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Oil change

Husky antes $4 billion Lloydminster is roaring back with the heavy oil industry, which can thrive at $90 per barrel, particularly in a community where infrastructure and construction costs can be more easily contained.

Husky antes $4 billion

Lloydminster is roaring back with the heavy oil industry, which can thrive at $90 per barrel, particularly in a community where infrastructure and construction costs can be more easily contained.

One of the area's key employers, Husky Energy, bumped its 2010 capital budget to a whopping $4 billion late last year, and continues to drill new wells in long-established fields to feed its Lloydminster heavy oil upgrader. Husky is also building a new office in the city, though what it spends in the fields around Lloydminster and at its upgrader is arguably far more important to the oilfield economy.

Local initiatives include capturing carbon that would otherwise head into the sky, and using it for injection purposes to sustain the flow of oil to new and existing wells.

The signs of confidence in Lloydminster go beyond the numbers - though 180 new single-family home starts and 32 new townhouse units in 2010 are nothing to sneeze at, nor can $54 million in new commercial and industrial building permits be downplayed.

Land demand

There is growing interest in new residential and commercial developments, according to realtor Lane Columbine of Musgrave Agencies Ltd., one of the Border City's leading real estate and development firms.

"All the residential lots we brought on, we sold in 2010," explained Columbine, adding more new residential lots are expected from his firm in late summer or early fall. "By all accounts, it looks like there's probably going to be more names on the list of people wanting lots than there's going to be [lots available] in that first group of lots we bring on. Demand is high."

The company is also looking to bring forward more townhouse units, which have proved popular with investors because of their potential returns in the rental market. A $180,000 1,160-square-foot townhouse unit on the Saskatchewan side can generate rents in the range of $1,500 per month, he noted.

While real estate values have long been higher on the Alberta side of the border, there are benefits to building both revenue properties and starter homes on the Saskatchewan side for some very practical reasons. One of those: the younger employees of the oilpatch - particularly young males - like a Saskatchewan residence that comes with much lower auto insurance rates - rates that can more than make up for income tax rate differences.

Lloydminster is a place of value-affecting variables.

For example, there will eventually be a Highway 16 bypass to the south of the 25,000-plus city, and, where that bypass connects highway commercial land, it will affect land values.

For now, the 44th Avenue/Highway 16 corridor, which carries over 14,000 vehicles a day, remains home to the priciest land, Columbine said, but forward-thinking investors should also consider the south end of Highway 17 for its value. That's because the north-south road that straddles the border will be a main connector to the busy east-west Trans-Canada Highway 16 when a bypass is built.

"I think land value down there will go up considerably," he predicted.

Sales tax exempt

As a centre that's exempt from Saskatchewan's provincial sales tax, Lloydminster welcomed Future Shop, Winners and SportChek in 2010.

Columbine said a commercial project known as 18th Street Crossing on the city's south end should attract further investment this year, likely in the form of new restaurants and light retail.

Yet another variable in the Lloydminster equation: the City of Lloydminster is currently revamping its municipal development plans that will help guide where new commercial and residential projects locate.

The final approval of all those plans isn't expected to come until spring of 2012, and 2011 will be a year of consultation with the public and landowners.

While older commercial properties may lease for as little as $7 or $8 per square foot, power-centre lease rates can range above $20 per square foot in the right locations, according to Columbine.

Rental vacancy

While the recovery's strength is evident in some ways in Lloydminster, it's less tangible in other stats, like the apartment vacancy rate for the Border City, which Canada Mortgage and Housing Corp. said hit a whopping 12 per cent last fall, the highest among Alberta cities. Construction starts for apartment units in 2010? Zero.

Columbine said older units are more difficult to keep filled than newer townhouse-style properties.

Veteran appraiser Chuck Taylor of McInnes and Co. Appraisals Ltd. said the city's overall residential market is relatively stable, with slight price growth in some neighbourhoods and markets.

Properties were moving well late in 2010 as the oil sector's prospects rose, he said.

Boom rating

The city remains a darling of the Canadian Federation of Independent Business (CFIB), which rates entrepreneurial communities with its Communities in Boom report card each year. Lloydminster was tops in Canada in 2008, according to the CFIB, then slipped to fifth in 2009 before climbing back to second in 2010.

It all paints a pretty positive picture, in the eyes of Ward Read, who manages economic development for the city.

"If you are a person looking to start a business, or already running one, there is really no better place to be in Canada than Lloydminster," said Read.

Lloydminster may see itself as a progressive place to do business, but it certainly isn't resting on its laurels.

Read notes the city is creating its own arm's-length economic development corporation. It's also looking at doing even more to foster investment in small businesses by creating a formal business incubator, assuming there's demand for such a program.

Other key Lloydminster improvements have included significant capital projects by the Lloydminster Exhibition, which hosts everything from major trade and agricultural shows and conventions to concerts and weddings.

Judging from the inquiries coming into Read's office, activity in the business and housing sectors is likely to speed up as heavy oil activity grows, especially in a city where unemployment topped out at about 5 per cent in the peak of the downturn.

Its location nearly halfway between Saskatoon and Edmonton almost assures that, as does its undisputed status as a retail hub.

Noted Read: "Our economic strength keeps these big-box retailers considering Lloydminster, which encourages our neighbouring communities' residents coming to Lloydminster for services."


from Western Investor, March 2011