Developing Minot a daunting task

Many Minot, N.D., homes were under water during the summer. Kent Busek an accountant by training, confessed that he’s never been a developer before, and yet he finds himself driving a massive residential project near the Minot airport. (AP Photo by Chris Franz/The Forum)

Tu-Uyen Tran
Grand Forks Herald

Grand Forks, ND (AP) – “I’m taking a big risk on the project,” Kent Busek said.

An accountant by training, he confessed that he’s never been a developer before, and yet he now finds himself driving a massive residential project near the Minot airport.

He ticked off what’s coming to Stonebridge Farms: 152 apartment units, 24 twin homes, 40 town houses and 22 single-family homes. That’s just the first of two phases.

Busek is joined by other developers with big projects, some also in the business for the first time, taking advantage of a historic opportunity.

Minot, the state’s fourth-largest city, faces a severe housing shortage. It was bad enough when the booming oil industry brought thousands of workers to the area, and it’s gotten worst after the worst flood in the city’s history damaged about 4,000 homes along the Souris River this summer.

But the challenge for developers is an equally big mismatch between supply and demand in the labor force. Rising demand for oil field workers has meant a shortage of construction workers, and consequently, rising wages.

That only can mean rising housing prices, a conundrum for an industry that’s trying to replace housing lost by flood survivors who have enough financial problems as it is.

“That’s a large part of our discussion,” said project engineer Greg Oase with Kadrmas, Lee & Jackson, an engineering firm also making its first foray into housing. “Not everybody can afford a $200,000 to $300,000 home. What can we do?”

Oase is based in KLJ’s Bismarck office, and drives north to work at the firm’s Minot office a few times a week along with some colleagues. Business is booming in Minot, about an hour and a half by car from Bismarck, yet it makes more sense to drive than to move there.

“It’s very tough to find any hotels or apartments, and houses that come up for sale have multiple bidders,” Minot City Planner Donna Bye said. The vacancy rate was less than a percent before the flood, she said. Now, she said, “I’m sure it’s close to zero.”
Many flood survivors are renting because they’re still repairing their homes or are waiting to see whether they’ll be bought out to make way for a new flood control system, she said. Oil companies, in the meantime, are snapping up homes and having workers share them like college students, she said.

There’s so much market potential that even those who aren’t developers such as KLJ and Busek have dove into the market. It’s been only a few months since floodwaters receded, but both irrevocably are committed to major residential developments.

Justin and Sonja Neubauer move furniture into their new temporary home Oct. 4 in Minot, N.D. The Neubauers are among some 11,000 people who were chased from their homes in June after record flooding from the Souris River. (AP Photo by James MacPherson)

KLJ primarily is an engineering firm with offices all over North Dakota and parts of Montana, Minnesota and Wyoming.

Now, KLJ is buying 370 acres in northwest Minot that it’s calling the Northern Lights Addition.

Busek is a tax accountant at Busek Olson and Associates with three offices in Fargo and Moorhead.

His family has owned the 160 acres at Stonebridge Farms for 110 years. Part of the reason it still hasn’t been developed is it’s on the fringe of Minot’s less developed north side.

He said he knew putting money upfront to develop the property is risky, but he’s confident in the housing market’s growth.

Developers and builders have, in fact, ramped up their efforts tremendously to meet demand.

In the first nine months of the year, the city issued building permits for 553 housing units. More than half are high-density units such as apartments and medium-density such as townhouses.

In 2010, the city issued building permits for 196 units. For 2009, there were 174 units, and for 2008, 184 units. Most of them were for single-family homes.

There are at least four major residential developments on the way, all on high ground away from the trench-like Souris River valley.

One of them is Busek’s Stonebridge Farms with an estimated 468 units, and one of them KLJ’s Northern Lights Addition with as much as 1,900 units.

All of the big new residential developments are on the edge of town, which means, for the most part, they don’t have streets, sewers and water lines ready.

One thing they probably can be sure of is the costs will keep rising.

“When you have guys driving water trucks earning $30 to $35 an hour, it pushes everybody’s labor costs up,” said Joel Feist, the owner of Real Builders Inc. in Minot and president of the North Dakota Builders Association.

He’s talking about how the booming oil industry is distorting labor costs.

So far, costs are up 10 percent to 15 percent over the previous year, he said, and there’s no sign they’ll plateau, he said.

In the construction industry, the average wage in the first three months of the year, the latest numbers available, works out to something like $21 an hour.

According to Job Service North Dakota, the average weekly wage was $844 in the first quarter of 2011. That’s 16 percent higher than the same time a year ago and 20 percent higher than two years ago.

The other thing that’s driving up labor costs is housing for the laborers themselves.

Feist said he’s seen a lot of outside construction firms in Minot. They come from all over North Dakota, South Dakota, Minnesota, Michigan and Wisconsin.

Busek and Oase worry about escalating costs.

“To be perfectly honest the concern we have is if we don’t get started this fall it’s going to be more expensive next year,” he said.

The cost of construction could go up 20 percent, or 30 percent or even 40 percent next year, he said.

That’s why, he said, workers at Stonebridge Farms will be starting in a week.