A Tale Of Shale: Is Ohio’s Commercial Property Market Improvement A Pilot For Neighboring States?

Chart of Utica Shale drilling permits by month June 2012

A recent Bloomberg article trumpets a turnaround in Ohio’s commercial property market. Driving this is the land value represented by Ohio’s portion of the energy-rich Utica Shale, a giant deposit of oil and natural gas about 8,000 feet below the eastern Ohio landscape.

A study by researchers at Cleveland State University, Ohio State and Marietta College says energy production in Ohio may add nearly $5 billion to the state’s economy in 2014. The buried riches are spurring economic activity of all kinds, from generating billions in land leases to converting rural properties into industrial parks to meet the soaring demand for space by energy service companies.

The clamor of bulldozers on a patch of former farmland in rural Carroll County, Ohio makes Glenn Enslen, the county’s economic development director, feel “like an eight-year-old kid on Christmas morning,” he said.

The 330-acre tract of Appalachian property is being transformed into an industrial park. The first tenant will be MRC Global Inc. (MRC), a Houston-based pipe and valve supplier that will serve Ohio’s emerging oil and natural-gas industry.

Traditional measures of commercial property market health including delinquency rates are looking bright in the Buckeye State:

Bloomberg notes that Ohio, which had the seventh-highest commercial property delinquency rate in the country in December, according to Moody’s Investors Service, is showing signs of marked improvement.

“The delinquency rate on commercial mortgages packaged and sold as bonds in Ohio dropped to 8.74 percent in June from 11.28 percent a year earlier, according to data compiled by Bloomberg,” the story finds. Meanwhile, late payments for commercial loans in Youngstown, in the heart of fracking activity in the state, declined to 5.69% in June from 7.75% a year earlier.

As a result, Bloomberg notes, Youngstown “is starting to change.” For instance, hotel revenue rose 24% and occupancy gained 19.6% in the Youngstown area in April compared with a year earlier, according to data from Smith Travel Research Inc.

“The shale is just part of the puzzle,” said Michael Moliterno, general manager of the Holiday Inn in Boardman, about five miles from Youngstown. “Overall we’re doing well.”

Only One Of Eight States Atop Utica Shale

The Utica Shale is a massive geological formation that sprawls across many states and into Canada. It lies under most of Ohio, New York, Pennsylvania, and West Virginia and touches adjacent parts of Kentucky, Virgina, Maryland and Tennessee. The entire formation is estimated to contain as much as 5.5 billion barrels of oil and 15.7 trillion cubic feet of natural gas.

With numbers and size like this, can similar development — and possibly similar economic benefit —  be expected in other states?  Ohio is currently the leading explorer and developer of the Utica Shale, but a map of drilling permits shows activity centered along both sides of the Pennsylvania border. It would not be surprising to see this pattern extend across the entire Shale — and into all the states that share it.

On Shaky Ground?

The Utica Shale differs from more familiar oil deposits in an important way: drilling is horizontal, not vertical, and extracting the gas or oil involves a relatively new technique of injecting treated water at high pressure into the formation.  As with all new technologies, the benefits come with problems, and all the problems don’t surface right away.  Some are linking the practice, called phracking, to a recent string of earthquakes near Youngstown.  Others claim no such linkage, but the jury’s still out.

Is Ohio’s shale-aided commercial real estate recovery standing on solid ground?  Time will tell.

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