VIDLER WATER RESOURCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
03/22/2022 | 05:06am EDT
Northern Nevada
The majority of our water resource assets are located in northern Nevada at FSR and our Carson / Lyon project. FSR's water credits are able to provide a sustainable water supply in the North Valleys region of Reno, Washoe County, Nevada, and the Carson / Lyon water rights are able to provide a sustainable water supply in Lyon County, Nevada. As a result, we are dependent on new residential or commercial development occurring in these regions in order for us to monetize our water resources in northern Nevada. In turn, new development in these regions is highly dependent on the continued robust economic and job growth that is occurring in northern Nevada.
The economic development in the greater Reno region has been concentrated in the Tahoe Reno Industrial Center business park ("TRIC") which is a 107,000 acre industrial park proximate to Interstate 80 and 15 miles east of Reno, Nevada. Tesla Motors, Inc. ("Tesla") built its Gigafactory facility in this business park. Many other technology companies have also moved to the area including Apple, Google, Jet.com, Battery Systems Inc., Tire Rack, U.S. Ordinance, Zulily, Switch and Blockchains LLC.
According to a report by the Economic Development Agency of Western Nevada ("EDAWN") during 2021 the Northern Nevada economy was fueled by growth including the relocation to Northern Nevada of 59 technology and manufacturing companies, two of the fastest growing industry sectors in Northern Nevada. These two industry sectors comprised over 60% of all companies that relocated and expanded in the Reno area over the past two years during 2020 and 2021. The relocation of these companies along with the influx of 29 Corporate Headquarters into Northern Nevada is expected to result in 5600 new jobs over the next five years. Job diversification in the Reno region has led to less volatility in the employment base: at the end of 2021, the unemployment rate in the US was 4.8%, in Southern Nevada was 7.4%, but only 3.5% in Northern Nevada.
The economic growth in the region has led to strong demand for housing. According to University of Nevada (UNR), Reno Center for Regional Studies, year over year values of new single family home values across the greater Reno-Sparks area increased 15% in the fourth quarter of 2021 ($576,042). In the North Valleys region, where our FSR water rights are utilized, the median sales price of new single-family homes increased 28% year over year during the fourth quarter of 2021 ($453,575). As of the end of the fourth quarter 2021 a total of 6,447 approved housing units across 45 developments of all types of housing product remain to be constructed in the North Valleys. According to the same UNR study the total households are projected to increase by 7.6% and housing is unlikely to keep up with the same projected employment demand of over 5,600 new jobs as noted in the EDAWN report.
The Economic Development Authority of Western Nevada ("EDAWN"), comprised of Reno, Sparks, and Tahoe areas, released an updated forecast (RCG Economics, Technical Memorandum dated January 29, 2019) to its previous forecasts that includes the latest historical data and a new five-year forecast from 2019 through 2023.
This five-year forecast project a cumulative addition of 51,585 new jobs in the region which represents a 12.7% increase in employment. This job growth leads to population growth. The report also projects the region's population to grow to 686,737 residents by the end of 2023, an increase of 54,470 residents (8.6%) in that five-year period. We believe that this increased employment and population growth will create demand for new residential, commercial and industrial development in the greater Reno area and in Lyon County.
Current economic conditions have fostered new business openings, lower apartment vacancies, and greater absorption of existing housing inventory. This activity has resulted in multiple new housing projects entering the approval process with local governments in Reno, Sparks, Carson City, Lyon County and Fernley. Residential housing projects must demonstrate sustainable water supply to obtain final map approval, and many projects in the North Valleys of Nevada are currently in the process of seeking or have obtained master plan amendment/zone change approvals. The next step for these developers is to obtain tentative map and then final map approvals. Within the Reno-Sparks and Washoe County area of Nevada, according to EDAWN, in 2021 there were over 4,800 new housing permits issued. EDAWN's goal is for at least 6,000 new housing permits to meet the projected demand for housing. We believe the disparity in the issuance of building permits is due to an interruption of the permitting process due to the effects of the COVID-19 pandemic and the administrative process involved in approving new developments. We expect the building permit activity to increase in 2021, once the permit process is initiated on newly approved subdivisions. We believe this increase in activity will lead to demand for our water resources, as developers pursue their projects to provide housing for the population growth in the region. However, the increased activity has strained governmental agencies and has caused delays in processing permits as well as new projects' planning approval process.
The timing of future monetization of our water resources in northern Nevada is directly correlated to the time it takes residential developers to pursue their projects in the areas where our FSR and Carson/Lyon assets are located, and the time it takes for those developers to get the requisite planning approvals prior to obtaining final map approval or, in the case of commercial development projects, final regulatory approvals.
