Marcellus boom strains rental market

Posted August 8, 2011

OBSERVER REPORTER
By Michael Bradwell Business editor

Bill West remembers that not so long ago, he spent most of his time selling houses and fielding the occasional request from someone looking to rent a house or apartment.

Then the natural gas boom hit Washington and Greene counties.

"Two years ago, you'd get calls for rentals once or twice a month, but now it's almost daily," West said last week, adding that he usually has to tell people that there's a waiting list for anything that comes up for rent.

The jump, says West, who works with his wife, Betsy, for the Washington office of Northwood Realty, and others in the rental business is because of the influx of workers for the Marcellus Shale industry.

It's creating a demand no one in the business has seen before.

They also acknowledge that the surge, which comes as workers look to move out of area hotels and into more homelike settings, is putting a strain on a rental inventory that was never that big to begin with.

It's also prompting many landlords to tailor their units to the needs of tenants who work long hours, prefer furnished apartments and want to see their utilities, cable and Internet bills rolled into their rents.

Like everything else in the economy where demand outstrips supply, the boom also has raised monthly rents here.

Phil Armstrong of Washington owns about 50 units in Washington and Greene counties, including about 15 single-family dwellings in Washington and a large commercial/residential building in Waynesburg, where he said most units are currently rented to students from Waynesburg University and other non-Marcellus workers.

But the demand from oil and gas industry workers has Armstrong in preparation mode, especially in Greene County.

"I just bought three houses there this month," Armstrong said, noting that all three properties he purchased and is preparing to rent were in foreclosure.

Like West, Armstrong acknowledged that the big demand for rental units is putting more pressure on a sector that was already short on inventory.

"There's a dwindling supply and an increase in demand in both counties," he said. "The rental business is fantastic right now."

Long-term trend

Both Armstrong and West said indications from the oil and gas companies working here are that the drilling is expected to continue for the next 20 to 25 years, so rentals may remain hot properties for a long time.

"People are realizing that this isn't going away," agreed Michael Mackin, spokesman for Range Resources, the area's largest natural gas exploration company. While Range itself directly employs between 300 and 350 people here, Mackin said over the past several years, the company has brought in another 5,000 to 5,500 people to the area who work for the drilling companies contracted by Range.

In addition, Mackin noted, are other support companies assisting in the natural gas extraction process who also continue to hire.

"There's now more than 60 energy-related companies with operations here in Southpointe," where Range is constructing a new regional headquarters, Mackin said.

He acknowledged that the employment being generated by the Marcellus is one of the big reasons real estate agents and landlords are seeing the burgeoning demand for living space.

"It's among the largest job-creating industries in all of the country, and in Pennsylvania it's had a huge impact" in all aspects of the economy, he said.

Mackin said he believes that the pressure on rentals will begin to abate as more local people are hired to fill many of the drilling and supply-chain positions, a trend he said is already starting to happen.

He noted that Frac Tech, a provider of well completion services, which has about 130 people working in the area and also is building a new operations center in North Strabane Township, has been hiring local people for its work here.

Adjusting accommodations

But for now, landlords are scrambling to modify apartments to accommodate gas field workers.

One of the more unique projects that debuted early this year is the conversion of the former Sixth Ward School on Hallam Avenue by Michael Kopko of Kopko Construction.

Kopko, who orginally converted the school as a facility for Arizona-based Vision Quest, a program for court-orderd young pregnant women, began the conversion last year when Vision Quest closed its Washington location.

Today, after Kopko created a series of pods that includes a central living room with cable television and high-speed internet, and two to three individual bedrooms, the building accommodates up to 30 gas field workers.

He rents to workers either by the week or month, with rates he said are competitive with most area motel rates, but with space that includes several recreational areas with ping pong, a pool table and big-screen televisions, a weight room and laundry areas, as well as a large central kitchen.

Kopko, whose 30-year-old construction company has been involved in a variety of commercial projects, said Friday the school conversion to rental units has worked so well, he's considering a similar project for one of two other former schools he owns in Washington County.

"Out of all of the projects I've done, this is the one I'm proudest of because of the living space it provides," Kopko said.

Armstrong said he gets "at least five calls a week from people looking for a place to live, with many of the calls coming from wives of drilling company workers. A few years ago, he said when he ran an ad for space in one of his houses in the Washington area, "if I got 10 calls on the first day, that was a lot. Now, I run an ad and I get at least 50 calls on the first day. It gives you an idea of the demand here."

Brenda Davis, who helps her fiance Jim D'Allesandro manage rental units he owns in Washington, said local landlords are learning to adapt to the needs of workers who spend a lot of time on the job and want rentals that are hassle-free.

"It's a matter of accommodating their need for a turnkey, furnished apartment," said Davis, who is the Democratic candidate for mayor of Washington. "They don't want to deal with separate electric bills, gas bills and cable bills."

About 50 landlords in the Washington area are members of the recently formed ACRE of Washington, whose acronym stands for the American Contress of Real Estate, a national organization that represents landlords through its local branches.

Armstrong, who, like Davis, is a board member of the local chapter, said that during a July meeting, members discussed the Marcellus Shale rental market in depth. The membership collectively accounts for about 200 units across Washington County.

Armstrong said those who are renting to oil and gas workers noted that collecting rent is never a problem because many of the workers receive a stipend for food and lodging from their employers. Others said some workers like to find houses in semi-rural areas where there is room to park their pickup trucks. The houses are usually rented by four to five people who work on various drilling sites in the area, Armstrong said.

The group also agreed that the workers are among the best tenants they have, Armstrong said.

"They're not problem tenants," he said. "They work 12-hour shifts."

When they do have time off, Davis said, they prefer housing that's near interstate highways and close to entertainment, restaurants and other attractions.

Regardless of where they find a place to live, Armstrong said the onslaught of drillers has made it possible for many property owners to raise rents for the first time in a while.

"A lot of us held back on rent increases for a few years," he said, noting that the recession made such a decision difficult, if not impossible. "As demand has increased, we've been able to increase our rents."

It's not just commercial property owners who are gaining the ability to get more for their rental units.

Some homeowners are finding it lucrative to sublet their houses to the drillers as well, West said.

"If they're paying $1,000 to $1,200, they can make between $1,800 to $2,000 a month by subletting," he said. Copyright Observer Publishing Co.