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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