Ernst Capital is pleased to report that the Dakotas Real Estate Income Fund IV, LLC (“Dakotas Fund IV”) has closed on its sale of the Park88 Apartments property (“Park88”) located in West Des Moines, IA. The transaction was finalized on February 23rd, 2022, as an out-of-state investment firm purchased the property.
Every deal Ernst Capital Group makes passes across his desk. And in the near decade Nick Gates has been with the firm, that’s a lot of deals. “The first opportunity I had was Ernst Capital,” said Gates, who joined the team in 2012. “I started here, and I’m still working to help us and our investors find the next good investment.” Gates was one of the firm’s first employees, and his career has grown with Ernst Capital. A native of Mitchell, he went to Dakota Wesleyan University with majors in mathematics and business. The latter led him to earn his MBA at USD immediately after graduation. “I graduated from DWU in 2010 when it was a tough time for business coming out of the Great Recession,” Gates said. “So I went and finished my MBA and applied for a host of jobs after that.”
One of them was at Ernst Capital, where he was hired as a financial analyst – but in reality became a jack-of-many-trades as one of a few employees. “I did anything from helping in HR, taking care of the trash and running financial models,” he said. “At the time, like in many small businesses, I filled in anywhere that was needed. When I started, I didn’t really know much about real estate. They don’t teach about it in college.” As Gates and the firm grew, he came to focus more on the due diligence review process, assisting with regulatory compliance, deal structuring and management of investment partnerships. “Some days I might look at three or four hours of financials; other days I might work with legal counsel to finalize operating agreements or a prospectus for investments,” he said. “I may have a closing coming up. So it’s a broad range of things related to real estate.”
He became a partner at the firm in 2015 and has spent the past 18 months helping Ernst navigate through the current low interest rate environment and strong interest from investors. “Our real estate investment opportunities have been pretty steady, and we’ve had the benefit of selling a couple assets, which has kept us busy and investors happy,” Gates said. “We’ve grown significantly over the last couple years, but we’re always looking to grow more while maintaining a responsible strategy and effective controls.” Ernst Capital has “a broad growth track” ahead, he predicted. “We’re in five or six markets within a 400-mile radius of Sioux Falls, and I see us expanding to 15 to 20 markets within 800 miles over the next 10 years,” he said. “Our goal is really to meet investor expectations. There’s a lot of capital looking for a place to invest, and we’re fortunate to work with some great development partners who help us create those opportunities.”
When he’s not at work or on a golf course, you’ll most likely find Gates keeping busy with his wife, Jennifer, and 3-year-old Remington. “To be honest, Ernst Capital has just been a great opportunity,” he said. “I’ve had the opportunity to learn and grow, and I really enjoy what I do putting deals together. Some of our longest deals have taken over a year to put together, and the feeling when it falls in place is just fun. Of course, not every deal comes together, but even when they don’t, it makes the next deal that much better.”
Queen City Balloon Bar is opening a storefront location on the east side of Sioux Falls. Ryan Egan and his wife, Christine, have been running the balloon bouquet business for years out of their home. “We do upscale balloon decorations and gifts,” he said. “It’s more of a boutique than going into a party store and doing something quick”, according to Ryan. The store’s hours will vary Tuesday through Saturday.
A record building year in Sioux Falls and similarly strong activity regionwide is driving significant interest in real estate investing. Whether you’re currently invested in local real estate or considering it, knowing market conditions and potential challenges is key to understanding your opportunity. We sat down with Chris Daugaard, a partner in Ernst Capital Group, for insight on the market today and looking ahead.
How would you describe the state of the real estate investment market today? What are some of the themes through the first three quarters of the year? The real estate investment market is strong, very competitive and growing. Through the first three quarters, we continue to see interest in investment real estate and growing interest from firms that are located outside of the region. You see competition and higher prices for any property that hits the market.
You’ve consistently invested in Sioux Falls and regional markets like it. How are you perceiving the strength of those markets currently relative to the rest of the country? Around the country, the last two years have seemingly increased growth in certain areas and slowed growth in others. Markets in the Upper Midwest seem to have fared relatively well compared to much of the country. Sioux Falls is as strong as we’ve ever seen it and I think still flies a bit under the national radar. That is changing.
You have invested primarily in multifamily but also in some retail and office properties. Multifamily is in a historically tight market. What does that mean for Ernst Capital and future investment prospects? It means that we continue to focus on multifamily investments, as the demand is there. Labor and material availability is what is limiting more multifamily development at this point, not opportunity. Sioux Falls has strong office and retail markets, as well, counter to the narrative that the pandemic has created in other places. Some coastal cities have significant downtown vacancy, retail vacancies and slowing trends. Sioux Falls is seeing the opposite. We have a robust downtown office market and new retailers starting and building in Sioux Falls, and the market seems to be just getting better, not worse.
Sometimes intense markets can lead to some bad decision-making. Are there any cautions you might share for real estate investors? It goes back to the popular quote, “Trust, but verify.” Excitement and good marketing don’t take the place of investors doing their own homework. It’s important to seek good information from people you trust. If you hear about how good a potential investment is, it’s OK to ask the person offering that investment for some documentation. What makes it a good investment? Would this investment work well in a slower, more “normal” market? Additionally, because a hot market can require quick decisions, it’s important to do your homework ahead of time. What exactly are you looking for as an investor? What type of property, what characteristics are important? Knowing that all ahead of time can help you make quick decisions about an investment property when there’s competition. We provide investors a more passive, measured approach to investment real estate. That way, they don’t have to be in the heat of competition to buy properties themselves.
What are some of the most common questions you’re receiving from current or potential investors? We are hearing a lot of questions about Congress, the state of the economy and what’s happening with the two main bills under consideration. A lot of investors are also looking at the stock market and wondering how much room there is left to run.
Looking ahead, what are your expectations for the remainder of the year and into 2022? We’re expecting the multifamily market to remain strong, with more announcements for new construction and new businesses planning to open in Sioux Falls and the region. We’re blessed to live in an area that is a great place to live, work and invest.
Real estate investing can be a complicated topic, especially for the uninitiated. Explaining it is what keeps Chris Daugaard excited about his role. “What I really like about working with investors is taking what can be a complex or uncommon topic like development or finance and trying to describe it to people who don’t do this as a day-to-day job,” said Daugaard, a partner in Ernst Capital Group. “I don’t come from a real estate background. I’m not a deep finance guy. So it’s fun for me to explain things how I relate them and have people get as excited about our projects as I do.”
It’s an exciting time for Daugaard, personally and professionally. He and his wife, Emily, recently welcomed their first son, James. At Ernst, activity is so busy his days are filled with project and investor communication. Luckily, he has found a way to balance both, as one of his favorite activities is driving around the community with his son napping in the backseat. “I drive around town for a couple hours seeing projects going on and what’s going up while he catches a nap,” Daugaard said. “I really enjoy seeing the communities we are working in develop and being part of it.”
It was a bit of an unlikely career path for the Dell Rapids High School graduate who grew up thinking he might become an electrical engineer and went to SDSU with that in mind. “I was going to go somewhere in state because that’s what I could afford, and I was paying my own way,” he said. “I liked technology – still do – science and math, so that had me looking at School of Mines and SDSU, and I chose SDSU because I wanted to play in the drum line for marching band.” His academic direction changed after a year when he pursued economics and political science instead, ultimately graduating with a political science major and minors in business and economics. “I graduated a semester earlier than planned to help my dad campaign, and the plan was to go to business school,” Daugaard said.
One of three children of Dennis and Linda Daugaard, he had grown up around his father’s career in the South Dakota Legislature. In 2010, Dennis Daugaard was elected governor of South Dakota. But here’s a perhaps little-known fact about the family: Chris Daugaard also has a history of top elected office. He served as student body president both in high school and at SDSU. “And before I worked on my dad’s campaign, if you’d asked me whether I would consider running for office someday, the answer probably would have been yes,” he said. “With today’s political climate, it’s harder to say.”
His first job, as an analyst for the Public Utilities Commission, was in state government but was focused on policy and technology and less on politics. “I was able to work with the state’s telecom industry but also on wireless service, broadband and renewable energy. I really enjoyed that.” After getting married, Daugaard’s career took him to Sioux Falls, where he worked first as a business analyst and then in the corporate organizational development group at Raven Industries. “I really enjoyed my time there and had planned for it to be my career when I unexpectedly learned Ernst Capital was looking for someone to be an analyst, working on their portfolio and entities in addition to working with investors to raise capital for new investments,” he said. “So I looked at it as an opportunity to do something different and still do analysis while also helping our area communities grow and develop.”
He joined the firm in 2014 and was made a partner three years later. “My day-to-day involves visiting with our current investors as there is always something new going on with our portfolio and something to look forward to, but also meeting with people who aren’t as familiar with Ernst or who are looking to participate in the growth of the region – as an investor, developer or interested community member.” He also oversees the firm’s marketing and communications, and works personally with a few hundred investors.
Ernst generally looks to invest within a 400-to-600-mile radius of Sioux Falls. “We’re happy to be here and looking to grow within the region,” Daugaard said. “We’re working with people who are fun and rewarding to do business with – that’s the type of relationship we’re looking for both from an investor and a partnership standpoint.”
For fun, you’ll likely find him and his family downtown listening to music or checking out a new eatery. “And I like to golf, and my dad and I do a river canoeing backpacking trip every year,” he said. “I’m just very glad to be in South Dakota, doing what I’m doing and growing here personally and professionally. We’re very fortunate to live and work in this part of the world.”
According to a recently published article, many Sioux Falls area property management companies are seeing historical highs in occupancy and leasing of rental properties. Many Sioux Falls properties are anywhere from 99 to 100 percent leased. “Anything that is coming vacant is almost already spoken for even before it becomes vacant,” according to the article.
LINC at Gray’s Station has filled yet another one of the building’s commercial spaces with a high-end nail salon, Tipsy Nails. According to the article, “Tipsy Nails will have everything you would expect with a touch of high-end options like massages and eyelash services at our new location,” Luong said in a prepared statement. “We are very happy to be one of the first businesses to be opening in Gray’s Station.” Luong and his family own and operate Nails, a salon at Cityville on 9th, which will remain open.” The new salon is anticipated to open sometime in 2021.
LINC at Gray’s Station has announced a new tenant in one of the building’s ground-floor commercial spaces. According to the article, “Iowa Spine and Performance will open in a retail bay at LINC, 210 Southwest 11th St. It is the third business announced for the commercial ground floor of LINC, which fronts Martin Luther King Jr. Boulevard. Also planned is Mad Meatball, a former East Village pizzeria, and Craft Bru DSM, a 60-handle craft beer taproom. ” The chiropractic clinic is anticipated to open later this summer.
An article recently released in the Argus Leader, details the Veterans Parkway interchange construction which is enabling easy access to the east side of Sioux Falls along with future development along the project. The article also goes into future planning of the second half of the project which will connect Veterans Parkway to I-29. “Construction is planned to start by 2023 and is expected to be completed in the next five years”, according to the article.
It was enough to make a husband-and-wife dental team grin. As Drs. Seth and Lauren Schroeder watched the annual Harrisburg Days Parade in 2019, “we saw what we believed was the most jampacked parade route lined with strollers,” Seth Schroeder said. “There’s a lot of families.” To them, that meant demand for dental care.
“We were in dental school at Nebraska, worked a few years and had done a whole bunch of research on where to start our family business,” Schroeder said. “So we set the wheels in motion and sent an email to the Chamber of Commerce and said: ‘Is there anything you can do? We want to be dentists in Harrisburg.’ ” It led them to connect with Gregg Brown of NAI Sioux Falls, who had a future retail center as an option. “It took a year of building, and in September of 2020, we had the doors open and the first patient in the door,” Schroeder said.
Harrisburg Family Dental leased three of the seven spaces available in the new Creekside Plaza retail center – or 3,000 square feet. It’s more than they need now, “but we built it so we can grow into it over the years,” Schroeder said. “We want it to feel like you’re walking into your living room – a nice homey feel versus sterile. And it’s going awesome. You can’t believe how much traffic there is. Our biggest advertising comes from people knowing where we are, seeing the signage.” And it wasn’t long before Harrisburg Family Dental gained new neighbors. The nearly 9,000-square-foot Creekside building drew fast interest, thanks to its strategically strong location at the prominent intersection of Cliff Avenue and Willow Street. It’s now fully leased. “The coolest thing is every single one of these tenants lives in Harrisburg,” Brown said. “These are local people, they have kids who go to the schools, and in most cases, they were brand-new businesses to Harrisburg.”
The tenant mix includes Edward Jones, Evolve Chiropractic, RightQuote and Serenity Nail Spa. “It was clear the demand was to have quality space, a brand-new building,” Brown said. “This was on the heels of Sanford and Lewis breaking ground, you’ve got Fareway and Ace nearby, so Cliff and Willow really has become Main and Main for Harrisburg.” That was the vision shared by Ernst Capital Group, which included Creekside Plaza in its third real estate investment fund with local developer Signature Cos. The Signature Real Estate Income Fund III raised more than $16 million in private investment to support four local projects.
“It’s our first retail and office development outside of Sioux Falls, and we’re thrilled with the market response,” said Chris Daugaard of Ernst Capital Group. “The occupancy and tenant mix here show the momentum Harrisburg is experiencing residentially, and it’s clear Creekside Plaza is positioned to meet a need commercially.” Construction will start in the coming weeks on a second, nearly identical retail center, that will be available this fall. Suites range from 985 to 1,792 square feet, including end caps with drive-thru capability, building and monument signage and five-year minimum leases.
“Part of what is making this such a desirable fit for businesses is the approach that developer Signature is taking with construction, using an in-house architect, so we can meet with a prospect, turn around a space plan and lease proposal and then quantify for them what their contribution would be toward the build-out,” Brown said. “Signature builds out to its specs, and then the tenant pays for any upgrades. So they pick their finishes, and the speed to market is amazing. It’s been a difference-maker and made it really seamless and a unique model.”
Creekside II could be a good fit for a fitness center, coffee shop, bank or any other retailer or service provider looking to capture the growing Harrisburg market, Brown added. “There were a lot of prospects we talked to who couldn’t commit during COVID, so my hope is they will be ready for a building that delivers later this year,” he said, adding there’s also room on the site for a standalone restaurant, bank or office. “Ernst Capital Group makes the decisions on leases with Signature, and Lloyd Cos. manages it, so we have a lot of parties involved, but it’s worked really seamless and been a lot of fun to work on,” Brown said. Schroeder encourages other business owners to consider locating there.
“I would say there is a massive amount of traffic, and it’s a small-enough town where, when your business is being built, everybody already knows what you are,” he said. “If you have a service people need, they will utilize you rather than going to Sioux Falls.”