Q&A: Richard Plaster, owner of Plaster Development

By Buck Wargo

Friday, July 30, 2010 | 3 a.m.

If Richard Plaster would have taken a job offered by homebuilder Ralph Lewis in 1973, his future might have turned out different.

The native of England, whose family emigrated to Canada in 1952 and the United States in 1958, got an offer from Lewis Homes to work in Northern California.

Plaster turned it down, thinking he was worth more money than offered even though he was just out of college. But he didn’t find anything suitable. Plaster said the job was gone by then, but Lewis offered him a second job in Las Vegas that he accepted.

Five years later, he formed Plaster Development, which does business as Signature Homes in Las Vegas, building everything from condos and apartments to custom homes.

“It was very fortunate for us,” said Plaster, 63, who is known for his outspokenness. “There were opportunities for us that if I had stayed in California, it would have been very difficult for us. The homebuilding business is a difficult one to get started in because it is very capital intensive. You need to be able to borrow money, and (financial institutions) tend not to want to lend it to you if they have someone who is more creditworthy to lend it to. This time there weren’t too many who were more creditworthy. I was able to get loans and get started.

It is definitely a family affair with his wife, Wendy, and son Brian playing key roles in the company over the years.

IBLV: What was it like to start a homebuilding business then, and how does that compare with today?

Plaster: I saved a bit of money. I invested in some houses here. One of my jobs with Lewis was I was its land-acquisition guy in town. I saw a lot of deals go through my hands. There was one that didn’t meet Lewis’ criteria — it was too small — and I asked if I could buy it. They said OK. I was able to cut a deal that permitted me to use the land as equity. I submitted an application to somebody, and it is the only time I found my Stanford (master’s) degree to be of any value. Apparently one of the guys on the board of the lender that gave me money went to Stanford. It is kind of sad to say that’s how things work, but people know that’s how things work. That was the first loan I got.

What does it take to be successful?

It is a business of assessing risk. I almost think I can teach a 10-year-old what I learned in business school, but it is the ability to look at the value of a dollar today versus a dollar in the future. That is what you are doing all the time. Some people have some real skills. Larry Canarelli (American West Homes owner) is incredibly skilled in land buying. He did a phenomenal job with that.

What was your skill?

I don’t really know. This requires different strengths at different times, and I think probably I was pretty sensitive to marketing. I had a decent sense of what the market was looking for.

What was your goal when you started?

I don’t know if I had any great ambition. I had some ambition to make money. I grew up in the lower-middle class. Basically all my schooling at Stanford and Berkeley (undergraduate degree) was paid for by California. I was a scholarship boy all the way through. I very much appreciate that and for that reason, I am to the left of most entrepreneurs who think they have done it on their own, which I don’t know where they get that idea. I can’t say they all have that. I am just surprised so many of them who I look at just having been lucky think that. You end up at the right place at the right time, and some of them understand that. Others think their superior ability made them. You had a better shot at success here because you were riding a wave.

What has your company done over the years?

We migrated into a number of areas. We are involved in management of apartments, and we were in the mortgage business. We are no longer doing that. We built apartments. I have one project I am working on, but this is a difficult time to make things happen. We have built almost everything residential from low-end condos to high-end custom houses. There is not a lot of activity in the building industry right now. It is hard to justify a lot of it.

What are some of the things you are doing?

We are active in (foreclosures). We represent banks if they want to list the property being foreclosed upon. We are direct investors in houses on the courthouse steps and we rent and manage for other people. We have a lot of exposure to different parts of the business.

Any regrets about staying in the business?

People say this bubble wasn’t predictable. I don’t agree with that. The mistake I made was I did have a cash offer to sell out pretty close to the top and unlike two of my friends, I didn’t and I can’t justify that. I was aware of the fact that the market was going in an unsustainable way, and we didn’t acquire any land after 2003. We were just working through it. Our volume was going down. Even now, we have had the opportunity to acquire other properties. I am ambivalent about where the market is. One of the issues I am wondering about here — I think there are opportunities, but what’s amazing is the banks have been effectively subsidized by the government to keep properties off the market. I get the sense that there are a very large number of houses that are out there that the banks are holding that aren’t just coming on the market.

Why?

It is extend and pretend. It is in the bank’s best interest not to report the losses. We have run into it where someone stops making payments, and they don’t even get a notice of default. We are seeing twice as many notices of default coming into the system as houses coming out of the system from foreclosure sales, short sales or courthouse-step sales. You are seeing 1,500 a week coming into the system, but only half that coming out. In some cases, they are foreclosing and sitting on them, and in some cases they are not even foreclosing.

What do you think about that?

One of the things that is irritating to me about this is that this is a game played as all games are played: Those with the power against those without. It is being put on the back of the little people to bear the brunt of this thing. If you want to leave your house, you have no confidence when your house will be foreclosed upon. You may say I am buried under this thing, and I know I can’t get out and I want to start my life over again. You can stop paying, and that is the wise thing to do and let someone wait until they foreclose, but you can’t be assured of that. When can you start over again? You can’t force them to foreclose.

What effect does this have?

A lot of lenders are not managing their real estate assets well. They are watching their values erode. But not getting the houses to the market as quickly as they could, it is not benefiting them. It is going to keep prices down longer than it otherwise would have.

What is happening with homeowners?

You hear people using retirement savings to make their payments. People who are using credit cards to make payments. That should not happen. People are not educated in financial areas. They are hoping things are going to get better. They will come back, but only at a small piece of what has been lost. People won’t accept that.

What should they do?

General Motors hasn’t repaid its loans back. Harrah’s renegotiated. Station (Casinos) is renegotiating its loans. Homeowners feel there is some requirement that they have to pay their loan back, and they will do everything they can.

So you are continuing to say they shouldn’t?

I wouldn’t say that is a uniform statement. But I say anyone who bought his house in the last five or six years who’s buried under and who doesn’t have adequate retirement planning and who is otherwise having difficulties certainly shouldn’t be. If someone has a nice job and they bought the house 10 to 15 years ago or if you are less than 25 percent underwater and you have good credit and you want to keep it, keep making the payments. What you are talking about with many of these people, they are so far upside down. They are looking at debt at twice the value of the house. That is very hard to justify, staying in the house.

You are talking about strategic defaults?

I have written the Wikipedia entry for strategic default. You know how Wikipedia is. If there is nothing there, you can do it. People have modified it a little bit. It is a bigger deal in Vegas.

Will people walk away from their homes in larger numbers?

Absolutely. We are looking at a double dip or another recession or the very least this recovery will be so stagnant that people won’t have more jobs. I think more people will be faced with the uncomfortable realization. Some people are still out there and think their house price will come back.

And for people who can afford their payment?

I think people are doing that and more people will do that because if you are not thinking in those terms, you will be buried at some point.

Is all this difficult to watch in Vegas?

One of the things that has been difficult for me is seeing Las Vegas go from the great boom to the great bust. In retrospect, that’s what a boomtown is. We were caught up like the rest of the country in real estate finance, but we had another thing going here — we had a boom in our basic industry because gaming was going so strong and there was so much invested, so that when that investment stopped, that was another thing.

What about housing?

One of the things I look when it comes to the housing levels here, we have gone from over 940,000 jobs to under 800,000. The thing that drives housing demand is jobs; not population. If you move 100,000 people in here who are unemployed, that’s not going to do anything for the housing market. Losing that, we lost demand for about 100,000 units. Those 100,000 units are out there somewhere. I know it is not in rental apartments because we have seen the occupancy rates drop. All of the other ones must be in houses somewhere, and a lot of them are not in the foreclosure system yet. It will take awhile to work our way out of this. I have become more pessimistic in the last three to four months.

What is the future of private builders in Las Vegas?

Competing with the public builders is very difficult. I don’t know if we will be doing much in the way of homebuilding. I would still like to do some apartment building. We are providing advice to lenders in a fee type of business.

Are there not many private builders left?

Since World War II, homebuilding was an entrepreneurial business. But I am seeing in this valley the companies that are building houses now with a couple of exceptions — Jim Rhodes (Harmony Homes) and Larry Canarelli (American West Homes) — are the public companies because their capitalization is so strong.

How are the public builders doing here?

We have heard from the public builders who are doing projects that they were instructed from on high to make it break even. If that is their aspiration going in, it means you can absorb a loss going out.

Why are they building then?

They feel there is a future in Las Vegas, and they want to keep the machines going. Going from a standing start to even creating a division of a homebuilding company is very difficult. It is just hold the fort and keep things going, and let’s keep the flag out there.

Do those privates have a chance to compete?

Jim Rhodes has gone bankrupt a couple of times, and he is willing to live on the edge. Larry Canarelli is more solid and committed to the long term

Do private builders have a chance to come back soon?

No. It is: “When will the market come back?” Although there seems to be some market today, when you are competing with companies that have a billion dollars in the bank, which is true of a number of the public companies, and they are spread across the country. It is very difficult for somebody to make the numbers work if you are only in Las Vegas.

Jim Rhodes is the only one who started a company in the last couple of years. How did he do that? He walked away from several hundred million dollars of debt to Deutsche Bank. He bought 1,200 lots last year. I guess you can do it. He’s doing it. But from the outside, it looks like he is running real fast, and I am not sure he is making money.

How many homes has your company built in your history?

About 12,000. That would include apartment units, condominium units and custom homes and production housing.

Aren’t you one of the first ones to build homes for rentals?

I would love to do that now. Land costs are reasonable, and construction costs are quite modest. I would love to build a subdivision of houses, but you can’t finance them.

What are your plans?

Going forward, we are going to be a very different company. Fortunately, we have a good asset base. Getting into production homebuilding again, I don’t think I have the energy to do it. We are looking at energy audits and general contracting opportunities that are green-oriented for commercial and residential. Our primary business now is managing assets. We have about 1,000 apartment units. I don’t think you can make money building houses now. At some time in the future, perhaps, but the gully is so long and wide. How do you keep busy for the next five, six, seven years before there is any real market? We built an inventory of houses that hasn’t been absorbed yet. We can absorb 140,000 jobs, and we would still have enough housing for those people. How long is it going to take for 140,000 jobs to come back? I don’t see the casinos doing a whole heck of a lot.

Did the federal tax credit help your industry?

It provided a short-term boost, and we are seeing the bust from that. It probably accelerated a certain number of sales that came forward.

What did the builders do wrong in Las Vegas?

We thought this boom would go on. We were all drinking the Kool-Aid. I knew this was happening, but why the hell didn’t I get out when I could? I don’t know. I thought I was smarter than other people, and it wouldn’t be quite so painful for me. We haven’t gone (bankrupt) yet, and hopefully we can squeeze down to the point that we don’t. I think we built a great city, but the question is: “What do we do next?”

So how long will it take for the industry to bounce back?

I am agnostic on that. I have no idea. I see a deep trench. We really don’t know how many excess units are out there. They are not in the hands of homebuilders. They can’t sit on them. I was here when 3,000 was a good number of houses to sell in this valley, but that’s when there were a quarter million people here. Now that we have almost 2 million, maybe that noise level is 5,000 units a year, which is what we are producing. That could keep going on. As to when will it come above that level, I don’t know. It is when the casinos come back. When will we have alternative forms of employment here — a diversified base of employment? This was always a place where real estate prices were relatively low, and a working guy could buy a house. That is true again. That is a real plus.

What about diversification?

It would be highly desirable if that should happen. I think we have to work on the infrastructure we have in place. We have the largest concentration of high-quality hotel rooms, and from that we have got some of the most dense shopping areas. We do rank in the top half dozen cities in the country in terms of quality restaurants. We have recreation, and we are easy to get in and out of. That is what we have to play on. It is diversifying within that. If we can keep our taxes under control, we could well see a number of small businesses come here.

You attended President Barack Obama’s inauguration and are a big supporter. What do you think of his administration, and what it has done to deal with the recession?

I don’t think it pushed hard enough early enough (to get a bigger stimulus than the one enacted). We should have major public works programs putting people to work. I think the banks are the bad guys. I wonder if we hadn’t had a bailout at that time, there would have been a huge crash, but by now we would be coming out of it. I think things are a lot better than they would have been if we had done nothing.

What should the government have done to better help housing?

To my mind, the only thing that is really going to help is principal reductions on these mortgages, which are way underwater. But they cut their deal with the banks. It is extend and pretend.

Haven’t you have talked about the government using eminent domain to take over mortgages?

I would have loved for that to be done. That would have purged the system. That would have been a viable solution. If they marked them to market, people wouldn’t be buried under the loan.

Has the construction defect litigation issue gotten under control?

I think to some extent the litigation may have (lessened) because the construction quality has improved quite a bit. There is lot of frivolous defect litigation that has no effect on the value of the property. This an advantage a public company has because it can spread its risk among a large number of areas. But my sense is Nevada is one of the worst places in the country for construction defect vulnerability for builders.