Thursday, June 28, 2007 | 2:48 a.m.
For nearly 30 years, Richard Rizzo has seen much of the development in Las Vegas from the ground up.
The 63-year-old vice chairman of Perini Building Co. is today overseeing the development of Project CityCenter. He recently shared the stage with real estate mogul Donald Trump when the New York developer celebrated the topping off of the tower of his condo hotel.
When the company opened an office in Las Vegas in the late 1970s, it had never built in the city before.
Now the list of projects it has built in town is a Who's Who.
It started with the Tropicana and includes work at such resorts as Caesars Palace, Flamingo, Bally's, Paris, Harrah's, Luxor, Red Rock, Green Valley Ranch, the Ritz-Carlton Lake Las Vegas, Palms, MGM Grand, Cashman Center, Hughes Center. Hyatt Regency Lake Las Vegas (now Loews), Sands Expo and Convention Center, the Forum Shops and Colosseum at Caesars Palace, Clark County Government Center, Fremont Street Experience, Thomas & Mack Center and McCarran International Airport.
Perini is wrapping up One Queensridge Place and will finish the Trump International Hotel & Tower in early 2008 and CityCenter and Cosmopolitan Resort after that.
How long has your firm been in the market?
We entered this market in 1978. I came with the company. We did work up in Reno first and then ended up coming here with a client - American Airlines - and did what is now the international terminal, which originally was a cargo terminal for American Airlines. We ended up building the first job, Thomas & Mack Center, for UNLV. We went from that to Cashman Field to McCarran International Airport - the major extension there in the mid-1980s. From there, our first casino job in town was the Tropicana. It wasn't until the first casino job that it was actually negotiated. All casino work is not normally bid.
Are you here full time?
I worked the market from Phoenix until it got so busy here that I spend all of my time here. I live here now. We just purchased some land about a year ago at Green Valley Parkway and Patrick (Lane). We will be putting our new corporate office there, which is the new headquarters for the Perini Building Co. We will be Nevada-based in about a year. We will still keep some staff in Phoenix, but we will be incorporated in the state of Nevada. We are a wholly owned subsidiary of Perini Corp. (in Massachusetts). There is even talk that maybe, maybe sometime in the future we could even bring the corporate headquarters out here, too.
How many employees is that?
For the last year, we knew we were going to do this, so all of the new hires that we have brought on board are hired as Nevada-based employees. The Phoenix-based employees will stay as Phoenix-based employees. We won't lay anybody off. We just aren't hiring anybody new in Phoenix.
How many employees will be working at the headquarters?
At any one time, we could have as many as a couple of hundred there, but on average I would say 40 to 60. The rest of our staff, which is the bulk of it, is out on the job sites. Right now, for instance, at CityCenter, we have 250 people. That is normally the way we staff work. Cosmopolitan is the same way. It has 40 to 50 people, and Trump has about 30. They are based on the site. They never see the office really except when they are in between jobs. Sometimes they will get transferred in to close out a job and sent back out again. I would say 60 to 100 would be in and out all the time. In Phoenix, we had about 60 positions. Most of those positions will now be here.
How many employees do you have in Las Vegas today?
It is close to 500 right now and soon to be 600. That is our goal to be 600 and where we think we will peak with demand. Hopefully, we will maintain ourselves at 600. That is salaried professional and administrative people. In addition to that, we do our own concrete work, and we are union so we can have as many as 1,000 or 2,000 carpenters and laborers and operating engineers at any one time, depending on what we are doing. That is not counting subcontractors.
What are your duties?
It depends on what day of the week it is. I grew from a project-engineer type to project manager, to vice president of operations to president, to chairman, now vice chairman. I have a corporate position as well, where I represent Perini Building Co. on the board. As I move up, I move away from the day-to-day. Last week I spent a whole week doing a roadshow, where we go and promote our stock to analysts. My normal week is here. Fifty percent of my time is CityCenter and Trump related. What we did at CityCenter, because it was so large, is our senior management got together and said we are going to take pieces. Our president is on site full time almost. Our vice president of operations is on the site full time. I am taking care of diversity and the (green efforts) as an oversight.
What about diversity?
The diversity is taking a huge amount of my time. It is a huge commitment on our part. We are financially penalized if we don't achieve certain minimum goals. We have got a lot at stake there. I probably speak on diversity and outreach programs three times a week, locally, regionally and nationally. I have gone all over the countryside encouraging subcontractors to come to the area.
MGM Mirage has requirements for diversity?
Yes. They are informal and unpublished. It is all voluntary because it is not a government agency. When this big one came along they said, "We know you know how to do it, but we want to do it bigger and better than anyone has done before." The project deserves that. On that basis, there is a financial penalty if we don't achieve a certain goal, which is unpublished so I can't share that with you. I think it is the first time anybody has done that where they are committed financially to some penalty if they don't achieve it.
There is a very small percentage of local firms that are certified minorities. We were taking on a huge risk by taking on that bigger commitment. We had to go out and find them. First off, figure out who was here and what their capacity was and then look regionally and nationally for firms that had an interest and get them here as quickly as possible, get established here, get their license straightened out, get their certification resolved and get them signed up with the unions if they are not. We started with a list a year and a half ago of 60 firms that we knew were here and were certified.
We are now up to 600, of which 300 are ready to do business. The rest of them are in some form of getting there. It has been a huge effort to get to that point. We are searching everywhere. We have been to Atlanta, Detroit, Minneapolis, Texas, all parts of California and even Phoenix to spread the word.
Why are they so committed to that?
It is a business strategy. They made a commitment years ago - if they look at their client base and who works for them, it is more than 50 percent minority. It is a business plan, a marketing plan to be encouraging employment and services they provide to hire as many certified minority- and women-owned firms as they could. They have been on that kick since. Curiously enough, we have done work for all the public companies except for Steve Wynn. Almost to a number within the last year, they have jumped on the bandwagon as a result of MGM's effort. I think the Gaming Commission has had a great influence on that. They have gone to each of the gaming companies and said, "Do you see what MGM is doing, what about you guys now?"
Is this at the exclusion of locals?
No one is hurt by that. There is so much opportunity. Nobody is taking food off of anyone else's table. It's not a question of "you're cheaper so you are going to get the work or you're not." It is a matter of capacity. Our initiative is selflessly motivated when you look at it. It really is to try and increase the capacity of the community for that which we have to do in the next two to three years. If we didn't bring these folks in we would be in a much more difficult situation of trying to get this work completed. There is a lack of capacity in the marketplace right now to do what needs to be done.
Who does the program cover?
Women, minorities, veterans and disadvantaged. All the classifications the federal government has come up with. Women and minorities are the two biggest.
Are there any internal staffing problems?
Most of our graduates come out of the school of engineering, or construction management school or architectural school or electrical or mechanical. That is one of our biggest challenges right now. There is such a demand for the kids, and enrollment in those programs is declining. A lot of the kids, I guess, are more enamored with the computer tech part of the business and engineering is tough with math and physics and all that stuff a lot of people don't like. As a result of that, the folks coming out of these programs are getting huge signing bonuses. Right now out of four-year college, you can get anywhere from $55,000 to $65,000 plus a signing bonus, plus a review every three to six months for the first three years. Within three years, you can be in the eighties. About a third of our graduates are women.
What are you doing in town?
The condos at Queensridge we are just finishing up. Trump, Cosmo and CityCenter. That's about to close $5 billion worth of construction value.
How did you become the construction leader in town?
A lot of it is timing and a lot of it is who we are. What makes us so different? Our goal was to be totally dependent on our clients for work. Right now, 100 percent of work is negotiated and 80 percent is repeat business from existing clients. The answer I usually give people is we are people of word. We have such a good reputation for being on time or ahead of schedule or being within budget. That is what we are supposed to be doing. We have never failed, and so our clients come back to us because they know they can depend upon us to do sometimes very unreasonable and very aggressive schedules that most other contractors would say you are crazy, that you can't do that. We have found a way to be creative trying to do that, and we have been very successful.
What about going after projects put out to bid?
I would rather stay out of the bid market. We can generate enough business out of the negotiated market. It's what we do best. Bid work is more challenging in a different way. The way we do it on the negotiated side is that we are part of a team. In a bid environment, it tends to be more adversarial; you are bidding a hard number. This is how much it will cost, not one nickel more. Our people are not good at being adversarial. We are better at what we do.
How do you keep the prices you do when the cost of lumber and other commodities increases?
We pass that on and how we do that is all these contracts are guaranteed maximum price contracts. What we do is we get invited in. We will sign a contract with the intention of establishing a guaranteed-maximum price at some future date. We will then establish a base budget and work with the team through the development of the drawings, keep updating them on pricing. We never commit to a number until we put that particular piece of work out to work or close to 70 percent of the drawings are done.
Once in a while when we feel, for instance, that maybe steel is going to go up 30 percent, we will go to the client and say we think the market is going to fall apart here. We suggest that you pre-purchase some of this material to protect yourself against some upward swing in pricing. That has been fairly successful for us.
As far as taking the risk ourselves, we really don't do that. We avoid doing that until we are in a position to pass that cost on. Hopefully, we have anticipated that in our budget and that's what the talent is in doing that - try to guess what the future is going to bring in terms of prices.
What about labor costs?
Contracts are locked in for three years. Some of the projects will fall within the renegotiation period and so you have make certain assumptions. That is fairly predictable. Sometimes they get a little greedy and you don't anticipate as much as they want. That is not the harder part of it. The harder part of it is the uncertainty of particular commodities. Copper went crazy. Structural steel went crazy and even concrete, drywall and metal studs. You name it. At one point they had a major impact and the client has to absorb it.
When we put it out to bid to the community, the subcontractors take that responsibility at that point to give us the cost of the material they are going to be using. It is their burden. They are taking the risk. But they also know they have a guarantee from a supplier that if they get the contract and purchase within a certain period of that contract, they are going to be guaranteed a price. It is unpredictable in terms of where it is going to end up, but the risk really does not end up being on anyone's shoulders but the owner's ultimately.
How many subcontractors and employees do you have working for you in town?
It is close to 300 subcontracting firms, and our goal is to have 600 to 800 as we grow into the new work. I can tell you what the count at CityCenter is: 2,700. A third of them are our employees, and the rest of them are subcontractors. We will peak in mid-2008 at 7,000. If you take a look at the union roster right now, it is about 35,000. A majority of those are working. If you take 7,000 at CityCenter and another 2,000 at Cosmopolitan, you are talking about one-third of the total labor being employed by us at one point on our projects, which is significant in this market.
What are the challenges for you right now?
Attracting the very best talent in the country to come here and work for us because we are challenged with one of the most complex buildings to be built right now in the country. Our ability to attract the very best is a No. 1 challenge. We are a people business. Our ability to get the right people with the right qualifications to come here and live here and work here was and still continues to be our biggest restraint against further growth.
When we took on CityCenter, between that and Cosmopolitan and Trump - we knew we would have to increase our staff at least by 200 to 250. At the time it seems an awesome task. We never had to grow that quickly and find that much talent.
We are 200 into it. We have 50 to go and we are right on schedule. We are very pleased where we have come to, but we wouldn't want to do it again. The talent pool is continuing to deplete itself. We are hoping we can maintain ourselves at this level and try to replace the volume - the next biggest challenge - as we move out the backlog in the years 2009 and 2010. Most of our work will finish in 2008 and 2009 and our job is to get enough in the hopper to be able to fill that void as we move forward.
Do you have work lined up after CityCenter?
Publicly announced, the only thing we have is the second tower of Trump, but I can tell you we are working on others. It is not official. We have not been signed up. We are just in preliminary pre-construction.
What about challenges of laborers?
People have criticized me for saying there is a limitation for how much this community can absorb construction work, that those who have good intentions need to sit and wait in line. I never said that before of any market, but this is such a unique market. I don't see how all that's being planned can get built in a reasonable period of time without some kind of order as to how it goes forth. People can make commitments, but I don't know how people can fill those commitments with qualified subcontractors and crafts folks to get the work done based on what I know.
We are challenged with the work that is still under way in addition to what we are doing. I don't know where you find the qualified people. What that does for me is give me great concern that there may be others making commitments out there that can't be supported and that's only a passageway to failure. Hopefully, the market will drive them to a point where they say, "I can't afford it, it's too expensive right now and I don't have confidence you can get it done. I will just have to wait." That seems to have happened with some degree to the condo market, which has been so successful as an investment product. It is not a condo market as we traditionally know it. The ones that were designed for the locals to live and reside in were too expensive. They didn't fit. Those who had already taken reservations had to back off and the other ones just went away.
I don't think it will come back. I think they'll be replaced unit-wise with the condo-hotel market. They put them up for sale and within weeks they sell these things. People from all over the world come here. Las Vegas has such a magic about it right now. If you have Las Vegas attached to it, it must be a good investment. They have no trouble selling these things. Look at Trump. Look at MGM, they put up the sales office in January and virtually 80 percent of their product was sold out by April or May. That is incredible.
How are they successful when others aren't?
It's because of the product and the location. The majority of those units are not true condo units. People like you and I are not going to move into those units. They are buying them as an investment. As I understand, certain people are buying blocks of them, five and six of them. You can only use them from what I understand six weeks out of the year. The rest of the time you have to put them back in the pool or leave them empty.
So with the occupancy rate over 90 percent, the chances are you are going to able to rent the damn thing. It is a good gamble. Even if you are paying premium prices for it, they are getting premium rents. The night rates on the weekend are outrageous. You can justify the numbers as an investment but not to live there. The salary structure of this community doesn't support somebody paying $800 to $1,000 a square foot for a place to live. They can't afford it.
What about the condo market?
The ones that came first got overcommitted. They ended up starting them and not really knowing what their market was. Panorama is a good example of that. Look at the prices on those things. They are probably triple what they were originally selling for right now because they couldn't make any money at the lower price. The ones that I am aware of that are doing OK seem to be off-Strip. They didn't pay a huge premium for the land. They didn't go high rise. They went mid-rise. They tried to keep the price down. They are in the $400 to $500 a square foot (range). Even that's kind of pricey, but at least it's in reach of a lot of people.
We can't build a high-rise condominium for anything less than $400 a foot. That is the way the market is right now. The rule of thumb is you double that and that's what you should be selling those units for. That means you should be selling them for a minimum of $800 a foot. How many can afford to buy them and live in them? Investors like it because they are used to paying New York prices, Chicago prices or international prices.
What about the residential market?
The residential market in Las Vegas has suffered from overbuilding. The prices on single-family units are reducing themselves 15 to 20 percent. Meanwhile, the condo prices have to be up here. I think they are less attractive than they were even a year ago until you absorb some of this single-family residential stuff that is underpriced right now.
What do you say when people blame the CityCenter project for raising construction costs and taking away laborers?
That is legitimate. It is first-come, first-serve. We are in the marketplace to get the work done. The client is willing to pay the price. The client wants the very best. So you have to get the best, and you have to pay for that. There are so many of them. It is a true statement. In certain cases we drive the market because of our demand for talent. If we have to pay a little more to get the right talent, we will. If there is not enough left over for other people to take advantage of, that is the way the world works. That is a good thing for the people who work here. We have elevated their income and hopefully they will maintain themselves at that level.
What about the challenges of CityCenter?
It is the largest privately funded project ever attempted in the United States. It is not just the size that makes it complex. They said we are going to do this with the best signature architects throughout the world. They wanted to create signature buildings. They said that will be our hook for anyone that comes to Las Vegas: "I have to go to CityCenter and look at those structures - they're fabulous." We built the pyramid at the Luxor years ago and that was their hook. You had to go in and see it and touch it. That was the same rationale for this.
Now our challenge is to price them properly. They have never been built before so you can't go back in historical cost. Our ability to translate design into what does it really take to build one of these things, both from structural point of view and a cost view, is a huge challenge. Getting that kind of volume online in a timeframe of 39 or so months was the second biggest challenge. You take any other large city with this size work, 60-story building or 50-story building - Chicago, New York or San Francisco - the gestation period on these projects is a good year beyond what we have been asked to build them in.
What about the high-rise construction?
I think that has happened because of the value of land; everyone is trying to maximize the usage of that land and going in the ground and as high as they possibly can to compensate for that. That is inner-city type of construction that really hasn't been a big thing here. That is what the trend is going to be.
What do you see for your company in Las Vegas for the next 10 to 20 years?
We have a very good window into the future. The reason we do is the nature of the work we do. Because it is negotiated, we get clients to invite us to the dance two to three years before the project breaks ground. I do a report for the board every quarter on that. The numbers are astounding. These are not fly-by-night, maybe it will go; maybe it won't go. These are serious make-sense kind of programs.
Take what you know is public regarding the future. MGM CityCenter II. Huge. Huge. There are no guarantees we are going to do that, but hopefully we will have a good shot at that. They are talking another investment of similar size if not bigger right down the block. You have the Palazzo that will be a huge program. They are talking $2 to $3 billion worth of construction there. The Tropicana. We built that place. The new owners are talking a whole new something.
Of what we know now being scheduled is for the Riveria and the old Sahara. Eventually, all of those properties will be imploded and rebuilt or substantially changed because competition will force them to do that. You can look up and down the Strip. Every second property has some plan for expansion. All the Harrah's properties, once they know what they're doing, they will all have the potential to be a conglomerate of hotels that will be tied together by some kind of CityCenter concept. That was originally on the boards when Harrah's was talking about it six to eight months ago until the acquisition came on.
Who knows, it is limitless. There doesn't seem to be an absorption that scares anybody. We are running 92 percent occupancy and continue to do that. Adding 4,000 to 5,000 rooms doesn't seem to be bothering anybody. Everybody is nervous about it, but once they open they find a way to fill them. The market continues to be most encouraging in the country in terms of new investment.