Future homes for corporate expansions.

Contrary to what many believe, real estate development is not dead. And that's good news for companies that will need new space as they expand or relocate.

A recent survey of real estate developers from several U.S. markets reveals that speculative development -- projects built without preleasing commitments or built-to-suit for a specific client -- is gaining in popularity again in certain markets.

Indeed, a wave of speculative development is under way in Southern Nevada. Summa Corp., the operating arm of the Howard Hughes estate, has made a significant commitment to speculative development in Southern Nevada. So far this year, the Las Vegas, Nev.-based firm has initiated construction on six speculative business park projects and is expecting to begin construction on another in the early fall.

The seven projects add up to approximately 600,000 square feet they will have developed in Southern Nevada at a time when any type of development is rare.

In fact, many developers are finding it difficult to obtain financing, making the new projects all the more impressive.

FINANCING STILL TOUGH

Despite the favorable indicators suggesting more speculative developments could be done in other markets besides Las Vegas, there is one variable that limits most developers: financing. It is perhaps one of the biggest challenges facing a developer in the 1990s because there are few willing lenders, making it nearly impossible to build in any U.S. market.

The lack of money for development was not without cause, to be sure. Banks, institutions, pension funds and others, are reluctant to make financing available following a decade when real estate deals did not prove in many cases to be profitable for investors. However, some developers are able to proceed with projects despite the obstacles.

"In order to overcome the challenge of financing 'spec' projects, developers require strong capital resources to succeed today," said Charlie McPhee, vice president of commercial marketing and development for Summa's Commercial and Industrial Division. "It is that simple. Those developers who had vision and anticipated which markets would experience a surge in demand and operate from a solid financial position, are the market leaders. Summa Corporation has focused on seizing the window of opportunity in Las Vegas."

In the foreseeable future, Dennis Stein, president and CEO of the Nevada Development Authority, expects to see 40 to 50 companies each year continue to take advantage of the window of opportunity to relocate to Las Vegas, for the foreseeable future. "The development community sees the same opportunity, so we'd expect to see a continued rise in speculative building activity in the Las Vegas market," Stein said.

Kirt Klaholz, vice president of industrial marketing and development for Summa's Commercial and Industrial Division, notes that Summa's reasons for proceeding with speculative industrial building in Southern Nevada parallel what the demand warranted.

"There is a host of factors that drive us to build, not the least of which is demand for high-quality space across a broad range of product types from all kinds of companies relocating to Las Vegas from other markets," Klaholz said. Summa responded to the growing business base in Las Vegas by developing a broad range of product, including office and industrial projects in business parks for such uses as traditional office users, distribution, warehousing and light manufacturing.

SPECULATIVE DEVELOPMENTS

Summa currently is building six major speculative projects totaling approximately 420,000 square feet in the area. Projects include: Hilton Corporate Plaza, a 90,000 square foot building, a nearly 130,000 square foot project for Household Credit Services at The Crossing Business Center, and four buildings totaling more than 200,000 square feet at Hughes Airport Center, a 390,000-acre master-planned business and industrial park.

Big O Tires has started construction on its largest-ever distribution center, a 300,000-square-foot project located in Henderson's Black Mountain Business Park. The facility will be a regional distribution point for 230 retail outlets in nine western states. In addition, Summa has plans to break ground on another project, a 165,000-square-foot class A office building in Hughes Center.

A NATIONAL TREND

The speculative development is based upon positive economic factors, including the low vacancy rate in Las Vegas, the lack of large blocks of contiguous space, and high demand. And there are other inducements too.

Another attractive feature of Las Vegas is the fact that there is no state income taxes in Nevada, making it an excellent retirement community. Money Magazine in January 1994 reported that Nevada had the third lowest tax burden in the nation, behind Alaska and Wyoming.

Speculative development in Las Vegas is possible and attractive for developers because there is a rate of return commensurate with their risk. The city is experiencing a phenomenal growth rate that is contributing significantly to this current speculative building increase. According to Liquidity Financial Group's National Real Estate Index, it is estimated that every 12th job in greater Las Vegas in March of 1994 has been created in the last year.

The Las Vegas economy has expanded the last five to seven years and is expected to continue, according to Harvey Green, managing director of Marcus & Millichap. "All phases of real estate are active; housing, buildings, offices, industrial," said Green. "Las Vegas has become its own city, with a hardcore job base. Twenty years ago, everybody was in the gaming industry. Now that is not the case, and it has helped to fuel the recent building cycle."

According to Green, "One of the biggest problems facing Las Vegas is the water issue. Hoover Dam is close, but it was developed at a time when no one predicted the growth that would occur in Las Vegas, and the city's access to water is limited. Consequently, water is one of the factors restricting building, and just may well keep the demand and supply in line so that an overbuilt market doesn't develop. In the long run, this balance is healthy and will benefit sustained growth in Las Vegas."

PURSUIT OF GROWTH

The corporate relocation game is a hotly contested match, often rewarding those who can provide incentives and benefits outweighing the reasons for staying put or moving to another city. States and cities are willing to dig deep to attract relocating and expanding companies. The Nevada Development Authority is one such group playing an active role in attracting new companies to Southern Nevada.

The organization receives more than 3,000 inquires a year from companies considering relocations, and it has been steady over last five years, according to Stein.

"In the last five years, overall we've had 219 companies relocate to Las Vegas as a result of an aggressive campaign to attract relocations. More than 100 were from California alone," Stein said. "In the fiscal year just ended in July 1994, 39 companies relocated to Clark County, and of that number, 20 were from California. During the last five years, only one company that relocated to Las Vegas has left."