Episode 43: Renewable Energy | Guest Matt Davis, ALC
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Welcome to the REALTORS® Land Institute Podcast, the Voice of land, the industry's leading land real estate organization.
Justin Osborn: This is Justin Osborn, ALC with the Wells Group in Durango, Colorado. On today's episode of the Voices of Land podcast, we're talking to RLI member and Accredited Land Consultant Matt Davis. Matt Davis, ALC is the platform leader for Cushman and Wakefield's Land Advisory Group. And since 2008, has primarily focused on assisting clients across the country with the disposition and acquisition of their land assets. He has transacted over 156,000 acres for diverse uses, ranging from production, agriculture, and energy to industrial and master plan community developments. Welcome to the podcast, Matt.
Matt Davis: Hey Justin. Thanks for having me. Happy to be on.
JO: Yeah, man, I'm happy to do this. You're doing quite a bit different type transactions than what I'm dealing with out here in Southwest Colorado, so I'm looking to get educated myself here as well as our listeners.
MD: Awesome. No, we do see a lot across the country, a lot of different kind of asset classes within the land category, so we're always excited to share what we're seeing, what we're hearing, and what we're doing out there.
JO: Great, man. Well, I know we got a lot of green listeners across the country that may not be too familiar with what exactly renewables are, so why don't we start with you kind of educating us on what exactly you're dealing with out there when you're talking about renewables?
MD: Yeah, so historically our power grid was oil and gas based called thermal and the industry. And from a regulatory standpoint and a policy standpoint, the powers that be have decided to shift towards what they consider renewables, which generally fall into a few categories. Wind power, solar power. More recently we're seeing battery energy storage systems or what we call Bess or B-E-S-S for short. And then cut out on the horizon would be green hydrogen. And that's gonna be hydrogen being produced from a sustainable, reliable water source and renewable power, which are the kind of the two inputs that go into hydrogen and with the idea that they can inject that into the existing natural gas system and supplement some of our existing thermal resources.
JO: Alright, great. Thanks for the explanation on green hydrogen. That's definitely new to me. The battery energy storage system, I can imagine what that is but explain to us briefly what exactly that is please.
MD: Yeah, so the wind isn't always blowing and the sun isn't always shining when we need power. And so, the downside of renewable energy is it's only there part of the time and it's not necessarily reliable. And so, battery energy storage systems are really, think of it as a reservoir. Just like you could put a Tesla power wall in your house as a battery backup, this is battery backup for the grid. So, they're usually four eight hour duration batteries that essentially act as a power plant when power's not being produced elsewhere. So, they store power during the day when there's plenty and discharge it maybe at night when the sun goes down.
JO: Okay. Alright, that makes sense. So, are you primarily dealing with like the utility company providers, the co-ops, developers, investors? Kind of tell me a little bit about who you're dealing with.
MD: Yeah, so we're seeing all the different groups out there. Most of what we do these days is on the developer side, so we'll actually get hired to help them find a site. I'd say, maybe on any given year, 20%-40% of what we're doing is working for the landowner and helping them identify a developer for their land. But yeah, so you've got utility companies, which are the power providers in our various regions. And they're out there doing their own thing a lot of times. And then you've got independent power producers or what we call non-utility generators, which are third party companies that are just in the business of producing and selling power. And then you've got developers, which are, we kind of call them the front-end acquisition funnel for the power producers or non-utility generators.
MD: Those groups are just massive companies oftentimes, and they can't move quick enough. And so, a front end developer is a really valuable group that'll get out there, kind of package up a project, do the engineering, get it close to fully baked, and then sell it to an IPP or an NUG, the independent power producer or non-utility generator. And then lastly, you'll see speculators, you'll see people just try to tie up land, get in front of what's happening, in kind of the wild west of a new industry. And those are the groups we tend to try to stay away from just, they're just trying to sandwich themselves in between what's happening and who's actually gonna develop the project.
JO: Yeah, I could certainly see that, we see the same thing out here with some of the transitional land guys trying to tie up farms and ranches on the edge of city limits and have a long due diligence period, you know, even longer closing. And it's like, "Well, we don't mind you doing that, but you gotta pay to play, you're not gonna have any non-refundable earnest money here for a 180-day due diligence period."
MD: Yeah, I'm a big fan of doing transactions with people that add and create value and if they're just gonna go out there and try to find somebody else, I think we can do that just as easily without tying up the property.
JO: So, we've seen definitely some of the solar farms coming into my neck of the woods, eastern Colorado down in New Mexico. I've seen the the big, tall wind turbines, is that the type of stuff that you guys are dealing with out there, or is it different than what we're seeing out here?
MD: Yeah, it's exactly the same. I mean, I think every part of the country's got different resources that can be valuable for energy production. Wind turbines obviously go where the wind resource is strongest. They can do it in topographically challenged areas. They can do it in flat areas. So, it kind of works across the country just depending on the availability of land and the resource. Solar, we see a lot of that, again, that needs generally level topography and obviously the more sun the better. So, we've seen a lot of that at the Desert Southwest. But it's happening across the country. And then batteries, again, that's a newer kind of piece of the puzzle. I'd say pretty much every wind or solar project that's being built going forward will have batteries as part of it. And then we're also doing standalone batteries to kind of fill in the gaps for what's already been produced on the renewable side.
JO: Okay, gotcha. So, this obviously isn't a 60 day contract to close type deal, like other transactions, educate our listeners on the steps involved and what the timeframe of a typical transaction might look like.
MD: Yeah, unfortunately, you're right, they're not quick transactions. The energy industry is kind of glacially slow as far as how quickly things change on the power grid and with utilities and the biggest crux of most of these projects is what we'd call interconnect. And that's getting approval from whatever the regulatory agency is that oversees the power grid. And in most cases, that's around a two-year process to get interconnect approval. And so, most of these deals come with an extended timeline, usually some sort of option or extended escrow structure where there's a diligence period that's being extended quarterly by making an additional payment or something like that. But these, we typically see pretty substantial option payments made through the process. And then once the project's fully baked and they've got their interconnect agreement, their municipal approvals to actually build the project and a power purchase agreement, which is, who's gonna buy the power, then they'll go ahead and deliver what we call a notice to proceed and TP and then that would move to either engage in kind of day one of the lease or the operating portion of the lease or actually close Escrow if it's a purchase.
JO: And what percentage of the deals you're doing would you say are arranged as leases versus actual sales?
MD: It's probably about 50, 50. Most of the companies today are generally agnostic. They'll do either and that's usually because their ultimate finance partners will do either. I think there's some concerns on the lease side from a landowner perspective. If you do a long-term lease with a solar company and something happens, it gets destroyed by hail or something else, and ultimately the LLC goes bankrupt and you may not, you may be disappointed with the outcome. And so, I think sales are cleaner, they're easier to negotiate. It's a transaction rather than a 20 plus year marriage. And so, it makes for a much smoother, cleaner transaction from my perspective. Battery energy storage, again, both wind is typically a lease just because they need so much acreage, with a relatively small footprint for each turbine.
JO: Okay. Alright. Yeah, that makes perfect sense. So, let's say I'm a broker in an area where there's a lot of flat ground, there's a lot of sun, and I think it's a perfect candidate to do one of these solar farms that you're talking about. What's the next steps? How do I figure out, okay, we can't just put out solar farms here and expect a buyer to come to us. I imagine we've gotta somehow tie into the grid to get that energy back. So how do I go through that process?
MD: Yeah, a lot of the front-end due diligence we do kind of on the landowner side is, we'll hop on Land id and figure out where the transmission is, where the substations are, kinda look at the resources in the area. Another tool is LandGate, they've got a lot of different layers to kind of diligence of site. They also produce a nice, just packaged report that kind of indexes how a property may stack up on a scale as far as viability for these different uses as well as many others. And so that's usually the first just kind of desktop due diligence we do. And then it's explaining to the landowner what a structure may look like and making sure it's a fit for them because not every landowner wants to engage in a multi-year process. And if their goal is to sell today, then this probably isn't a good structure for them.
JO: Okay. All right. Yeah, so just to reiterate there, folks, Land id and LandGate, those are two websites that Matt's talking about that are full of data. If you're not subscribing to those and using them, you're definitely doing a disservice to your clients, in my opinion. So be sure to check out the landid.com and the landgate.com website so you can see the overlays that Matt's talking about. And just the kind of next level of professionalism you can go to by using those two websites in your business.
MD: Yeah, that's a great point. The barrier to entry's pretty low and they're really valuable tools.
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MD: We run into a lot of people, clients, professionals and others that say, "I don't want anything to do with renewables." And I think that's fine. We're all entitled to our perspective and what we wanna do with our land and our careers, but it's something we should be aware of because it's happening across the country and we should be educated about it so that we can educate our clients and make sure they're aware of the opportunity, what they may or may not be missing out on if they choose to go this direction or otherwise.
JO: Yeah, well said. I think that's a great point. So, let's talk about your team. I mean, obviously you're licensed REALTOR®, you're doing this. Who else is behind you? I imagine there's gotta be attorneys on both sides that probably have to give the thumbs up before a deal can get to the title company, educate us a little bit more about the hands that are involved in a transaction like this.
MD: Yeah, we always recommend to landowners that they may have really good local counsel that helps them with all of their real estate transactions, but if they don't have counsel that has done a high number of energy deals, we recommend they go find council for specifically that purpose. And they may or may not be able to work with their local council to help represent them. There's such a big learning curve on these deals and there's so many unique characteristics, especially on the lease side that are very different from a more traditional commercial or agricultural lease that you'll spend a lot of hours with an attorney for them to find out that these are kind of go, no go types of things that that's just a, they're spinning their wheels, if they hire somebody that knows what they can do, what they can't do, what it takes to finance these things, they can just kind of cut to the chase and stay away from the sacred clauses that are in those deals for the developer.
JO: Alright, well, yeah, that makes perfect sense. And I'm just kinda curious, how'd you get into this? I mean, did you just get your real estate license and say like, "All right, I'm gonna start going into renewable energy," or what exactly was the pathway?
MD: So, it was about 2009, and it's actually how I got into land. The first land deal I did was an energy deal. I had two colleagues. One had a client relationship with a group that was a solar power manufacturer, a solar panel manufacturer, and they were looking to do development in Southern California. He went to a kind of a seasoned land guy and said, "Can you help me identify sites and do some site selection work with these guys?" And they said, "Sure." They said, "We need a young guy to kind of pound the pavement and do all the work." And I knew the region where they were looking. And so, they came to me and asked if I'd help kind of do the legwork out on the ground. And I said, "Sure." And that ultimately led to a 12-year partnership with the kind of seasoned land guy, through that, through that one transaction. And so, we hit it off and that led to a new career path.
JO: Man. That's great. And so, are you doing these deals kinda all over the west? Are you focusing in Southern California where you're at now?
MD: Yeah, we've kind of pivoted back and forth between the landowner side and the developer side. As I noted, we like the developer side for the simple fact that they tell us, "Matt, here's our point of interconnect. We wanna inject power into this substation at this location in this state or this city or county," and then we can go find the dirt. And so, we kind of go all over. I mean, currently we've got deals as far away as upstate New York and we're working in Arizona, Nevada, California, we've got some landowner offerings up in the northwest, Washington, Oregon. And so, we kind of go wherever the business is and we just partner with folks on the ground whenever we're outside of our market.
JO: Wow, man, I didn't realize you were all over the country. So that's huge. Congratulations.
MD: Thank you. It's fun. Every day is a learning experience. When we're operating that far from home, we're never the market expert. We're never the local expert. And so we've gotta rely on people in those markets to kind of help do what I was doing originally, which is pound the pavement, talk to landowners, make sure we're approaching a people in a way that's kind of respectful of the local norms and then we can kind of be the product experts that can help educate the landowner or oftentimes the client about what they need to do and why to make a deal like this work in that location.
JO: Well, that's great man, and as we're wrapping up here, I think that's a perfect opportunity, Matt, to give a little plug for people to find you because so much of our business is that referral network where we can work closely with other RLI agents. So, tell our listeners what's the best way for them to get in touch with you.
MD: Yeah, email's always great. It's matt.davis@cushwake.com. It's M-A-T-T dot D-A-V-I-S at C-U-S-H-W-A-K-E.com.
JO: Awesome, man. Well, folks, if you wanna understand more about this topic, look for an article from Matt in the winter issue of Tara from a magazine where he will do a deeper dive on the topic of renewables. You can also find more articles on the topic on the RLI website. Just go to the resources tab on the main menu and click on renewable energy and carbon from the dropdown menu. There you'll find dozens of articles from our partner LandGate, and if you want formal training so you can better advise clients on topics like this. Consider taking a LANDU designation course, multiple course topics are offered throughout the year, including a course on the valuation of energy and environmental assets. Matt, you got anything else you want to kind of throw out here as we got a couple minutes to wrap up?
MD: Not specifically. Happy to be a resource for anybody that's got an opportunity like this that's landed on their plate or if they're exploring, getting into it and representing a developer. I'm happy to talk through what I've learned over the decade plus of doing it. There's a lot of pitfalls that I'd say we've learned to avoid the hard way and again, we like the space. It's a good piece of what we do.
JO: Talk to me a little bit more about the pitfalls that can come with this industry that most people wouldn't be aware of.
MD: Yeah, so it's a new industry. Or a relatively immature industry. I mean obviously solar's been around a long time, but as far as utility scale development across the country, it's relatively new. And I think some of the things we're seeing is how long will these facilities remain active and what happens when they're no longer economically viable? So, if there's hail damage and it takes out an entire solar panel installation, I'm sure there's insurance, they'll probably replace them, but how many times does that happen. If it's in an area where they, they do get some recurring hail damage, Lithium-ion batteries, which is kind of the typical battery technology that's used today in the best facilities. Lithium-ion batteries have a tendency to catch fire and they call it thermal runaway when they start to burn and they basically have to burn themselves out.
MD: You can't really put them out. And so, we're seeing the industry shift from installing them into structures to installing them in a more grid pattern across an open site where there's greater thermal breaks and technology going into kind of fire suppression and fire safety. So, there's a, again, it's moving incredibly quickly as far as the technology side of it. There's some new technologies on the battery front that are less risk of fire. And so, I think it's just things to be aware of, especially as we're talking about leases and what these may mean for our clients long term. But it's also something that we need to think about just from a community standpoint and where the right place to put these in and what fire life safety thing should be involved in each of the projects.
JO: Oh, man. Yeah, that's a great point. Yeah, thanks for sharing that. There's always cons that go with every pro. It seems like in every industry.
MD: I should offer that the first land deal I did was pending for 12 years. We did collect commissions on the option payments paid, but the deal ended up terminating and never getting done. [laughter]
JO: Oh, man. Well, that sounds like maybe a dirt debacle episode that we need to record, I'd love to know more about that here in the coming years.
MD: Absolutely. It's one of those stories best told over a glass of brown water.
JO: Oh, man. All right, you twisted my arm. All right, we'll do it. [laughter] Well, folks, for more expertise on land real estate topics, be sure to check out the RLI blog, follow us on social media, and of course, tune in for upcoming episodes of the Voices of Land Podcast.
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