Commercial real estate broker Michael Houge is feeling the shift in the modern day California Gold Rush and is using the word “recalibration” a lot these days. Houge, who lives and works in Minneapolis and the Bakken has seen the shale revolution impact his day to day life for nearly five years now.
“I often say the Bakken is our modern California Gold Rush. For me the Bakken became exciting, interesting and consuming,” Houge said. “So my work back in Minneapolis shrunk down to about 30% of my portfolio and the Bakken about 70%. It was hot and heavy, then it froze up pretty fast. So it is taking people some time to get their act together and figure out what it is they want to do.”
Houge recalls the tone, mood and barriers to enter the market when the Bakken was garnering words like frenzy, boom and economic utopia.
“What used to be one of the tightest industrial markets I’ve ever seen, call it the Williston-Watford City area, you could talk to owners until you were blue in the face and they would just ask ‘why do I need to hire a broker when all I have to do is throw a sign up and a hundred people will drive by and throw buckets of money at me.,” Houge said. “So when things start to slow down and buildings start to pop up with vacancies and availabilities, the same owners and developers as well as people who never thought they would be an owner or developer or landlord start calling us because they do need our help.”
Today, the Bakken continues to evolve creating new cultures and communities. Houge said there are a number of new businesses from Williston to Watford City and from the looks of the current state of the real estate market, change will continue.
“Last I looked, and this number changes, but there were 20-25 industrial building shop office yard type deals in the Williston market that have between 8,000-30,000 square feet of vacancy. A year and a half ago, two years ago there were probably five,” Houge said. “So the market has changed significantly. I have had to recalibrate what I have been doing. There is still opportunity in the Bakken, but it has changed significantly.”
Houge said there are different numbers from different sources in the housing industry. Depends on who you talk to and what source they are citing.
“There are arguments about units are out there and how many are available in terms of vacancy because not everyone is reporting their numbers,” Houge said. “But I would say there is probably close to 8,000 apartments or units in the Williston area and right now we are at about 4,000 of those being vacant. So that ‘s about a 50% drop off or vacancy.”
He also said the monthly rents have dropped significantly.
“There was a time when Williston was making national headlines because their rents rivaled Manhattan and San Francisco. $3000 or $3500 a month for kinda a standard two bedroom apartment,” Houge said. “Now I believe those same units could be had under $1500-a-month. Anywhere from $1000 to $1500-a-month.”
In the world of commercial and industrial properties, Houge is seeing a change in the types of owners in the Bakken.
“So I have two types of owners. Oil fields service companies that want to get those properties off their books and I have developers who are property owners who have owned those properties for quite some time and want them back on the market or find tenants for them,” Houge said. “My opinion is that the inventory of industrial properties increases, which it seems to do every week, prices will come down. It has to, it is the law of supply and demand. Now it will depend on who that owner is and who will start that process first.”
The new normal could be problematic for many investors according to Houge. There are a myriad of mathematical issues in the Bakken right now adding up. He said adding them all up can create problematic situations.
“For example the lack of debt capital. Back when things were going great and oil prices were around $100, lenders were throwing money at deals out there. You had the Bank of North Dakota backing loans and all kinds of others who wanted to be in that space.” Houge said. “Today it is crickets. No one wants to lend money in the Bakken right now because no one knows where the bottom is yet or what is going to happen out there.”
This doesn’t mean deals are dying or even dead. There is just a new reality in real estate.
“So that means that the only buyers who can buy property out there are people with cash,” Houge said. “There are less cash buyers than people who need debt and that drops the value of the property because it creates a smaller marketplace.”
Perhaps the largest change in the Bakken is the reality of risk. It appears the constantly volatile industry of oil and gas is gaining clarity to profit and loss projection people.
“Lastly it all comes back to risk,” Houge said. “When you look at investment properties, you are looking all over the country. an investor can buy a property from anywhere. Could be in another country, could be in the United States, could be any kind of property from commercial to office industrial to multifamily.”
The 25-year veteran may be new to oil and gas, but isn’t new to investments and real estate and sees some rocky
“I would be concerned right now if I was an owner of apartment units of hotels and haven’t paid off the debt or just finished them and haven’t filled them,” Houge said. “That’s where the blood is in the water.”
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