Here are several samples of my work for Nevada Business Magazine:
Banking On Nevada: An Industry Still in Recovery
February 1, 2016 By Chris Sieroty
Nevada’s banking industry, which was hit hard during the recession, continues to see challenges today. Some bankers believe post-financial crisis regulations, rising interest rates and the popularity of mobile banking and other technology will continue to change their industry. Others believe China’s economic slowdown, Saudi Arabia’s worsening relations with Iran and an unpredictable North Korea could create volatility within the Nevada and U.S. economy.
“First thing, I wouldn’t use the world challenging, I believe volatility is more appropriate,” said John Wilcox, senior vice president and regional banking manager with City National Bank. “We believe, despite the volatility, there will be opportunities throughout 2016, and we think it will be a good year.”
Wilcox said the opportunities for City National Bank and other financial institutions will be found with those companies and individuals who have cleaned up their balance sheets following the recession. He said the opportunities to work with those companies who have recovered “are here now.”
“When China has a problem, that tends to concern everybody,” Wilcox said. “When Saudi Arabia and Iran are dealing with tense diplomatic relations, that causes more concerns. All of that news shakes up investors. “
Wilcox explained the danger is not to be aware of the opportunities that are right in front of us. Although Wilcox sees potential for volatility, other bankers used different words to describe the industry and Nevada’s economy in this post-recession environment.
“We’re doing much better,” said Dallas Haun, chief executive officer and chairman of Nevada State Bank. “I have to say the economy is doing much better today, which wasn’t the case five or six years ago.”
Haun described Nevada’s economy as entering a new normal with the banking industry adapting to rapidly rising real estate values. Haun admitted that the number of qualified borrowers today is better than in recent years, but is still insufficient.
“It’s still an issue,” the veteran banker said. “The issue is the underlying criteria is still driven by land values for many customers. The percentage of (loan) applicants over last year has been increasing. That’s a good sign, but there are still those who don’t qualify.”
John Guedry, CEO of Bank of Nevada, agreed that loan demand has been improving year-over-year in Nevada. “It’s trending upwards, which is good, but it is still lower than we would like to see in an economic recovery,” he said.
Many potential borrowers’ financial situations remain negatively impacted by the recession and its effect on commercial real estate prices. Haun said the main underwriting criteria for many loans is land values.
“All banks are hungry for qualified borrowers and performing loans,” Wilcox added. “It’s the easiest way to make money. It’s also good for the community.”
Predicting the Future
Banks in Nevada have been struggling with low interest rates making it difficult for them to increase business and make money from low interest rate loans when they are all competing in a small market.
But some help is on the way. In December, the Federal Reserve raised its benchmark short-term interest rate for the first time since the central bank lowered it to near zero in 2008 during the recession. San Francisco Reserve Bank President John Williams recently told CNBC a quarterly increase of 0.25 percent in December “makes sense.”
“I think something in the three-to-five-rate-hike range makes sense at this time,” Williams said in an interview with CNBC. He said that decision will depend on the economic data. Williams is not a Federal Open Market Committee voter this year. San Francisco is the headquarters for the Twelfth Federal Reserve District, which includes Nevada.
“I think there is more of a positive effect,” added Guedry. “The Federal Reserve saw enough signs of life in the economy to raise rates. Hopefully, it will motivate those businesses on the sideline to get back into the expansion mode before rates get too high.”
December’s one-quarter percentage point increase by the Federal Reserve might not bring much change to what Nevada banks pay in interest, although they are already charging more to lend. Increases in what banks pay in deposit rates typically lag Federal Reserve increases in short-term interest rates.
“Our margins have been constrained by the low interest rate environment,” Haun said. “If it’s done right, it can help the bank’s bottom line, and increase what we pay on deposit rates.”
Haun expected interest rates “will continue to rise.” However, Nevada State Bank and other financial institutions have little incentive to raise interest rates to lure more deposits.
In the beginning of this month, the federal funds rate, which is the interest rate banks lend money to each other usually on an overnight basis, was 0.50 percent, compared with 0.25 percent last year. While most bankers believe more interest rate hikes are inevitable, not everyone agrees with Williams comments to CNBC about future interest rate increases.
“I don’t expect there will be 3 to 5 rate increases,” said Kirk Clausen, regional president for Nevada at Wells Fargo Bank. “They have been very steady about how they move forward. They have also been very measured as they try to get us into a normal (interest) rate environment.” Clausen added there is a “lot of room towards normalcy.”
Sanford Sadler, president and chief credit officer with First Security Bank of Nevada, also expects more interest rate increases in the coming year, but his expectations were also for the Federal Reserve “to take it very slowly” by doing the right thing at the right time. Sadler said eventually there will be some impact on their customers from rising interest rates. “That day, however, is not today,” he said. But Sadler said in the future, rising interest rates will make it a little more expensive for consumers.
Stan Wilmoth, president and CEO of Reno-based Heritage Bank of Nevada didn’t want to attempt to predict future interest rate increases and simply said, “I don’t make a living trying to predict interest rates.”
While rising interest rates will eventually make it more expensive to borrow money, Nevada banks note that lending activity continues to rise. There are more potential borrowers and loan demand is beginning to return.
“It’s very good,” said Sadler. “There are opportunities here for us to loan money. The economy is improving, although at a slower pace than everyone would like. But it’s growing.”
Sadler described First Security Bank of Nevada as a “middle market” lender, with loans averaging between $3 million and $6 million.
Clausen said the “trends are great” in Nevada. He said Wells Fargo continues to serve and put significant focuses on business lending, particularly small businesses. In terms of trends, Clausen said it Small Business Administration (SBA) loans is “where it’s at for credit in the business community.” Wells Fargo has approved more than 7,200 SBA loans nationwide worth more than $1.9 billion.
At the Nevada level, SBA lending has been very strong. According to the SBA office in Las Vegas, as of Dec. 8, 2015, 99 SBA 7(a) loans were issued with a value of $33.15 million. Wells Fargo issued 37 7(a) loans valued at $3.75 million, while Heritage Bank of Nevada approved one loan for $280,000, Nevada State Bank issued two loans for $125,000, and First Security Bank of Nevada issued one loan for $75,000, the SBA said.
“What SBA loans provide is an entry for small business startups,” Clausen said. Those SBA loans are a way to form long-term business relationships.
In Northern Nevada, the economy has benefited from Tesla Motors Inc. building its $5 billion battery factory, as well as an influx of other technology, manufacturing and small businesses.
“We’ve got an opportunity,” Wilmoth said. “We feel like we built a niche. It’s pretty good times up here. A lot of small businesses are coming to our region.”
While there are opportunities for Heritage Bank of Nevada, Wilmoth said his bank hasn’t and won’t change its underwriting criteria on loans. “We give credit out to people who can pay us back without great strife,” Wilmoth said. “It’s a partnership between us and the customer.”
Wilmoth said the average loan ranges between $5 million and $10 million. He explained most of the economic impact in Northern Nevada is being driven by small businesses.
“There are still some pretty tough metrics statewide,” Haun said. “For us, our [loan] approvals are increasing, while turn downs are decreasing. That’s a good sign.”
Both Haun and Sadler agreed that while loan demand is increasing, the number of qualified borrowers continued to be a challenge. And, neither Nevada State Bank nor First Security Bank of Nevada are prepared to change their loan conditions.
“We are not loosening our loan requirements,” Sadler said. “No way. Our policy on loans is that we want to sleep at night. I have been through a number of recessions and the impact they have on the ability of businesses to repay their loans. We are guarding against that. It means we have lost some business, but that’s ok.”
Mergers and Acquisitions
In recent years, the merger and acquisition activity of banks in Nevada has been very quiet. Today’s banking industry in Nevada, however, looks quite different than it did in 2007, a result of mergers and acquisitions or banks simply going out of businesses during the recession.
“We are down to a stable group of banks,” Haun said. In terms of community banks, Haun said there was Kirkwood Bank, Bank of George and Meadows Banks among others.
Haun said he really didn’t expect new banks to enter the market or any community banks to be sold, unless it’s a one off merger between smaller financial institutions. Clausen said the banking industry has lost 15 to 20 banks from pre-recession days. He added that there are opportunities for mergers and acquisitions, but “it has been really quiet for a number of years.”
The only merger to have a major impact on Nevada is Royal Bank of Canada (RBC) pushing deeper into the U.S. wealth management business with its $5.4 billion purchase of City National Bank. Based in Los Angeles, City National Bank has seven branches in Nevada, as well as a wealth management business.
“It doesn’t impact us in Nevada,” said Clausen, of Wells Fargo. “Maybe nationally, but competition is really great. The more competition there is, the better it is for the consumer.”
Guedry agreed saying City National Bank was already established in Nevada. He said this deal was more about RBC expanding their business into the United States.
City National Bank, with $35 billion in pre-merger assets, kept its name and operates independently of RBC’s U.S wealth management operations, following the acquisition’s closure last year. Specifics on what impact RBC’s acquisition of City National Bank would have on its operations in Nevada is yet to be seen.
“My initial comment is stay tuned. You are going to see some significant investment in Nevada,” Wilcox said. “Now we have a parent company with a trillion dollar balance sheet.”
In 2016, the banking industry should continue to undergo modest change as enhancements continue to be made to mobile banking, the economy improves and investments are made in security technology.
City National Bank will be upgrading its internet banking this year. Wells Fargo is considering expanding its branch network and First Security Bank of Nevada continues to upgrade its security to guard against hacking. You can bet those aren’t the only changes Nevada banks will undertake in 2016.
“Technology and security keep me awake at night,” said Wilmoth of Heritage Bank of Nevada. “I want to be at the top of my game. I think the new chip card is a huge deal.”
Banks in Nevada have eliminated a number of jobs in recent years. Much of the cutting has been in the mortgage business, which banks scaled back due to decreases in refinancing and delinquencies.
“There’s still some carry over from the economic recovery,” Guedry said. “I think the Federal Reserve raising interest rates was a good thing, maybe we’ll see some businesses get back in the game.”
Those same financial institutions face a challenge of recruiting the bankers of the future as potential employees find well-paying jobs in technology and other industries. Haun said Nevada State Bank was constantly bringing over qualified interns from UNLV’s Lee School of Business. Wilcox added the challenge is finding qualified people. “It takes time and we devote a lot of energy to finding and hiring people.”
Economic Forecast 2016: Increasing Stability and Growth
January 1, 2016 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.
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.”
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.
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.