Buying into the Bakken: Commercial activity steady in Minot as more activity shifts west
MINOT — Investors looking to buy into a piece of Minot are finding plenty of opportunity. The slowdown in oil and gas activity in the Bakken arrested new development but hasn't stopped business activity.
It is far from doom and gloom in Minot, said Jeff Stremick with Signal Realtors, Minot. Buyers aren't as numerous or aggressive as they were during the boom, but they are there, he said.
"2017 was a good year. I think 2018 is going to be better," Stremick said. "People are cautiously optimistic. They are a little more selective in what they buy and a little more price conscious."
Throughout the Bakken region, there's still activity occurring.
"The investors are coming to the market because they see potential for buying low and, hopefully, selling high," said Mike Elliott, managing principal with Energy Real Estate Solutions, headquartered in Denver with an office in Williston. "The returns in this part of the world are much higher than most of the country."
While there's associated risk with those returns, he noted investors find they can double the return over other regions of the country without necessarily increasing the risk to that same extent.
There's more interest in buying into existing construction than building new because the cost of construction remains comparatively high, Elliott said. Construction costs also are discouraging developers from coming back into the market, he said. Nor are banks eager to lend money in the current environment. Most investors are coming in with cash, he said.
Stremick said out-of-state investors make up only about 25 to 30 percent of the Minot market, which can be a good thing in terms of keeping money in the state and maintaining local interest in the community.
However, ERES still sees most investors in the Bakken region coming from out of state. Elliott characterized them as high net worth individuals, family investments groups and smaller real estate investment companies.
"We aren't necessarily seeing the institutional-grade. They came in at the top of the market and they have not sold. They have enough equity to not have to be forced to sell," Elliott said. Institutional-grade companies include the large, private equity companies or real estate investment trusts.
Minot's market does differ somewhat from what is happening farther west.
In the last boom, Minot became the economic center of the Bakken because there was no infrastructure in places to the west, Elliott said. Over the years, these communities have invested in themselves and that infrastructure now is in place and attracting businesses and families.
"So Williston, in my mind, has become the economic center of the Bakken, and Watford City, is really the center of activity," Elliott said. "Towns like Minot or Dickinson have struggled more than most because people aren't going to be living in Minot to travel into the field. What I am seeing is Minot is going to struggle for a while. It's really more agriculture-based instead of energy-based at this point. Until those developers come back, we are not going to see people buying up land with the idea of building."
He said Minot will always have a role in the Bakken, although not a primary role. The city could remain attractive for families or for ancillary office jobs in the energy industry.
At a land auction in Minot in October, ERES received bids above its minimum, reserve price on only one Minot property, but Elliott said the auction was successful in terms of attendance and the interest it's sparked in other properties since then.
"What we are seeing is still a lot of industrial activity — companies looking for warehouses and land," he said of the Bakken generally. Estimating about a 7 percent vacancy rate in industrial property, he added, "It's a very tight market. The rates are still some of the highest in the country, although very much down from the height."
In Minot, commercial properties have come down modestly in price. Based on sale prices, the city lowered commercial tax assessments by about 10 percent this past year, and City Assessor Kevin Ternes said that while numbers aren't in yet, he doesn't expect much change in the coming year. Through early November, there were 25 commercial property sales in Minot — numbers Ternes described as typical of the past several years.
Plenty of commercial properties are available in Minot if a buyer is flexible, Stremick said. Broadway properties have been in demand, though, and buyers can be stymied if stuck on certain locations, he said.
Blake Krabseth with Watne Realty said Trinity Health's announcement that construction will start in earnest on a new hospital in southwest Minot next spring should spur development in that area.
"I think there's money out there to re-invest but they want to see how things go," he said. Stronger sales tax collections and oil prices, along with federal tax reform, would be good for the local economy, he said.
"If sales tax goes up again, even modestly, that changes attitudes," Krabseth said, citing good news in that regard in the state's latest sales tax report. "There's good, positive indicators showing that we have reached a low, and we are going back to a normal growth curve."