Prospecting for Black Gold
I thought I'd take a break from answering questions this month to tell you about my new business. It's called Black Gold Suites, and there's a story behind it. My wife and I spend part of every year in Telluride, Colorado, where we have a home and where I've gotten into residential construction. I've become friends with my builder, Steve Finger, who came to me earlier this year and said he wanted my advice about a business opportunity.
"Do you need money?" I asked. I knew that his industry had been hit fairly hard by the recession.
"No," he said. "I'd just like you to take a look at it and tell me what you think."
"OK," I said. "What is it?"
"It's a hotel," he said.
"Where?" I asked. He started to grin. "Is that funny?"
"It's in Tioga, North Dakota," he said. "About 40 miles from the Canadian border. It's a very small town. You wouldn't have heard of it."
"How small?" I asked.
"The population's about 1,300," he said. "Believe me, it's in the middle of nowhere. In the winter, the temperature gets down to minus 20." I looked at him. "And you want to build a hotel there?" I said. "Is this a joke?"
"No, no," he said. "In 1951, they discovered oil up there, but a lot of it was trapped in shale, which they couldn't get out of the ground economically. Now they can because of a new process called fracking. Hess is expanding its operations there."
I'd heard about fracking. It's used for extracting oil and gas from shale by pounding rocks so hard they crack and then injecting fluid into the cracks to force them further open, thereby releasing the oil and gas trapped inside. The process has generated controversy, and lawsuits, in Pennsylvania and New York because of concerns over water pollution. I asked Steve why that wouldn't be a problem in Tioga. "Nobody lives there. But that's also a problem. There's no place for the workers to sleep," he said.
"Where do they sleep now?" I asked.
He laughed. "It's a little hard to describe," he said. "You really have to see it."
My curiosity piqued, I decided to take a look. A few days later, we boarded Steve's plane, along with his partner, Ray Cody. There was not a soul in sight when we landed at the Tioga Municipal Airport. "How do you get into town?" I asked. "The president of the bank is coming for us," Ray said, "but there's a car that people can borrow if they need to." He pointed to a key hanging on a wall and a sign reminding drivers to unplug the engine heater before taking the car and asking them to refill the tank before returning it. Brooklyn, this wasn't.
Soon, the local bank president, David Grubb, showed up. He was also chairman of Tioga's economic development corporation. He drove us around to see the sights, including the convenience store, where the shelves looked almost bare to me. "What's with this?" I asked. Grubb explained that everything is gone by 10 in the morning on Fridays. It was about noon. "The workers get paid and come in and buy whatever is here. We're short of everything," he said.
That includes workers. In North Dakota, unemployment is 3.2 percent. In Tioga, it's less than 2 percent. Workers in the oil fields make about $100,000 a year, and people come from all over for jobs. "But we've got a problem with sleeping arrangements," Grubb said. "They either stay in their campers or in the man camp."
"The man camp?" I asked.
"Yeah," he said. "Do you want to see it?" We headed out of town and soon came to an encampment enclosed by barbed wire. Inside was a collection of 8- by 40-foot prefabricated metal boxes that resembled shipping containers. The boxes had been turned into living quarters for the men. And I do mean men. The rules are no drugs, no guns, and no women. It costs about $130 per night to stay in the camp, including dinner in a mess hall. (I was told that the food is good.) The camp has 250 bedrooms, as well as a gym, recreation facilities, two TV lounges, a laundry, a smoking room, and an Internet café. There's a long waiting list to get in. The men work for, say, 30 days, then have five or so days off, but they keep paying on their days off, so they won't lose their spot.
The rules are no drugs, no guns, and no women. It costs about $130 per night to stay in the camp.
Suddenly, the idea of building an extended-stay hotel in Tioga seemed appealing. I knew Steve and Ray had already purchased a 3-acre plot inside the town limits. It had access to water, electricity, and sewage systems. I still had questions, however. We headed back to town to continue our discussion at the bank. We were joined there by Jamie Eraas, the city auditor, the top administrative official in Tioga. I asked Eraas why Hess hadn't built lodging in Tioga. "We've had them in here," she said. "They told us, 'It's not the business we're in. We pay these people plenty of money. Somebody else will come along and do it.' "
"OK, we're interested," I said. "But we need to talk about financing." I looked at the bank president. "I'm sure you'd like to be our partner in this and help us out with a loan." I could see him stiffen. I knew he would say the deal was too risky. I quickly added, "And with no recourse." With recourse is the term for a personal guarantee. I don't do personal guarantees anymore. "Before you say no," I went on, "let me explain. I will put up all the construction money. I'd like you to agree to lend back to me a percentage of that without recourse after we get the certificate of occupancy. There must be a number."
He relaxed. "You're right," he said. "There is a number we could lend with no recourse, no personal signatures after the hotel is built. I'll get back to you." A week later, the bank offered a postconstruction loan for 50 percent of my investment. We're still negotiating.
There were a couple of other issues to deal with. "We're going to need a new access road," I said. "We can talk about that," the auditor said. "I notice you don't have any tall buildings in town," I said. "Do you have height restrictions? I'm going to need 50 feet." I figured the hotel would have four or five stories, at 10 feet per story. "That's higher than we allow," she said. "But we can go to the board and get it approved." "When?" I asked. "Let's see," she said. "We can do that on Tuesday." It was Friday afternoon. "Tuesday!" I said and asked, as a joke, "Why not Monday?" "Monday is a holiday," she said.
So now I'm in the hotel business. By the time you read this, we will have broken ground. We've had a billboard on the site since April, and we've been contacted by two major companies interested in reserving some of Black Gold's 100 rooms. Meanwhile, we've bought land for another hotel in Stanley, about 30 miles away, and we're negotiating to buy a third location.
When I was a boy, my father used to say: "There's a million dollars under your shoe. You just have to find it." I didn't understand what he meant, but I do now. I found quite a few millions under my shoe in the records-storage business. I bet there are many millions more waiting to be found around Tioga. The area is as ripe for entrepreneurs as Sacramento was in 1849. It needs restaurants, brewpubs, grocery stores, clothing stores, filling stations, and a lot of other things no one has thought of yet. After all, blue jeans didn't exist in 1853 when a 24-year-old German immigrant named Levi Strauss left New York for San Francisco to open a dry-goods store catering to gold miners. It won't surprise me to see several new businesses from North Dakota on the Inc. 500 in a few years. Who knows? Black Gold Suites may be one of them.
Please send all questions to AskNorm@inc.com. Norm Brodsky is a veteran entrepreneur. His co-author is editor-at-large Bo Burlingham. Their book, The Knack, is now available in paperback under the title Street Smarts: An All-Purpose Tool Kit for Entrepreneurs.
NORM BRODSKY | Columnist
Street Smarts columnist and senior contributing editor Norm Brodsky is a veteran entrepreneur who has founded and expanded six businesses.