Texas Oil Boom Worries?

Question

Hey all

Evaluating a few parks in TX right now, many of them dependent on areas that are particularly dependent on Oil. That being said they are mostly in populated areas around cities.

Does anyone have thoughts about buying parks in Texas as oil keeps dropping? Appreciate thoughts from the group. Some of the specific parks I've seen in these areas have a lot of upside so I'm debating pulling the trigger mainly because of the economic issues.

Seth Teel · Answer

I always think it's funny when people worry about oil. The boom may subside, but the need (and likely the resource) will always be there.  First, let me say, investing in a boom of any kind is a short-term prospect. If it was always booming, it wouldn't be called a boom.  In all things, the bubble will burst and you need to know your exit plan before you enter into the investment.  That being said, oil isn't going away, people, companies, and governments aren't going to stop needing oil as a fuel source.  Sure you can speculate about "peak oil," but I remember first hearing this term in the early 2000's, long before the current booms were at full strength.  Oil usage and need aren't going way.  Oil isn't drying up.  Like all commodities the price and demand will ebb and flow.

If you want to invest in or near fossil-fuel rich areas, consider a longer-term investment.  Invest in infrastructure or living necessities (grocery stores, strip malls, gas stations, hotels, etc).  These types of properties are in demand and create a sense of place.  It takes the "trailer park cities" and gives them the much needed infrastructure to actually have some of these people put down roots.  It may be riskier play, and may require much more due-diligence, but there are reasons Haliburton, Baker Hughes, Weatherford, and others have made a decision to locate their headquarters in between San Antonio and the heart of the boom.

Try going into the HEB in Carrizo Springs on Friday night and finding a case of beer or some meat to grill.  Field bosses will go in and buy up all beer and meat for their employees.  The vendors simply can't keep up. And the oil workers have limited choices of where to shop.  So far the only industry I've seen capitalizing on these trends have been auto dealerships.  New truck and luxury car dealerships are popping up all over the valley.  Between the oil boys and the cartel money, there are plenty of opportunities for investment.

Jim Johnson · Answer

Your answer lies in your investing style and risk profile. I am a long term buy and hold guy, so I do not do anything away from stable economic areas. I happen to see oil, gas, coal and the like as not stable. I have many friends that have done well in these sectors, and every now and then they get their butts handed too them. The upside tends to cover the downside and they overall do well. I do worry about new regulations that will slow down, or end some energy sectors. Coal looked stable 15 years ago, and in the last 6 years there have been many changes. From strip mines in Wyoming, to power stations all over the country, to mining operations in the eastern states, there has been no 'boom' in coal. More like the dust is settling and jobs are moving away. I know parks in Wyoming coal country that are half full, and they will probably never recover.

Cal C. · Answer

I suggest you take a long hard look at what @Jon Holdman wrote in this thread.

6 oil states had record home prices in november can it last

Ariel O. · Answer

@Jim Johnson Yup, I saw it over on Frank and Dave's forum, I guess I didn't remember where you posted it..

Jim Johnson · Answer

Ha! that is something I posted about on another forum... you might be reading me in both places ehe.... I KNOW the people that made that call are reading the other forum... which is why I posted that comment there... Robo calls are not my thing, not my style... but if your going to do it- follow the laws.

Ariel O. · Answer

@Jim Johnson

Much appreciated. I'll go elsewhere then, not going to waste too much time arguing the point with these people.

Back to more phone calls (not robo!), letters, etc.

Jim Johnson · Answer

So CAP rates in boom areas tend to suck, which is another problem in that segment of the market. For me- boom areas are like going 'all in' in poker. You have a good hand so you stand up. If the cards fall right you do well, maybe very well. If not- well- your off the main table and playing in the back rooms...

Jim Johnson · Answer

@ ari

Ariel O. · Answer

@Jim Johnson

Thanks. There's actually oil wells across from the park. If I could get significant seller carry on this particular park I might be tempted anyway, but the seller has one of those ridiculous numbers in his head so who knows  what will happen on this deal. Not going to loose too much sleep on it. (8 Cap on a rent roll that is dubious at best. Need to have a Come to J moment with the guy).

Ariel O. · Answer

My concerns are not in places like Houston, or Dallas.

I am  talking about parks in oil country, where the bigger employers are Oil  Services. Remember we're talking about tenants who live or die by their  paycheck.

I'd prefer responses from people who own parks, please.

Texas Oil Boom Worries?

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