For the last 29 years, I have been raising capital for my own companies. Frankly,…
While a lot of Ohioans were waiting for drilling to take off in the Utica shale, Beachwood resident Michael Friedman already was cashing in on the new boom in high-volume, slick-water, horizontal drilling, and hydraulic fracturing, or fracking, as it’s commonly known.
He just had to go to North Dakota to do it.
Friedman has been working the big Bakken shale play in the Dakotas, and he said he’s finding more opportunities as he expands the scope of his activities. While Friedman originally focused on building and renting out housing for oilfield workers, he’s now also brokering deals and arranging to finance for other developers in the region.
“Three years ago, I went to the Bakken on a referral to help a friend raise some money to do a residential development,” Friedman said. “We ended up buying it and calling it the Grand Bakken Lodge. That was the start of my career there.”
If Friedman’s name sounds familiar, there’s a good reason. He’s known to hard-core area sports fans and pizza connoisseurs alike, first for his stint as a basketball coach at Case Western Reserve University and Dyke College in the 1980s, and then for his ownership of several Captain Tony’s pizza shops in and around Cleveland.
But he says nothing has kept him as busy as the Bakken shale.
Friedman’s Grand Bakken Lodge turned into a 30-unit housing development for oilfield workers. While it’s not a Ritz-Carlton — or even a luxury apartment complex, by most standards — it was a far cry from and leagues above the so-called “man camps” available to many rig workers.
Instead of the barracks-style living of the man camps, where sometimes dozens of workers roomed together under a single roof, Grand Bakken offered individual, 300-square-foot cabins with their own kitchens, laundry facilities, bathrooms, and sleeping quarters.
1,300 to 13,000
Friedman said his plan was to expand the project to 800 units. He secured $30 million in financing in 2011 from New York investors and lease commitments from North Dakota drillers, but then his partners got cold feet and the deal was abandoned.
But Friedman had been bitten; the Bakken was too big and too good an opportunity to turn away from, he said. And he’d already learned an awful lot about the needs of oil and gas drillers, and how to capitalize on those needs in North Dakota.
First, he saw the demand for housing first hand, as he watched the town of Watford City, N.D., struggle to cope with the rapid influx of new oil rig workers.
“When I started (in 2012), Watford City had 1,300 residents,” Friedman said. “Now they’re up to 13,000.”
Oil workers fill every hotel for a hundred miles or more, he said, even though the nightly rates have risen to $175. Others fill the man camps, while the most unlucky often sleep in their cars in a Wal-Mart parking lot, specially set up for that purpose at night.
“About 2,500 people a night would line up at 10:30,” he said. “They’d let 2,500 cars in and they would sleep there.”
He also learned that oil companies were willing to pay for housing, they just couldn’t find it.
“We had tremendous demand,” Friedman said. “Hess Oil had a terrific need for housing and they couldn’t fill it. All of the oil companies became tired of their people staying in man camps. It’s a terrible quality of life.”
Hitting the ATM
So, when Friedman offered Hess cabins for its workers — even at $3,000 a month in rent for a small unit — they didn’t balk or even blink.
Then, he learned how profitable it all could be.
It cost about $50,000 to build, haul in, furnish and set up a pre-fabricated cabin, Friedman said. But, at the $3,000-a-month rent level, they pay for themselves in about 18 months.
“After that, it’s just like going to the ATM every month,” said Friedman, who added that while the generally young workers did put some wear and tear on the units, it was minimal compared to his revenues.
Friedman also learned that his strength in the region was being able to network with oil companies working in the shale, developers looking for ways to finance their shale-related projects, and out-of-state investors looking for a way to put their money into the nation’s shale boom.
So Friedman kept his 30 units and his deal with Hess sold off the 80 acres he had set aside for more units and started looking for opportunities as a deal broker.
Now, he said he raises millions for other housing and commercial developments in the region, usually tapping hedge funds and family investment groups from New York, Philadelphia, and California. Friedman continues to cultivate new clients, including drilling companies looking for housing and developers looking for finance, real estate, or both.
One such developer has been Paul Dries of Louisville, Ky., who now spends about three weeks per month in North Dakota working on real estate developments. His company, Bakken Development Solutions, specializes in buying land and preparing it for commercial development by installing water, sewage, electrical lines, and, in some cases, even roads. He’s found both buyers and financing through Friedman, he said.
“Mike has been an important source of introduction to various people in the region for us,” Dries said. “He has done a good job of creating relationships within the Bakken, and then taking the relationships he has formed over the years in his real estate endeavors and connecting people who might have like-minded interests.”
For example, when Dries had for sale a 20-acre site in Watford City that was ready for development, Friedman introduced him to a multifamily real estate development company that was looking for a place to build. Dries sold them the property, which now is the site of more than 300 new housing units, he said.
Most everyone knows his name
According to Dries, Friedman is part real estate agent, part dealmaker, and part local celebrity — at least among the highly interconnected drilling and development crowd.
“If you went into a restaurant (in Watford City), there is a good chance that someone is in that restaurant that Mike would know,” Dries said. “Maybe more than one, maybe four or five — but there would be at least one.”
Friedman said he gets a commission on each sale he helps set up or each round of financing he facilitates. He also gets a small ownership stake in most of the real estate transactions he shepherds.
While he won’t disclose what he’s making from the work, Friedman said it’s the best business opportunity he’s ever found. He also says it’s not about to end anytime soon, which is one reason he’s willing to be paid, in part, with small equity positions in Bakken developments.
“They say they’ll need 79,000 wells to fully tap the Bakken, and they have 6,000 wells drilled so far,” Friedman said. “You do the math. … This so-called ‘boom’ is not going to be over anytime soon, probably not in my lifetime.”