Nakota Development is building four Value Place properties in Williston, ND, the epicenter of an energy industry boom.

Follow the energy may be the best advice for someone looking for promising development opportunities in the U.S. hotel industry during this year and beyond. And if you follow the energy, you may end up in North Dakota, the hottest hotel market in the U.S.

The northwest part of the state centered around Williston is the epicenter of a new oil boom that’s creating unprecedented demand and shortages for all kinds of products, including space in hotels. Developers are scrambling to build new properties, but the availability of sites is slim and prices to build new hotels continue to rise.

“It’s a town of 15,000 people and growing with an industry that’s also growing rapidly, but there’s very little infrastructure to support the growth,” says Art Cahoon, chairman & CEO of Nakota Development, which has two Value Place properties under construction (opening in July) and two more in development in Williston. It’s also working on the development of a 470-unit apartment building in the area.

Nakota is one of the lucky (or shrewd) developers that was able to wrap up land sites before the boom economy took hold. “We figured it was most important to secure the scarce resource—the land—and then proceed in developing the hotels and finding the right flags,” says Cahoon. The firm is building two Value Place hotels side by side at each site, with 124 rooms (the chain’s standard prototype) in each hotel. “We picked Value Place because of its operating model and because the profile and amenities match the workers who will be staying there.”

Father-son Ray and Greg Obendorf opened a new Phoenix prototype Motel 6 in Williston last November.

While Cahoon won’t project results for the four hotels under development, he should have no problem filling them for the foreseeable future. A Motel 6 that opened in Williston by farmers-turned-developers Ray and Greg Obendorf (father and son) has been running at 100% occupancy since opening with bookings extending a year out. Average rate is $100-plus, says Dean Savas, senior vice president of franchising for Accor North America, Motel 6’s parent. The 69-unit property is one of Motel 6’s new Phoenix prototypes. Four of the rooms are built for extended-stay and include kitchenettes.

“Even at a rate above $100, we believe we’re still the lowest-priced national chain in the area,” says Savas. “Of course, it’s not hard to justify that kind of pricing when people working in McDonald’s in the area are making $15 or $16 an hour and getting signing bonuses to work there.”

While STR doesn’t delineate operating performance for the Williston area, its statewide numbers reflect the boom times in the state, where the unemployment rate hovers below 4%. According to STR, statewide hotel occupancy through October was 75.1%, up 9.2% over the same time a year earlier. By contrast, occupancy for 2005, an excellent year for hotels in the rest of the country, was just 58.4%. Average rate for 2011 through October was up 15.2% and RevPAR rose a whopping 25.9%.

With those kinds of numbers, it’s natural to think other developers are swarming to the area. They would, say Cahoon and Savas, except for the challenges they face.

Nakota was able to pour the foundation for its first two properties before winter started, even though delays in labor and materials meant that phase of the project took three months.

“Except for what we must obtain locally—components like asphalt and concrete—we have to bring in all of the building materials and labor from elsewhere,” says Cahoon, noting that costs of building materials have risen 300% to 400% since the boom started. “We were lucky to get the foundations pored for our first two hotels before winter, but even that took three months because of shortages of labor and materials.”

Savas says it will be difficult for other developers to build in the area for a while. “It might already be too late for those looking to build. And it will be very difficult in the economy segment because development costs are rising so fast,” he says.

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