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Oil prices and opportunity: The perspective of real estate investors and PE firms

By Tom Bradley, Executive Vice President, Energy Real Estate Solutions

In my previous blog I touched on a key concern within the real estate community stemming from the decline in oil prices — the reaction of lenders and investment firms to recent industry instability. I had the opportunity to spend time with several large private equity firms and mid-size investors with interests in key shale markets. From these conversations it appears that the bleak outlook in energy markets is not as concerning as many may think, and not a factor keeping more sizable investors and owners up at night.

Many groups see the decline in oil prices as an unprecedented opportunity to purchase distressed real estate quickly and for lower prices. Additionally, since many projects planned for 2015 and 2016 are now on hold, the investment community understands that future oversupply in the marketplace may not be an issue – yet another incentive to purchase existing real estate.

Investors and owners also recognize that shifts in the marketplace and their impact on desired inventory create profitable opportunities rather than a need for a quick exit strategy. In the Bakken, for example, many believe that unstable oil prices mark the beginning of the end for many of the crew camps and large scale employee housing options.  The high end camps will likely weather the storm, but many less desirable facilities may not have their permits renewed and will not see the same demand as previous years. As a result, many employers and tenants may consider a shift to multi-family properties, many of which have become available in the last 24 months.  While this is unfavorable news for camp owners and developers, many local residents and municipalities see an abundance of more attractive and widely desirable housing options as a win. Investors and owners also see this as a prime opportunity to increase marketing surrounding their multi-family inventory, again, capitalizing on minimal supply and growing demand for this type of housing option.

With all real estate inventory in key shale markets – residential, industrial and commercial – the perspective of the savvy investor remains the same. True: $40 – $50 oil prices throughout 2015 will soon be followed by reduced demand and lower lease rates. Scary stuff. But if history repeats itself (which it often does) the longevity of rock bottom oil prices will be relatively short lived. These two factors paint a picture of future undersupply, significant demand and benefits for those who can weather the storm.

The Immediate Outlook

In today’s terms, real estate pricing has generally not been significantly impacted by the price of oil. For development projects that have not yet reached a critical tipping point – where dirt hasn’t been moved and steel hasn’t been constructed – many have temporarily pulled the plug on forward progress. As uncertainty prevails and funding for horizontal development becomes harder to come by, many are following a “wait and see” approach. The market changes daily and keeping a close watch on trends is key. If you have any questions about the latest real estate developments in key energy markets or opportunities and pitfalls stemming from fluctuating oil prices, don’t hesitate to reach out to me at or (303) 386-7210.