Real Estate Investor · Glacierview, AK · Member since 2013 · 25 posts · 2 votes
Hello, my name is Jeff Kovac. My wife and I are Alaskan residents currently operating a small business in the oil fields of North Dakota. Found one of BP’s forums during a commercial real estate search. Checked out the site and joined. I’m now spending less time surfing and more time learning. Thank You to the staff, contributors and frequent forum participants for sharing their insight.
Jeff, I saw where you were addressing the issues of the are, lack of planning, highest and best use, options and on to the bst types of tenants and ground leases.
Congrats on the closing. I see you did some due diligence and mentioned a feasibility study, that is the first step. The City should be assisting with input as to what is needed, but what might be needed is not always the highest and best use of the property or in your best interest. I would first get with a MAI appraiser for a narrative appraisal of highest and best uses. If one is not local, it seems you have the ability to do more research on this basic aspect. Seems you are in a big hurry and the land isn't going anywhere....
1 1/2 acres, depending on the shape of the parcel, is too small for a SFD project and it sounds like due to location that's not a good option. Residential use on such a parcel need to be with a high concentration, 30/40 units, perhaps more. Sounds like retail or a mixed use of high concentration residences with retail would be a better option.
Better yet, could be to have a long term lease, ground lease and have a franchise develop. CVC or Walgreens, Steak n Ale, Red Lobster, etc.
This is the easiest way out for a land owner, but you'll need great negotiation skills playing with the big boys and you will need an attorney.
Consider condo-ized office retail, each owner builds to specs and purchases, sell or lease the land. I'd not retain any maintenance issues being out of state, but if there is a good local property management type there, it can be a long term contributor to profits and reason for shorter lease adjustments on common areas. Gotta set a strategy.
Just because you have a developer headed your way is no reason to jump on a proposal, there aren't but four coners to that intersection. If it's a prime location, time is on your side.
As to partners, I'd suggest you exhaust the possibilities without a partner first. Sell and walk, ground lease, build to suit (commercial condo office/retail) or lease-long term option.
There is my dimes worth. Keep us informed, good luck.... :)
What type of properties are you going to invest in? All of us hear the stories about the area, why don't you tell us what your experience is there? I bet rentals are hard to come by! Enjoy BP!
You hit the nail on the head Karen Margrave, Food Fuel & Lodging! All, especially housing, are at a premium here.
Spare rooms - $600-1,000/mo.
Single wide mobiles $800-1200/bed room/mo. (3 beds=$3,000)
Small cabins (1 bedroom-12x24') $1,250-2000/mo.
28' travel trailer (no slide out) $1,200-1,700/mo
RV lots $500-800/mo.
This was mostly an agriculture and tourism area so the roads are taking a beating. Highway, Infrastructure and utility projects are moving along with housing construction coming on full steam. I've talked to the city planner and even if all approved projects are built out, the long term needs of this area are far from being met.
The permanent populations are growing and retail/commercial is now visibly growing.
The property we are purchasing will be commercial and is located on the edge of a quickly growing community.
Jeff Kovac What type of project are you hoping to do on the land? How much land are you buying? Sounds exciting! If there's any input on development (though every area is different, but generally speaking) and it's something we know about, we're happy to share! We've done office, medical/dental, office parks, residential subdivisions, and office/retail condos, etc.
Hey Jeff Kovac welcome to BiggerPockets! I've heard crazy stories about North Dakota and the oil boom. I drive through each year a few times on my trip home to Minnesota.
How long do you expect the boom to last? Are you worried about what happens when it ends?
Thank You Karen Margrave. We are purchasing a bit over 1&1/2 acres with all city utilities present. The property surface is flat and ready for construction, it also provides visibility and convenient access from the main North/South & East/West travel routs (they overlap in this area) The area has seen new construction in all of the areas you have listed, as well as 350+ apartment units, 300+ mobile homes, hundreds of spaces in countless RV "Parks", restaurant & retail so feel free to chime in on any and all topics that may apply. Commercial needs are many and w are trying to arrange a feasibility study on the property but there is no one in this market that I have located as yet.
Hi Brandon Turner, those are the questions of the hour around here. I have worked in several energy plays and, although I have not been everywhere by any stretch, this one is the most intense I have experienced. Each Energy Boom has its own unique set of variables based largely, but not exclusively, on geographic size and location, economies, (regional and national) as well as available workforce. There are also other notable differences at work here.
A very short list is:
1) Limited infrastructure
2) Everybody needs... almost everything and common items are often scarce, creating no end of difficulty and delays.
3) Logistics challenges - In western North Dakota we have a major river/lake system with 3 crossings spread over 150 miles. A second river with only 2 crossing (not close) and 1 National Park System with an Upper and a Lower Unit.
4) But, in my observation, the most interesting aspect is the overall age and reasons that the current workforce is present.
Typically the young will come for the big money and make no mistake, there are plenty here to make their mark, but there is a very large number of men and women that have come save their homes and provide an income for their family located in an areas with slow economies. They come, work their shift and go home. Some will eventually move here and bring family but many will work until their particular goals are achieved and then quietly return home.
Brandon Turner, as for what will happen when its over, that is any bodies guess, however, there are always areas with in a Boom that will attract and hold, population and commerce. If these can be located and invested in, the opportunity for long term growth is very possible. The areas and communities that were hit the hardest were those areas of the initial focus. I have talked to city planners and they are making every effort to understand and project the needs that will be present after the smoke clears. Those projections are the reference for their decisions relating to the speed and scope of current growth. SFH, Multifamily, office, retail, commercial - its all showing. One more interesting dynamic is that many of these planners have ties to local families and care about their communities. This is allowing many smaller communities to build a plan that will work for the long term.
An interesting side note is that there was no zoning in much of western ND before the boom. People came in and built anything anywhere. Truck Shops beside housing developments, RVs parked in the neighbors yards and so on. Those items are still being addressed and will be for some time.
The fact remains that there is still room for investment and development in this boom, you just need to have a pretty sharp pencil.
Brandon Turner & Karen Margrave, just a quick update. Spoke with the title company and documents are complete and off to the seller for review. (currently out of state). Because ND still uses abstracts, and this property was divided from a larger section, updating the abstract turned into quite a project. Finally complete and, I trust, we are headed to closing.
I have been approached locally on several occasions concerning my plans for the property. Interested parties are across the board and include medical suites, office space, retail and commercial shops. All are in short supply.
My quick and simple exit plan is to flip the property however I would prefer to buy and hold if an option exist. I'm asking for input so I don't miss an opportunity that's staring me in the face. To continue my investigation I have a few questions.
Regions are different but, in general,
1) If you would rate these options from best to worst, what would that look like?
2) What type of tenants provide the least risk and head aches and why?
3) I have not developed a commercial parcel so I may entertain the option of partnering - What would that relationship look like?
4) What are the chances of attracting a tenant for a land lease?
Jeff Kovac The situation there is completely different than anywhere we have developed, due to the fact everything in the area has grown out of nowhere, and I would imagine a flood of experienced developers that are on the ground looking for land and deals to do. There's no way of knowing what the competition for space is going to be etc.
In an area with a normal pattern of growth, medical office space is a growing niche as the baby boomers age, etc. With an area such as yours, that should still be a good market (if it's not being met by anyone else) due to the influx of people, they will get injured, sick etc. Something like a walk in clinic might be good use. Another plus, is that the tenant would have a big investment in the way of equipment, and tenant upgrades meaning less likely to walk away from their lease.
If it's necessary for you to partner with someone to put the deal together, you want to find someone with verifiable experience of doing whatever type of project you decide on, and really understands the local process.
If you are completely inexperienced at doing any type of commercial development or leasing, etc. you may be better off turning the land around. Though there is good money to be made developing such projects, there's also room for huge losses if not done correctly. Only you know your comfort level for risk.
@Joel Owens is a commerical broker, maybe he can weigh in too. (for some reason I don't think the @joel worked so?)
Would it help to look at it like this.
In a conventional economy, this scenario seems to be similar to a land purchase on the edge of a community. That city has now grown and is surrounding the parcel, increasing value and opportunity.
In this example the "land" is the small communities and the "city" is the energy activity and growth.
Living in a rural Alaska, I have come to appreciate the importance of available medical services and am interested to look into that option first. Has it been your experience that medical suites and business offices can work in a mixed use building? This approach could broaden our market and reduce some risk. While were on the subject of developing, I do not have any experience in that area and have too much riding on this for it to be my maiden voyage. I would need to locate a partner to put together the development. It looks like my next step is to reconnect with those that have shown an interest and go from there. I'll also need to start looking for a developer who has done medical... have you ever been to ND?
If there needs to be a choice, is it more important to find someone with development experience in this region or someone who has done medical development, although it may be someplace else.
By "verifiable experience" I'm guessing you mean a history of successful projects in this specific type of development.
Not wanting to offend someone immediately or blunder through this process carelessly, what are a couple questions I could start with when I begin to meet with developers.
How much value do I bring to the table by providing the land in a tight market?
What position does the land owner play in the development?
Do they (developer) call all the shots or do we make a plan and proceed accordingly?
What are some tip offs that someone is taking advantage of my inexperience?
Jeff Kovac Let me give this some thought, and discuss it with some others so that I can give you the best plan of action (in our opinion) As the land owner, you are the one that will dictate everything else. Without the land, the project cannot be done, therefore; you don't want to give away more than necessary, but enough to accomplish your goal of having a successful project. It's all about balance, and who is bringing what to the table. If you can send me the address of your parcel, I will look it up on Google Earth and see if there's any obvious issues, or other things we notice. I will private message you my email address ok?
That sounds fine Karen Margrave and thank you for considering my situation. BTW the title company called me this afternoon and it turns out that the property owner was in state, he stopped and completed his half of close. We will complete close by weeks end.
Thank you for the welcome Will Barnard and Jenkins Ramon. BTW Will, I am following your 1031 thread with interest and hope things go well for you. Thanks again to both of you for the welcome.
@Jeff Kovac I have to say, I don't know what the best thing for you to do is. I just don't know enough about the area, or you to give you the advice you need. In an area where most of the people are new to the area, it's hard to find anyone with any kind of track record to speak of to work with.
Will Barnard feel free to chime in! I don't know everything, and that situtation in ND is something like nothing I've ever seen! I can only imagine what a free for all it is there, and trying to give advice to someone in an area you don't know squat about is a tough one. I'm thinking take the easier money, turn it around and let someone else deal with the development. What do you think? I'm just concerned that without knowing anything about development it would be so easy for Jeff Kovac to be caught up in a situation where the developer didn't know what they were doing, and he could lose money. Sometimes the best thing is the easiest. I know we've been in situations like that before. It's hard to leave money on the table, but sometimes that's the smart move. Bill Gulley Rich Weese weigh in please!!
I agree Karen, I don't know much about that area either and tough to give advice without specific knowledge on that area. I would likely take the money and run too avoiding any pitfalls.
Thank You Karen Margrave, Will Barnard & Brandon Turner, for your time and input.
Update - Closed on property.
Meetings and phone calls yesterday.
Meeting with developer & RE agent today.
More to follow.
Moving forward with your advice in mind.
If there is anyone with additional thoughts, please feel free to contribute. I'm moving on from "what" are my options, to more of a "What to expect if you choose to partner" - Pros & Cons.
I haven't had anyone address the "ground lease" topic so, unless someone else has something to add or a direction to send me, I will look elsewhere for input.
Thanks Again.
By the way Will, If I flip the property, I may consider a 1031. Have you come across a minimum dollar amount or a lower threshold where a 1031 stops making sense?
Jeff Kovac Send a message to @Joel Owens (my @ mention doesn't pull him up so he won't be notified) He is a commercial broker, and is usually pretty generous in offering advice. Bill Gulley might weigh in too. Bryan Hancock does a lot of partnership type stuff I think, so maybe he can help.
Jeff, I saw where you were addressing the issues of the are, lack of planning, highest and best use, options and on to the bst types of tenants and ground leases.
Congrats on the closing. I see you did some due diligence and mentioned a feasibility study, that is the first step. The City should be assisting with input as to what is needed, but what might be needed is not always the highest and best use of the property or in your best interest. I would first get with a MAI appraiser for a narrative appraisal of highest and best uses. If one is not local, it seems you have the ability to do more research on this basic aspect. Seems you are in a big hurry and the land isn't going anywhere....
1 1/2 acres, depending on the shape of the parcel, is too small for a SFD project and it sounds like due to location that's not a good option. Residential use on such a parcel need to be with a high concentration, 30/40 units, perhaps more. Sounds like retail or a mixed use of high concentration residences with retail would be a better option.
Better yet, could be to have a long term lease, ground lease and have a franchise develop. CVC or Walgreens, Steak n Ale, Red Lobster, etc.
This is the easiest way out for a land owner, but you'll need great negotiation skills playing with the big boys and you will need an attorney.
Consider condo-ized office retail, each owner builds to specs and purchases, sell or lease the land. I'd not retain any maintenance issues being out of state, but if there is a good local property management type there, it can be a long term contributor to profits and reason for shorter lease adjustments on common areas. Gotta set a strategy.
Just because you have a developer headed your way is no reason to jump on a proposal, there aren't but four coners to that intersection. If it's a prime location, time is on your side.
As to partners, I'd suggest you exhaust the possibilities without a partner first. Sell and walk, ground lease, build to suit (commercial condo office/retail) or lease-long term option.
There is my dimes worth. Keep us informed, good luck.... :)
Thank You for your thoughts Bill Gulley, and that is much more than a dimes worth of input! To briefly explain - I'm not eliminating options as I move from one to the next, I'm gathering starting points and considerations as I map and investigate the mechanics of each option. (I'm not in a hurry, its how I process) As I research a topic(s), for me it helps to have an understanding of the scope and type of information I'm looking for. This helps me be more efficient in my efforts. Many times I stumble across and discard what, at the time, seems like irrelevant data only to find out later it was part of a separate but parallel search.
That's probably about as clear as mud but I hope it sheds some light on my method.
These posts have provided a host of information across a wide range of topics. Now I have a better understanding of what to look for in my search(s) and when I pursue one line of thought I can gather as much relevant information as possible.
In North Dakota, the economy is moving so swiftly that, once you put the word out on property availability you promptly receive numerous inquiries of interest. My meetings have been arraigned by the caller and my participation has been passive - to listen and ask questions for clarification with no implication of commitment. This is a land owner's market and the property is owned free and clear.
The members of BP that have posted a response, you included Bill, have supplied me with the points I need to map out and run a successful in depth investigation - My Thanks to Karen Margrave, Will Barnard, Brandon Turner and to you Bill, and if you, or anyone else has more input, by all means, feel free to add your "dimes worth" as well.