ONE-ON-ONE
- May 2000
by Ed G. Lane
"Kentucky
Will Not be a Great Place to Live Unless It Offers Exceptional Opportunities"
Developer Brian Lavin’s perspective on doing
business in Kentucky
Brian
Lavin
As
president and chief operating officer of NTS Development Company and
its affiliates, Brian Lavin is responsible for the company’s commercial
real estate development and land acquisitions, as well as overseeing
the management of all office buildings, business centers, multi-family
and single-family residential divisions. Lavin previously served as
president of Paragon Residential and vice president of the company’s
Midwest division.
Lavin earned a bachelor’s degree in business administration from
the University of Missouri. He is a member of the Young Presidents Organization,
the Institute of Real Estate Management, council member of the Urban
Land Institute and member of the National Multi-Housing Council. He
serves on the Board of Overseers of the University of Louisville, the
Board of Trustees for the Louisville Olmsted Parks Conservancy, Inc.,
and the Home Builders Association’s Program Committee.
You
have been in real estate development for three decades. How different
are market conditions today as compared to the 1980s?
During the 1980s,
real estate developers were making decisions based on their companies’
needs, goals and objectives. Today, Wall Street is carefully analyzing
real estate, and the information flow regarding market conditions
is more organized and disciplined. These factors have allowed the
real estate market to sustain a more stable period of growth than
during the ‘80s, when the market was cyclical and experienced
expansions and contractions.
Is
there serious overbuilding today?
No. Generally,
in Louisville and Lexington, the markets appear to be in relative
balance. That’s not to say there might not be a building here
or there that is experiencing high vacancy, but the real estate markets
are in equilibrium and seem healthy.
Have
more sophisticated lenders and higher underwriting standards reduced
speculative building?
Yes, that’s
part of it. The real estate market and the rest of the economy have
done so well that allocations by institutional investors and lenders
in real estate are at modest levels. Consequently, there is always
money available to invest in a good deal. But money is not always
available to pursue any deal.
Is
NTS building spec buildings or are all of its new developments substantially
pre-leased?
We haven’t
been involved in too many spec multi-tenant office buildings that
made a lot of money. Our successes have been in built-to-suit developments
that have long-term lease commitments. Not a lot of spec office buildings
are being built, in Louisville, Lexington, or even Northern Kentucky
for that matter. I don’t see that changing in the near future.
The
"new economy" business sector is currently the high-growth
area in the U.S. economy. Has NTS made an effort to provide office and
incubator space suited for e-commerce and technology companies?
NTS has entered
into lease agreements with various broadband providers and technology
companies, but NTS has not built an office building specifically for
an Internet company. Our existing properties are pretty traditional
in nature, but the interior finishes can be designed to accommodate
a broad range of technology companies.
NTS
Corporation has been in business for 35 years. The company did not fail
during the real estate depression in the late 1980s and early 1990s
when many, if not most, other real estate development companies in Kentucky
went out of business or experienced extremely harsh business conditions.
Why has NTS been so successful for so long?
NTS hasn’t
been dependent on one segment of the real estate industry. By having
that diversity, NTS has been able to work its way through tough market
conditions. Additionally, NTS is not a heavily leveraged company.
Our entire company position is probably less than 50 percent leveraged
today. Being conservative in good times has afforded NTS the ability
to work through depressed markets. NTS is more disciplined in its
approach of looking at an investment, capitalizing and managing it
during the course of its life.
NTS
has developed single-family subdivisions, apartments, offices, retail
and light industrial properties. In which of these markets is the company
concentrating its efforts at this time?
NTS has almost
$30 million of apartments and office buildings under construction.
NTS is building apartments in Lexington, an office building in Fort
Lauderdale, and a couple of office buildings in Louisville. At this
time, our development portfolio is approximately 50 percent real estate
investment properties and 50 percent traditional land development.
What
percentage of NTS’s business is land development?
NTS has a little
over $80-85 million in recurring revenue (rental and management fees)
and the company sells about $30 million worth of land a year on top
of that.
How
strong is the current real estate market and what are the positive and
negative factors that will influence market conditions over the next
five years?
Developing land
for subdivisions is getting more and more difficult. The scarcity
of entitled land in the areas in which people would like to buy their
home site is a major problem. Home lots are increasing in value much
more rapidly than they probably have in many years. We’ve seen
the average lot prices in some of the developments in Louisville go
up as much as 30 percent in the last 24 months.
What
is the range of value for NTS lots?
The least expensive
lot we market in Louisville is probably $58,000 and they go up from
there to $200,000. The lot sizes would range from a quarter to a full
acre.
Ultimately, interest
rate increases will slow the market down. NTS doesn’t anticipate
selling as many house lots this year. It’s not because of the
lack of effort; it’s due to market conditions.
NTS
develops in both Louisville and Lexington. Comparing the development
environment in the two markets, what do you see as the key differences?
I would not rate
either in the top 25 percent as far as "being pro-growth, make
it happen, or efficient for development." The biggest difference
between cities that are rapidly growing and cities like Louisville
and Lexington – where growth is very controlled – is that
zoning and entitlement issues are separate matters.
Whether land
is appropriate for offices, apartments, industrial or retail buildings
should be considered first. Then, satisfying the infrastructure requirements
should be considered second. In developer-friendly markets, NTS could
purchase a property zoned for 300 apartments but couldn’t build
them until the roads and utilities are available to serve the property.
In Louisville
and Lexington, the zoning process is very front-loaded. You have to
resolve the roads, sewers and all other issues prior to finding out
whether you can successfully zone the land. The process is very costly
and it takes a long time in order to know if you have zoning or not.
The advice I
could give zoning and planning departments in Lexington and Louisville
would be to make both communities more user-friendly. The protracted
time that it takes to get technical issues resolved is very expensive.
Time is money in this business. The approval process is very unpredictable
and companies don’t have a positive feeling about doing business
in these markets.
Will
e-commerce reduce the demand for retail facilities?
Retailers are
probably the most organized in all of the real estate sectors. They
understand what they have to do to be successful, whether it is a
regional mall or a large box user. Retailers will sort through it
and compete efficiently and effectively.
Have
Kentucky’s incentives to attract new and expanding business been
successful?
Yes. A number
of the companies that NTS has been involved with were assisted by
the Kentucky Cabinet for Economic Development and Greater Louisville,
Inc. (GLI). The management of these companies tell us that the Cabinet
and GLI represented Kentucky and Louisville very effectively. NTS
has experienced nothing but good results.
Currently,
there are efforts underway by political, business and civic leaders
to merge Louisville and Jefferson County. Will these efforts be successful?
I hope they will
be. It’s very important that city and county governments be merged.
A merged government would make Louisville more attractive for business.
Ultimately, the taxpayer will receive more efficient and/or better
services.
What
is Louisville’s greatest need in order to continue its economic
developmentsuccesses?
Identifying,
attracting, and maintaining a high quality work force is our top priority.
As a father of nine, I can honestly tell you that my kids see limited
opportunities in Kentucky when they compare opportunities available
in other states. Today, young adults are far more mobile and prepared
to pursue their dreams. Creating jobs and retaining our college graduates
is a huge issue that confronts Louisville and many cities in Kentucky.
What
advice would you give Governor Paul Patton and the General Assembly
about raising taxes in Kentucky?
Raising taxes
is one way to meet the [state’s] needs. But, aggressively working
to attract new business and expansion, which in turn will increase
the tax base, is probably a more effective strategy. Governor Patton
has done a wonderful job for the state of Kentucky. I don’t have
all the facts that he has, but I believe increasing economic development
activity should be the focus – instead of raising taxes.
Is
it important for business and educational institutions to work together?
The quality
of life in Kentucky is very good. But, Kentucky has got to keep focused
on retaining our outstanding young people and creating an environment
that will attract them to our communities. When you talk about quality
of life, in the end, people want to make a good living and to have
professional and career opportunities. The way we achieve that is
by creating positive business and educational environments. It’s
imperative for business communities to support our universities and
vice versa. That effort is a continuing process that has to be pursued
by the governor and leaders of communities and universities. Kentucky
will not be a great place to live unless it offers exceptional opportunities
for all people. It is going to be incumbent upon business to lead
the way in creating this environment.
Ed
G. Lane (edlane@lanereport.com)
is chief executive of Lane Consultants, Inc. and publisher of The
Lane Report.
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