Updates
Later, 11:15 pm: there have been a number of folks suggesting that KKR is at risk of overbuilding (see comments below). Kent, below, in the comment section has provided an outstanding argument supporting KKR. Another article that supports Kent's argument and KKR: Director, NDIC, outlines future oil and gas development in North Dakota, presented in October, 2012.
Original Post
North Dakota, an epicenter of the nation's oil rush, is grappling with a scramble reminiscent of the most-heated periods of the housing boom.
Now, private-equity firm KKR & Co. is trying to capitalize by making a multimillion-dollar bet on a housing project in a town at the heart of it all.
KKR is expected to announce Wednesday that it will develop a sprawling master-planned community that could become a modern-day Levittown on the North Dakota plains. The project in Williston is expected to serve some of the thousands of workers pouring into the region who are searching for jobs but facing inadequate housing.Just after posting this, I see a reader sent a link to the same story from another source: Daily Finance. Maybe I'm missing something, but this seems like a big story.
The City of Williston today announced that affiliates and clients of Kohlberg Kravis Roberts & Co including KKR Financial Holdings LLC, along with co-investors Pfeffer Capital and CP Realty, have acquired land to develop a high quality, permanent residential community in Williston, North Dakota.If you go back to my early, early posts on the Bakken (I doubt I can even find them any more), I suggested Williston should have done this from the beginning -- bring in professionals. Meandering, "we" finally got there.
The project, The Ridge at Harvest Hills, includes 164 acres of land overlooking the city of Williston. Construction of infrastructure for the current phase is under way and will support development of up to 330 apartments which are scheduled to commence in Spring 2013 plus completion of lots intended for sale to homebuilders for construction of 500 single family, townhome, and duplex homes.
The Ridge at Harvest Hills will represent an evolution in housing stock and community planning for the city as developers and public officials worked together to include parks, recreation, and open space. Furthermore, the community was planned to slow or divert commercial traffic to further enhance the suburban feel of safety and security for its inhabitants. Importantly, and unlike much of the surrounding land, The Ridge at Harvest Hills is fully entitled and has immediate access to utilities so the new community can help solve the city's near-term housing shortage as well as long-term community demands.For a mind-blowing photo of the Ridge at Harvest Hills, click here.
bruce oddly enough this is less impactful than alot of people out there think. Right now today there are 300+ single family homes for sale in the Williston market. Williston is not armor clad from the powers that be, until the president comes out and says fraccing will continue without change. People will continue to think that this is all just a dream and not commit to this as a long term viable community.
ReplyDeleteI agree completely.
DeleteGood luck to them. I know of multiple houses in Williston that have been on the market for more than a month with no offers. These are houses that are priced very close to their replacement cost.
ReplyDeleteThat was true a year ago, also.
DeleteMaybe home prices and apartment rents will drop enough that school teachers and policemen will be able to afford housing. If rents fall far enough, maybe all those long-term Williston residents who were evicted some time ago, can move back to Williston or back into their own homes or apartments.
DeleteWell, they are predicting they will need another 20,000 to 50,000 more workers to support the oil industry in the coming years, so I wouldn't worry about 300 houses on the market in Williston. I am curious where these houses are at? I check the listings often and the pickings are VERY slim still. Many of the homes being built are pre-sold or contract pending. So I don't believe for a minute things are slowing down, and sorry, but I question there are 300 or more homes on the market in Williston. Some of the homes on the market for a month or more are not reasonable priced homes. I am seeing some old junky homes on the market for $160,000. Why would you pay that kind of money when you can have a nice new home built for a $30,000 more? I think we are going to see a slowdown in the price gauging on older homes with more and more newere homes coming on line. I am guessing the majority of these new jobs will be in the Williams-McKenzie county areas, so if anything, they need to keep building to keep up with the continuous influx of new workers and families. They won't put down roots if there are no places to live.
ReplyDeleteThat was my thought, also, but I couldn't say it because I've not been in Williston for several months, but that's my impression also: way over-priced homes.
DeleteOne unintended consequence of this announcement: those 300+ homes on the market will be on the market that much longer now; buyers will wait to see the new homes going up, and prices going down. [I also doubt there are 300+ homes -- quality homes priced realistically -- actually on the market.]
20,000-50,000 more jobs? With the continued focus on multi-well pads, I would guess that the number of rigs in basin will be on a steady, albeit slow, decline over the next few years.
DeleteThere will be increased demand for production and infrastructure workers, but I would be very surprised if the workforce in the basin rises dramatically from today's levels.
If the EPA shuts down the Bakken, you are probably correct.
DeleteThe ones that are negative saying the housing development has peaked with houses setting for sale for an extended time seem to be cumming from a position of wishful thinking. I wonder how many of these people have money invested like the developers? My guess is not many.
ReplyDeleteAgreed. I am always amazed that people actually think KKR (other big developers) don't do a lot of analysis before investing millions of dollars.
DeleteI worked for a private equity firm for many years, much of it performing intensive due diligence on billions of dollars of potential deals.
DeleteI think you would be amazed to know the pressure these funds have to deploy their capital and that most of them actually receive a fee for deploying that capital. Yes, KKR's management will likely receive a sizable fee for simply putting this money to work.
Also, many thousands of hours and billions of dollars were spent analyzing and investing in real estate deals in AZ, NV, and CA during 2004-2009. Many of those deals resulted in a 95-99% loss of capital. Because when things turn south there is no market for these assets especially when there is the burden of ongoing municipal expenses.
As noted, if the EPA stops the Bakken, you will be correct.
DeleteMany points to discuss.
ReplyDeleteOil and oil related jobs. Average rig has 125 jobs, 200 rigs today, 25,000 oil jobs. Each new well produces 1 to 2 new permanent oil jobs. In 20 years, 50,000 new wells, that is 50,000 to 100,000 new jobs that don't exist. If drilling drops in half at that time, still net 40-90k new jobs. These are oil jobs, Natural gas similar story but smaller. Watford City could have upwards of 500 natural gas jobs (if they can fill them, no housing) in the next 3 years if all plants are built.
Recent McKenzie county study on oil jobs. Projecting oil jobs in Mckenzie county to multiple by 10 fold in next 5-7 years.
All these jobs, mean, teachers, police, lawyers, accountants, admin, everything. When they talk about 350-350,000 new residents in western ND in next 15 years, this is how it starts to ad up. New housing has accomendated maybe 25,000 people, maybe 35,000. As such, 1/10th of housing has been built.
KKR and there due diligence. I was in Minot today, this was a topic. The concensus was they have the money, but they need the engineers, concrete, asphalt, framers, builders, etc,,, to perform. Work doesn't get done currently, why would a project of this magnitude get done, just because they are bigger and better capitalize. Interesting perspective. The reality is, its very difficult to get anything done in any western ND community.
What the KKR deal will do is open the flood gates of "big" equity into ND. One issue that I have been hearing is the projects are too small for Wall Street Money to move to ND. This project is close to the thresholds I have been hearing (200 million projects). The people involved in this deal are from Denver, and currently doing a 300 unit apartment project. They are looking at other locals in the bakken to do larger projects.
I would expect similar type projects to be announced in Watford, Dickinson, maybe Minot.
Kent
Thank you. Finally a well-articulated argument. Thank you very much. Much appreciated.
DeleteI feel strongly that the EPA will post rules on fracking which will significantly affect the Bakken.
ReplyDeleteHowever, for sake of argument, if the Bakken is not affected by the EPA, folks who think the Bakken is still being hyped have missed a lot of stories that have been posted at the Million Dollar Way.
In 2008, UND/USGS conservative estimates: 3.65 billion bbls of recoverable oil; drilling through 2030; production through 2100.
Now, estimates are 1 trillion bbls OOIP with 8% recoverable oil.
There are recent stories that the Bakken could rival the Ghawar in Saudi Arabia.
Less than 7,000 Bakken wells have been drilled. At least 48,000 Bakken wells will be drilled.
I forget, but it's either 75% or 95% of all North Dakota oil is still trucked at some point in transportation. Huge amount of infrastructure still needs to be built.
Again, if the EPA doesn't affect the Bakken, "we haven't seen anything yet."
Oh, five years ago, North Dakota accounted for one (1) percent of US (domestic) oil production; now North Dakota accounts for twelve (12) percent of US (domestic) production.