial that Battle Born is able to show federal regulators that they are tracking every dollar that is deposited. She said, “If a marijuana dispensary deposits $100, we need to be able to show them it was a legitimate transaction.”

Thompson also attributed the delay to their only being three dispensaries statewide. However, if voters approve recreational marijuana in Nevada in November, she expected the issue of banking these businesses to pick up momentum.

Access to basic banking services to Nevada’s legal medical marijuana business is one of the most crucial challenges. Dispensary owners find themselves paying their rent, employees, operational costs and taxes in cash.

Wally Murray, chairman of the Nevada Credit Union League and CEO of the Greater Nevada Credit Union in Reno, in a statement to the Business Press said he was hopeful Congress would act to help credit unions.

“The Nevada Credit Union League is dedicated to working with all credit unions and their members to fight for access to the banking services they need,” Murray said. “We hope that, in the light of the Denver federal judge’s ruling, Congress will take action to address the excessive legal and regulatory burdens involved for credit unions and other financial institutions when considering serving legal marijuana-related businesses.

 

Stumpf reappointed to Fed Advisory Council

The Federal Reserve Bank of San Francisco’s board of directors on Jan. 1 reappointed John G. Stumpf to represent the district on the Federal Advisory Council for a second one-year term. Stumpf is chairman and CEO of Well Fargo & Co.

The Federal Advisory Council consists of one member, generally from the commercial banking industry, from each of the 12 Reserve Bank District. Nevada is a member of the 12th District, which is part of the Federal Reserve Bank in San Francisco.

The council usually meets with the Board of Governors in Washington, D.C., to discuss economic and banking matters.

 

CO-OP, U.S. Bank: branches matter

We seem to live our lives using our smartphones or tablets to do everything, including our financial transactions. But consumers still prefer visiting brick-and-mortar branches, according to studies from CO-OP Financial Services and U.S. Bank.

“Branches are not going away, but they are changing,” Sarah Canepa Bang, chief strategy officer for CO-OP Shared Branch, said in a statement. “The modern customer wants it all — mobile, online and branches.”

According to the survey, 63 percent of respondents indicated they will never make all of their financial transactions digitally; 80 percent prefer working with an actual banker or teller instead of a virtual one. And, 86 percent plan to do business in actual branches during the next five years.

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