Author Topic: Windfarms  (Read 1444 times)

hgjjgkj

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Windfarms
« on: November 01, 2017, 09:09:41 PM »
Anyone around here have any luck purchasing land to profit from ground leases, specifically wind power? When I look at major farms in texas, the acreage is massive, but I was wondering if anyone has had luck with identifying land that is fruitful for wind power and then securing a lease arrangement with a developer?

OkieM

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Re: Windfarms
« Reply #1 on: November 02, 2017, 09:42:19 PM »
Around here in Oklahoma everywhere is good for wind farms. They tend to go near transmission lines to save costs and be spread out over a wide area. Land goes for about $2000/acre and a turbine pays between $1000-2000/mo with spacing between 80-160 acres per turbine. So if you think you can go in and buy a lot of peoples land where turbines will be built before they know about it then you can make some money. It is more of a classic real estate situation where you already own the asset and itís making some amount of cash flow then this just pops out of the sky. Word travels fast in these rural areas so itíd be best to have an inside source at a wind power developer that can let you know before company trucks are driving around surveying or pulling title at the courthouse where everyone in town knows turbines are coming in half a second flat and would want more for the land or be less likely to sell.

Michael in ABQ

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Re: Windfarms
« Reply #2 on: December 29, 2017, 12:29:17 PM »
The rents paid for this kind of land are relatively minimal in my experience. If you already own it, it's a nice little extra, but that's it. It's not like owning a prime piece of corner real estate where McDonald's or Starbucks will sign a ground lease for $100,000 a year.

Here's a recent example - https://www.bizjournals.com/albuquerque/news/2017/12/26/nm-leases-hundreds-of-acres-to-california-company.html

1,600 acres of land that would probably sell for - at most - $1,000 an acre as ranchland. So that's $1.6 million to buy it, maybe less. The initial ground lease rate is $3,295 per year but increases to $107,222 per year once the windfarm is up and running. Based on the latter number that's a return of 6.7% assuming no expenses (which would frankly be minimal if any). That's not bad but it's not great. They could just as easily pick the 1,600 acres next door where the owner is willing to sign a lease for $100,000 a year since he already runs cattle on the land and the windfarm would do little to interfere with that. Then you're stuck spending over a million dollars to buy land that's only productive use is for ranching.

If you bought a prime piece of commercial land for say $25/SF for an acre site you would spend  $1,089,000 but could likely get a ground lease with some fast food restaurant paying $100,000 a year. Plus, you could turn around and sell that for a lot more than the underlying land value, especially if it's a tenant like McDonalds, Chick-fil-A, Starbucks, etc. The former routinely sell at 4% cap rates which would mean a sale price of $2,500,000 if they had a long-term ground lease paying $100,000 a year. That windfarm land on the other hand. Good luck.
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retirementnestegg

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Re: Windfarms
« Reply #3 on: January 08, 2018, 02:53:50 PM »
The rents paid for this kind of land are relatively minimal in my experience. If you already own it, it's a nice little extra, but that's it. It's not like owning a prime piece of corner real estate where McDonald's or Starbucks will sign a ground lease for $100,000 a year.

Here's a recent example - https://www.bizjournals.com/albuquerque/news/2017/12/26/nm-leases-hundreds-of-acres-to-california-company.html

1,600 acres of land that would probably sell for - at most - $1,000 an acre as ranchland. So that's $1.6 million to buy it, maybe less. The initial ground lease rate is $3,295 per year but increases to $107,222 per year once the windfarm is up and running. Based on the latter number that's a return of 6.7% assuming no expenses (which would frankly be minimal if any). That's not bad but it's not great. They could just as easily pick the 1,600 acres next door where the owner is willing to sign a lease for $100,000 a year since he already runs cattle on the land and the windfarm would do little to interfere with that. Then you're stuck spending over a million dollars to buy land that's only productive use is for ranching.

If you bought a prime piece of commercial land for say $25/SF for an acre site you would spend  $1,089,000 but could likely get a ground lease with some fast food restaurant paying $100,000 a year. Plus, you could turn around and sell that for a lot more than the underlying land value, especially if it's a tenant like McDonalds, Chick-fil-A, Starbucks, etc. The former routinely sell at 4% cap rates which would mean a sale price of $2,500,000 if they had a long-term ground lease paying $100,000 a year. That windfarm land on the other hand. Good luck.

Great analysis, thanks Michael.