From Brooklyn to the Bakken: New York Real Estate Developer Riding North Dakota Oil Wave

Home Business From Brooklyn to the Bakken: New York Real Estate Developer Riding North Dakota Oil Wave
Ken Hartog
Ken Hartog leans against a giant bust of President Lincoln marking the location of his North Dakota RV park and shopping development. (Photo courtesy of Ken Hartog)

For over a year, real estate developer and New York native Ken Hartog has regularly left his wife, Lauren, his Havanese, Hank, and his apartment in the Boerum Hill neighborhood of Brooklyn to spend time at places called ‘man camps.’

He flies from New York to Minneapolis, then transfers to a smaller plane that takes him to the city of Williston, the seat of western North Dakota’s Williams County.  After a rugged drive from the airport, he hunkers down in one of many remote and crowded man camps, temporary houses that are similar to military barracks.

“They’re incredibly nice people, but all men. One hundred percent men,” says Hartog, 41, of the people he encounters on his trips.

Miles underneath the aptly named camps is the magnet pulling Hartog and many thousands of others to the area: Oil. Black gold. North Dakota tea.

The combination of rising oil prices and improved oil drilling technology has created a major energy boom in the Bakken, as the oil-rich region stretching across western North Dakota and eastern Montana is named. Extracted from shale formations miles underground, oil is bringing a flood of money and people to the Bakken, particularly into its largest town and economic hub, Williston.

So far, the drilling of over 8,500 oil wells in the Bakken, together producing more than 20 million barrels of oil per month, has vaulted North Dakota over Alaska to become the nation’s second-leading oil producing state, behind Texas. It has all translated into an unprecedented spillover of demand and profit into other sectors, including real estate.

“No question, it’s the most profitable real estate venture I’ve ever been involved in,” says Hartog, who founded a development firm called Bakken Real Estate Partners to capitalize on the boom. “More profitable than any real estate project I’ve ever heard of.”

Hartog, who also owns and manages three buildings in Los Angeles, where he previously lived for about a decade, had moved back to New York several years ago with a plan to develop properties in the local market. That was shortly before the financial crisis rocked the market in 2008.

“When the recession hit it was virtually impossible to get anything done, to build, to get funding,” Hartog says. “During that downtime, I came across this opportunity.”

Hartog now owns six workforce housing units, six single-family houses, and two under-development RV parks in the Bakken. He says that he can’t develop real estate fast enough to keep up with the growing population and demand in North Dakota.

“The opportunity there is unbelievable,” Hartog says.

Williston’s numbers give cause for Hartog’s enthusiasm.

“They say it’s like a modern day gold rush here,” says Rachel Sawicki, communications director of the Williston Economic Development office. “We’ve doubled in size in the past five years. Our population has increased from roughly 14,000 to 28,000, and we are continuing to grow.”

The population spike has left many newcomers in the area without a place to call home.

“We’ve kind of got a housing crisis here,” says Sawicki. “There’s so much for sale and it goes so quickly. Houses will be up for sale, and they’ll be sold a day later.”

That’s where out-of-town developers like Hartog come in.

“We have developers from everywhere, from Wyoming, to California, to Texas,” says Sawicki. “And there are so many of them.”

Even with an influx of developers, the Bakken is still clearly a seller’s market.

“Since August or September, I’ve been completely full with a backlog,” says Hartog of his properties’ occupancy rates. “If I had another 10 houses I could have those rented too—if I had another 20 houses. Just this past week I rented five RV spots and five truck spots, and I know another guy called up yesterday, and wanted 15 truck spots and probably five RV spots for five years.”

Hartog’s most ambitious project to date is an RV park and strip mall on the 41-mile stretch of highway between Williston and Watford City. Called the ‘Lincoln RV Park and Shops,’ the project, still partially under development, is so-named because it features an eggshell white bust of President Lincoln that is over 20 feet tall.

“You can see it three miles down the highway,” says Hartog of the larger-than-life statue, now cracked across the chin, which originally stood at a now-defunct outdoor attraction in South Dakota’s Black Hills.

The Lincoln RV Park currently has 30 spaces for RVs, a small truck wash station, and an office. Hartog plans to expand the development with retail stores that will meet some of the demand in the area for the staples of work and daily life.

“You have to cater to your people,” says Hartog. “On the corner will be a convenience store, because it’s very hard to just get necessities. And we’re going to fill it out with what we think is needed for the community, which as of now is probably starting with car parts and workforce clothing.”

Sawicki of the Williston Economic Development office says the need for more basic retail goods is particularly palpable in the town’s Wal-Mart, where products fly off the shelves, if they have been placed there at all.

“They don’t even restock their shelves some of the time,” Sawicki says. “They just put the crates out in the middle of the aisle and you just grab what you need. They can hardly keep up.”

Competition for commercial and residential development is growing, but barriers to entry, including new regulations created by North Dakotan counties and municipalities, can be high. Hartog says that Williston, overwhelmed by temporary housing developments, has already banned man camps, and is in the process of removing RV parks.

“It’s a lot different than the way business is done in New York,” Hartog says. “There are bigger players coming in, but a lot of people don’t want to do it. It’s not easy. It took me a long time to figure it out, and a lot of money to get it going.”

For his capital investment and sweat equity, Hartog has already taken in a handsome profit.

“I’m making just about 100 percent of everything I’m putting in,” he says. “I’m making somewhere between 50 and 60 thousand dollars a month on the projects that are done.”

Profits are so high, Hartog says, that he doesn’t have to consider extra costs the way that he would if he were in a regular real estate market like New York or Los Angeles.

“If my clients call me up and say, ‘Hey, can I have faster internet?’ I give them faster internet,” Hartog says. “If it were traditional real estate, I might have to evaluate how much that’s going to cost me. I’ve had clients tell me that they need more mini refrigerators in some of the rooms, because they have eight people living in houses. I immediately call up and have mini refrigerators delivered to their rooms.”

All of these extras are subsidized by rents that wouldn’t look out of place in some parts of New York City.

“The market is here, so if you’re in real estate, you’re doing pretty well right now,” says Sawicki. “Apartments are running $2,000 for a one-bedroom, $ 2,500 for a two-bedroom, and $3,000 for a three-bedroom.”

Not everyone finds the market’s movements agreeable. Runaway real estate profits in the Bakken come at the expense of tenants, says Roger Cymbaluk, owner and founder of Williston-based Basin Brokers, a real estate brokerage that has been in business for 40 years.

“We’ve got developers who are charging our people who were making three, four, five hundred dollar a month rent payments, are now charging them $2,000 to $3,000 a month and identifying it as good business and economic stability, and it’s not. It’s a gouge.”

Hartog asserts that he is simply operating within the market.

“I tell my clients, I know that it’s expensive out there,” he says. “I tell them I’m providing housing at market rate. I know that it’s a lot of money, but for that money, I feel that I have to provide the best housing that I can.”

Real estate broker Cymbaluk says he hopes that new housing development will bring down rents.

“There are 3,000 apartments that are going to get built here, and hopefully that will push the market rents down to a more responsible and a more reasonable amount,” he says. “People are trying to get rent controls, which I hope never happens, because you’ve got to have the market dictate, but sooner or later we’re going to have it come down.”

With estimates that the North Dakota oil boom will continue up to 25 more years, and projections that Williston’s population will top out at around 75,000, the consensus is that real estate development in the Bakken will continue for the foreseeable future.

“There’s still huge opportunity for single-family home development and commercial development, definitely,” says Sawicki. “And I think that is here to stay for quite a few years to come.”

Hartog, of course, plans to take advantage of that by slowly transitioning from cheaper RV parks to more expensive permanent homes.

“What’s gradually going to happen is people will go to RV parks, and each day they’re putting away a little bit more money. Each day they’re working for a Fortune 500 company their credit gets a little bit better,” he says. “So very shortly, the people who have been there for three years are going to now be able to qualify for traditional credit. They’re going to be able to put down 25, 30, 40 percent, if they want, on a house.”

Hartog says he has no plans to move from Brooklyn, where he and his wife, the manager of a Manhattan surgical office, recently purchased a luxury State Street condo for nearly $1.2 million.

“My wife likes her job, and I like my time in Brooklyn,” he says.

At the same time, he intends to make a career out of riding the Bakken’s real estate development wave, and aims to bring more investors into the market with him.

“I have people calling me up all the time asking me, ‘How can I get in?’ There is a need for both more infrastructure from my customers in North Dakota, and there’s a need for the right investors to put their money to work at incredible returns that they can’t get anywhere else.”

“My plan calls to stay with it forever,” Hartog says. “I love it.”

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