Cutting Edge Insights
with Dr. Lee

Humbled Again

Life has ways of reminding us that we are human, imperfect, and fallible. It helps us from developing too big an ego when things are going well for us. Life gives us clues when we are on that path; clues that are sometimes perceived and other times overlooked.

Not that we don’t want to have any ego at all – we need to have confidence in our abilities – but it’s important that we remain cognizant that we aren’t the supreme and omniscient source of all information; we don’t know everything and we don’t have the capacity to perform at the highest level in everything we do
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But when things don’t go smoothly for us, it can actually be a blow to our ego – whether or not it’s engorged or inflated.

I recently completed a land assembly that I sold to a health care firm.

Good for me – I increased the value of the land because the whole is greater than the sum of its parts because the whole allows more uses and has more potential than its individual parts.

Good for them – they were able to purchase development-ready land and have the opportunity for future expansion. Land that is ideally situated and land available in reasonably sized chunks has been hard to find. When I find an ideal parcel, I’m likely to grab it now and hold it for later development. Raw land is more exciting to me than bitcoin. I can’t grab a fistful of bitcoin nor build something on it.

The site plan for the health care facility had been approved by the municipality and we were ready to break ground (“We” meaning that I also served as the design and build consultant).

We knew that all the necessary utilities were available – water, sewer, electricity, and natural gas. Water and sewer were guaranteed to be available due to easements that we had already obtained. Natural gas was guaranteed to be available because the utility provider had told us it was at the street and we could tap into their main.

The electric utility was available because we saw the lines overhead within the road easement, or right-of-way.

Or so we thought.

The reality was that there were indeed electric lines overhead at the road. However, the 3-phase electric lines ended two parcels to the west of the development parcel. Further, there was no availability to tap into the single phase lines directly overhead.

Lack of 3-phase isn’t a deal breaker, but 3-phase electric supply is important because

  1. It provides more electrical capacity than single phase electric supply and does so more efficiently. I found a great, easy to understand explanation that is in the references below.
  2. We intended to further develop the property in the future and 3-phase electricity would better align with these development needs.
  3. The health care office we were hoping to start soon was designed by the electrical engineer to be serviced by 3-phase electric.

If 3-phase was absolutely unavailable, then we still needed to find a way to bring single phase supply to the site.

When a utility pole is within a road easement or right-of-way, the utility provider has sole discretion on extending it laterally within the right-of-way to a new property and then on to the new property’s build site.

Unfortunately for us, this was not the case.

The utility pole on which the 3-phase electric lines terminated was barely (perhaps 12-24 inches) outside the road right-of-way and would require the granting of an easement by both adjacent property owners to utilize since the pole was also contiguous with the property line separating their respective parcels.

The closer property owner (a bank) was very receptive to the idea of granting an easement and was very reasonable and cooperative with us in discussing the various alternatives, such as overhead or underground.

The other property owner, a personal residence, was resistant:

“We don’t want any more lines in the air near our property.”

And, “we’ve maintained the flowers around that utility pole for years and don’t want them torn up.”

But they also stated, “By the way, we’d like to purchase a strip of land from you to the north.”

They were referring to purchasing a 10-15 foot wide strip of our westernmost property, because our land extended to the north beyond and behind the bank, and also because their gardens were encroaching our property by about 10-15 feet.

(The nerve!)

I had suggested to the health care facility owner that they consider responding as follows:

“Sure, we’ll sell you a 10-15 foot wide strip of land. The price will be $750,000. We calculate that to be our cost of installing natural gas generators to provide all the electricity we will need to operate because you won’t allow an easement to connect to the existing electric infrastructure. You may not like how the generators sound at 3 AM when the building begins cooling down for the arrival of staff and patients.”

Or (option B)

“Sure, we’ll sell you a 10-15 foot wide strip of land. The price shouldn’t be any more than $750,000. We calculate that to be the upper limit of the cost of the large bank of solar panels we will need to install as well as the auxiliary building to house all the batteries we will need to store the electricity we will need to generate because you won’t allow an easement to connect to the existing electric utility. Keep in mind that if we experience any cost overruns, we will rent the back sides of the solar panels and all 4 sides of the building to those desiring to display billboards, propaganda, and advertisement. Currently, the Make America Great Again crowd has first position with their banners but other contentious political groups are in second and third position.”

I don’t know if the dialogue ever went down that road, because at the time, we didn’t have a solid option for site electricity and that was our primary challenge. I was researching prime power generators, which are natural gas powered electricity generators that produce enough electricity for an entire building or complex and are typically used in commercial and industrial applications, or in settings in which bringing electricity to a site is simply not practical. In fact, a representative from the local utility provider informed me that a marijuana growing facility installed a small handful of these generators and is now producing and selling electricity back to the grid.

At least we knew that our backs weren’t against the wall.

Q:  Why did you even care?

A:  I sold the land in good faith with the understanding that electricity was available. Certainly, the sales contract had language about “as is, where is, and how is” but abandoning the buyer or leaving the buyer hanging would have spoken volumes about my personal integrity.

Fortunately, during all the “Plan B” discussion and dialogue, the utility provider found a way to bring single phase electricity to the site without requiring easements from anyone else. This route utilized the same transformer from which our temporary electric (the electric panel utilized by construction workers during this phase) originated. Our immediate needs and long term needs (for this facility only) could be met with single phase, and it would not overwhelm the transformer. I can’t help but think, even if it did, would that not be the utility’s responsibility to upgrade the transformer? Some of my astute readers may know the answer, but I do not.

The fact that we hadn’t acted rudely to the reticent neighbor may help us in the future, because as a very experienced negotiator says, “Never act rudely to someone who could hurt you by doing nothing.” – Chris Voss, The Black Swan Group.

It will be interesting to see how the “can we buy a strip of your land?” thing plays out.

In the interim, perhaps we’ll work to develop a net zero commercial building concept for future site development (the concept is popular in residential construction and involves designing and constructing a building that consumes less energy than it produces) so that we don’t have to be as dependent on “the grid” or cantankerous neighbors who don’t want to see any development occur.

That will remain a challenge for another day and time.

There are many lessons to be learned from this experience: don’t assume the availability of utilities simply because you see them overhead, don’t be rude to someone who is in a position to hurt you by doing nothing, and don’t take anything at face value (as in ‘there is no way to provide electricity’) without complete and appropriate due diligence.

As you think about that, remember to never let previous successes push you into cockiness about your current and future projects, real estate or otherwise.

Life has a way of putting us in our place (ask me how I know).

Until next time,

Dr. Lee Newton

How A Doctor Learned To Develop Real Estate

References:

 

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