Vacancy rates went up quite a bit during the downturn, stoking fears that the multifamily sector had overbuilt for the long-term need in the Williston region.

However, with crude oil prices in the $60 range, Williston apartments have filled up fast.

“Lots of people have gotten hired,” said Mike Elliott, founder and managing principal of Energy Real Estate Solutions. “We manage about 4,000 multifamily units in the (Bakken) market, and I think our average for our portfolio is 92 percent occupancy. A year ago, or even two, you were definitely in double digits as far as vacancies go, and some (multifamily) had really big vacancies.”

Despite the fact that apartments are running out of room, however, Elliott doesn’t expect to see too many more multifamily units built, at least, not in the near future.

“The replacement cost on multifamily is $180,000 to $220,000 per unit, Elliott said, “and they are still trading below $100,000. So it will be a long time before we see developers for multifamily units coming back to market. That spread is just so high. People are going to want more, but it’s too darn expensive to build it in this market. You’d have to have a very big increase in rental revenue.”

Part of the reason for the expense, Elliott said, is due to a need to import both materials and labor.

“Building in North Dakota is the equivalent of building on an island,” he explained. “Labor and materials have to get shipped in, and you are competing with the rest of the country for labor.”

Unfortunately for Bakken boom 2.0, the rest of the country is doing well this time around, so labor has been harder to recruit.

“It’s not like the last boom in 2008/09 where everyone was looking for a job and couldn’t find it,” Elliott said. “Now there are jobs all over the country.”

While Eres manages some apartment facilities in the Bakken, its bread and butter is serving the needs of energy companies and investors in the world’s most active energy sites. These include the Bakken, and Midland, Texas, otherwise known as the Permian.

“We tend to see things happening in Midland first, and then they translate to North Dakota,” Elliott said.

However, one big difference Elliott notes, is that they still have temporary workforce housing — aka man camps — in the Permian. Those are going for as much as $145 to $165 a night, Elliott added, though long-term commitments have some potential for reduced rates.

He doesn’t actually think those kind of prices per night is where the Bakken is headed this time, though.

“What we do have here is a more stable environment,” he said. “Families have moved in. (Oil and gas employees) are not just on a rotation. We have more stable growth than West Texas has.”

Smart growth, Elliott said, has helped Williston weather its downturn well. It’s now well-positioned to continue taking good advantage of this next upswing. And the fact that Williston didn’t “shrivel up and disappear” at $27 oil hasn’t hurt its prospects in the minds of investors.

Commercial real estate markets are rebounding, Elliott said, and he believes developers will soon be returning to the market.

“Rental rates are much higher than a year ago, and vacancy is low,” he said. “What we were renting at $10 to $12 a square foot is now at $15 to $16 a square foot. And, with no vacancy in the market, we see that those rates are going to continue to go up.”

He’s had numerous calls, in the meantime, from companies looking for a location in the Bakken.

“That leads me to believe that we have a lot of companies coming to market over the next six to 12 months,” Elliott said.

To help meet the demands, Eres is working on some “build to suit” opportunities, because the product needed doesn’t exist.

“We are working on some development deals in Williston and Watford City,” Elliott said. “That corridor continues to be strong. Some of the fringe markets are not as strong. The main corridor, though is very strong, and there’s not nearly enough product.”

Another thing that’s helping things get back to a new normal has been the return of institutional grade capital to the Williston market. That wasn’t readily available as little as a year ago.

“What was keeping property from selling a year or two ago was that there weren’t a lot of debt options,” Elliott said. “Now there are more debt solutions for buyers. As that happens, there will be more buyers.”

Among the buyers have been private equity companies, attracted by the rates of return they can get in North Dakota.

“It’s not without risk, because it’s based off oil and gas markets, but it is creating interest in the private equity companies,” Elliott said. “The rate of return they can receive on their money here is greater than potentially anywhere else in the country.”

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