The Great American Land Rush, as described by Business Insider, started a few years ago, and is gaining speed in several ways. A Berkeley Lab-led study shows nearly 2,000 gigawatts of solar, storage, and wind in transmission grid interconnection queues – an indicator that land acquisition teams are well-funded and hard at work.
With the Inflation Reduction Act (IRA) now in play, the competition is growing exponentially compared to the last decade. Enormous incentives have flooded the market with capital, providing an increasingly competitive market and urgency to lock down land and secure a development pipeline for years to come. If that wasn’t enough to concern developers, the rise in restrictive ordinances is growing rapidly across the entire country leaving even less land for renewable development.
Land is at a premium for renewable developers and to that effect, origination teams are doubling down on just about every strategy they have for site control. The steep competition for land has opened up a whole new tactic for site control: the Multiple Listing Service (MLS).
The MLS is a database of real estate opportunities and transactions, including land for sale. Traditionally, energy developers have avoided land for sale because it is too capital-intensive to acquire land for a development project. Utilizing a leasing strategy can help ensure that the project is economically viable before committing large amounts of capital to the project.
What if there was a way to solve this problem? Some savvy renewable developers, having seen desirable land for development become available as land for sale on the MLS, began to devise strategies for avoiding the capital intensity of the purchase price while securing the site for potential development.
Those strategies will be addressed in this article along with other ways the MLS can benefit renewable developers:
Strategies for convincing sellers on MLS to lease for renewable energy
Utilizing sale leaseback strategies to convert land for sale to a lease structure
Accessing the last sale price of a parcel to build a comparable model
Solving land challenges with market intelligence
Want to learn even more? We held a webinar discussing how to utilize MLS for renewable development, catch the recap below:
Convincing Sellers to Lease Their Land for Renewable Development
Strategies to convince the landowner that leasing is better than selling
Most landowners just want to monetize their land and, as a result, many sellers are open to the leasing discussion. Contrary to cold calling for site control, where landowners are difficult to reach, these sellers or their agents are easy to get on the phone.
Once in conversation, developers can find out why the landowner is selling the property and use that information to frame all of the different options available that are more lucrative than simply selling the property. If in conversation with the realtor, developers can help them to understand the potential for brokerage earnings. Here are some of the talking points for developers:
A leasing program can potentially recoup the intended purchase price in as little as 10 years
Leasing provides a long-term revenue stream for future generations- such as older landowners seeking to leave an inheritance for their children.
Leasing with a purchase option: This lets the seller know you’re interested in buying the property, but would like to lease it initially while the due diligence is performed on the renewable project. The purchase option can be a highly valuable commodity providing some strategic flexibility for the developer.
For example, If the land market increases significantly, it provides the developer with an immediate way to monetize the property. If the project proceeds, a capital investor would purchase the underlying land (see sale leaseback strategy below), oftentimes at a premium compared to a normal land purchase, because the capital investor is able to take part in the renewable project.
Purchasing Land for Renewable Development
If a site is highly desirable for renewable development, purchasing the land outright could be a good option. If the project is deemed not viable, the land can be put back on the market where any investment funds can be recouped, and in fact LandGate has seen several energy companies utilize this very model.
While this strategy is more capital intensive on the front end, some private equity groups and large well-funded developers have found less long-term risk in outright land purchases.
Purchasing land can also be viable in less desirable areas where option contracts can be beneficial for the developer. For example, land can take several months, or even years, to sell in certain areas. Many of those areas, typically rural markets, can be prime development sites. Developers can offer sellers an extended purchase option, meaning that the developer is interested in buying the land and pays a minimal price for the option to purchase over the next year or two.
This is known as a purchase option. A purchase option is the right, not the obligation, to purchase land within a certain time period in exchange for a small fee to the landowner for the exclusive purchase rights. Option contracts are often very low cost but can provide the developer with enough time for due diligence and a feasibility study. While options aren’t typically used for such long periods of time, it wouldn’t be unreasonable for renewable developers to explain the need for due diligence before a purchase can be finalized.
Utilizing LandGate tools such as the new release of Solar PowerVal will greatly enhance the timeline to perform initial feasibility studies.
The process for an initial feasibility study involves several stages including data collection, production analysis, pricing forecasts, cost analysis, revenue generation, and cash flow projections. Solar PowerVal is designed to auto populate relevant data sets so that developers can easily train an entry level analyst to use the tool, while also allowing customizable parameters and inputs for an engineer or experienced developer to refine the analysis. A solar site can be determined to be economically viable in as little as 5 minutes. From there, the developer would start the process of verifying project parameters to ensure the project can proceed.
Strategies for Converting Land for Sale to a Lease Structure
One strategy that capital groups deploy in renewable energy is the sale leaseback strategy. The strategy involves selling a project and then leasing the project back to the developer. This strategy allows capital groups to step into the project at the non-operational level. The developer in turn gets an immediate influx of capital to deploy toward other projects.
The sale leaseback strategy is more common with later stage projects, where the project is operational and/or nearly guaranteed to be constructed (post PPA, post permitting, etc).
However, the sale leaseback strategy is also deployed by developers at early stage projects to convert land for sale to land for lease. Capital partners looking to step into rent and royalty opportunities are very common. These investors are beginning to seek early stage projects. As a result, developers can easily partner with renewable investors, land holding companies, or capital partners, to become the land buyer while the developer agrees to pay the investors under a lease structure.
A benefit to this approach is that the capital partner is often supportive of the project’s development. Whereas landowners, under a typical lease structure, may complain about roads, construction equipment, and other potential areas of conflict over land use.
Market Research & Intelligence
LandGate has compiled all of the MLS deals and market intelligence into one solution. Renewable developers can access MLS data to gather information about the local real estate market, including property listings, historical sales data, and trends. This data can help developers identify areas with high potential and target their marketing efforts effectively. Example AOI is in Geary and Riley County, Kansas demonstrating MLS Listings filtered by a maximum of 5 miles from substation. Table on the left allows export of the associated $/ac for all available parcels.
Since LandGate seamlessly integrates MLS data into best-in-class parcel and infrastructure data developers can search for listings that meet their specific buy criteria including proximity to infrastructure, acreage size, and buildable acreage. This saves the time it would take to manually enter MLS into developers’ own GIS platforms and would require custom subscriptions to query proximity to other data.
LandGate’s database of MLS land for sale can be instantly sorted or exported including all of the sellers in an area of interest.
Additionally, developers can access important information about what the market is paying in certain areas. The tools provide the ability to enter any area of the US and quickly research the historical sale price of a particular parcel (or group of parcels) and create a database of area comparables.
Additionally, LandGate has proprietary listings and leads that are not available on MLS. Not only is LandGate’s platform pulling in all MLS land for sale, there are tens of thousands of leasing opportunities with direct landowners.
Conclusion
In essence, the shift towards utilizing MLS as a strategic tool reflects the adaptability and innovation characteristic of the renewable energy sector. By engaging with landowners, capitalizing on sales leaseback strategies, and harnessing MLS data insights, developers are navigating the complex landscape of land acquisition with renewed efficiency and precision.
As renewable energy continues to shape the global energy landscape, leveraging these tactics will prove instrumental in securing the critical resources needed to power a sustainable future.
Designed with a focus on workflow efficiency and effectiveness, LandGate seamlessly integrates with the approaches detailed above, optimizing the process of greenfield development. For a demonstration of any of these topics, connect with our Energy Markets Team here.
