Energy: Going Up

Friday, August 29, 2014

Prairie Business Magazine

When you’re a real estate developer considering a potential project, the first factor you consider is location. When you’re a real estate developer in the Bakken, the second factor you consider is electricity. Demand continues to outpace availability for nearly everything in the rapidly growing oil and gas region of North Dakota, including electricity for developments that could otherwise be built outside any number of city limits.

“You can only build if you’ve got utilities,” says Robert Gavin, CEO of North Dakota Developments. He points out that while developers can, and do, build roads and install infrastructure including sewer and water lines, access to power is only possible through utilities. And while utility companies are doing what they can to power up sites, the backlog of projects sometimes results in delays that ultimately kill the project. “We can’t force the power companies to bring us power any faster than what’s in their timeline and if they get delayed there’s nothing we can really do to speed them up,” he says.

Gavin knows the implications of lagging electrical access from experience. Two North Dakota development projects in New Town and Williston were delayed because of it and ultimately relocated to properties that already had access to utilities.

Jay Moore, project developer at Minneapolis-based Oppidan Investment Co., says his company worked with utilities to bring electricity, gas and other essential services to its initial developments in Stanley and Watford City and had a great experience working with the city and power cooperatives, but he agrees that access to utilities is a serious consideration for Bakken developers.

“Everyone is swamped out there,” he says. “One thing we do is work closely with those utility companies and make sure we can get services there, otherwise it is an issue. … Sometimes you have to walk away because you can’t get what you need.”

But despite lagging infrastructure in rural areas, developers continue to go vertical on projects throughout the region and are finding a growing number of outside investors eager to participate in the local real estate market.

North Dakota Developments is currently constructing a 408-suite workforce housing unit in Parshall, N.D. The Transhudson Hotel Parshall is set on 33 acres of prime real estate which will eventually also include an RV park, retail and travel plaza, according to Gavin. He estimates the entire project could cost up to $100 million and says it will be funded entirely by international investors, as was the firm’s initial Bakken project — an approximately $70 million workforce housing project near Watford City known as the Great American Lodge. In early August, he said his company was also nearing closure on a very large residential project in Williston and was continuing to explore additional options in the area.

According to Gavin, international investors are becoming more aware of the Bakken play’s longevity and, therefore, interest in investing in those properties has increased noticeably in the last two years. In addition to security, the potential lucrative return on investment is most certainly a draw for investors. Property Horizons is assuring its Parshall project investors net yields of 17.5 percent per year. Gavin says typical real estate investments outside the U.S. experience 5 to 10 percent net yields. Investments in areas outside of the Bakken in the U.S. typically see net yields up to 14 percent.

Oppidan announced recently the sale of the last two properties developed as part of its initial Bakken development plan. Construction of the Pheasant Ridge II apartment building in Watford City and the Cash Wise grocery store were completed in May. The 42-unit apartment building was fully occupied upon its sale.

“Oppidan has now successfully sold four apartment buildings and four retail centers throughout the Bakken region, which, I believe, demonstrates the economic stability and financial viability of the region,” Oppidan President Joe Ryan said in a statement. “Investors are realizing the potential for growth in the region.”

All eight of Oppidan’s apartment and retail properties were sold to investment firms located in New York, Arizona, Canada and Singapore. Moore says the Bakken real estate market continues to attract growing interest from around the world. A 77-unit apartment building in New Town being developed by Oppidan isn’t expected to be complete by Jan. 1, but the company has already received inquiries from potential buyers and Moore anticipates another quick sale. The company is also in the process of developing a number of other projects, including a 120-acre industrial park in Stanley, industrial facilities for clients including General Electric, retail in Watford City, Tioga and Stanley and residential in Williston.

Increased investor interest has brought with it a number of additional developers to the region, but Moore doesn’t see it as a negative. Instead, he insists that the competition will only help promote development in an area of the country that desperately needs it, and Oppidan is determined to continue playing a role.

“Global investment in that community is only going to help with the progress of real estate,” he says. “We’re not going anywhere.” PB

Kris Bevill

Editor, Prairie Business

701-306-8561, kbevill@prairiebizmag.com

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