#669 Harvesting the Future: Exploring Investment Opportunities in Solar Energy

Hey, guys and gals. Kevin Bupp here. I've got some seriously exciting news before we jump into our show today. As many of you know, we just successfully closed out our most recent fund, SEI Growth and Income Fund 3. In just three years, our partners in Fund 3 built more than $33 million in sweat equity. And like Funds 1 and 2, we plan on returning to Fund 3 investors 100% of their original investment, meaning that they'll experience what we like to call infinite cash flow. If you're kicking yourself for not Investing in Fund 3, here's the exciting news. Sunrise Capital Investors is doing it all over again, launching SEI Growth and Income Fund 4 very, very soon. So if you're looking for an investment opportunity that offers quarterly distributions and a diversified portfolio of mobile home parks and parking garages in some of the country's best markets, then I highly suggest that you get on the waiting list for our new fund 4. Those who join us first will have their funds deployed first. We'll also start earning quarterly cash flow distributions first and start building equity immediately. Additionally, those who join first will receive preferred terms compared to those who invest later on. It really does pay to be first. Just go to sunrisecapitalinvestors.com and click join the waitlist. Again, that's sunrisecapitalinvestors dot com and click on Join the Waitlist. With that, let's get on to the show.

You've been searching for the best way to generate passive income in your life and heard that real estate is a great way to do it. But you're tired of all the so called gurus who are all talk and no substance. Get ready to celebrate because Kevin Buck has spent 14 years successfully making it happen. This is the Real Estate Investing for Cash Flow podcast. Now here's Kevin Buck.

Hey guys. Kevin Buff here and I want to welcome you to another episode of the Real Estate Investing for Cash Flow podcast.

Our mission is to help you build.

And maintain massive amounts of cash flow through income producing real estate investments. Now, our guest for this week's show is real estate and renewable energy expert Dakota Malone. Now, Dakota is the founder of Community Solar Authority, a group that consults with and advises land and commercial real estate owners on how to best monetize their assets by integrating solar solar in an effort to unlock hidden revenue streams. And so with that, guys, I'd like to welcome Dakota Malone to the show. Dakota, how you doing today?

I'm doing amazing, Kevin. Thank you for having me.

Yeah, excited to have you here. Excited to dive into the World of renewable energy, more specifically solar. And so, you know, before we go down that rabbit hole, because I feel like it's going to be a fairly deep one, let's back it up a little bit. And yeah, I'll give you a very brief introduction there. I would kindly ask that maybe a fill in the blanks a little bit, give our listeners a little bit more understanding of yourself, your background, and how you found your way into the world of renewable energies.

Love it. Yeah, thank you so much for the introduction and I'll provide a brief background. I've been in the energy space for over a decade, really backing off the belief of sustainability as a whole. And so the concept of sustainability is really more of a principle that I've embedded into my personal life, which really led me into my career and my business. And so, you know, I've been in the energy space for over a decade, like I said, primarily working with large consumers of electricity. And so my company today, for the last half decade has worked as a full service consultant for some of the most significant solar developers in the country. We have a streamlined interest in deploying renewable assets as those incentives become available across the country. Most of the time this is at state level legislation, Kevin. So primarily states with these incentives is where, you know, investors can be able to find the most and maximized ROI on their projects. And so states that come to mind are New York, Illinois, parts of New England, California. But really what's happening is nationwide adoption of renewable energy. And with that comes a very large opportunity for people who own commercial real estate as well as land to, to essentially partner with solar developers who are looking to deploy these assets. And obviously those investors can take part in the incentives that are becoming widely available.

Got it, got it. No, I appreciate that. And let's dissect that a little bit. So you're speaking right now to a, you know, tens of thousands of real estate owners that are on the show runs a gamut of folks that own, you know, big industrial centers, to office buildings, to, you know, we own parking garages, to maybe even know, 100,000 plus acres of, you know, tracks raw tracts of land. And so help, you know, break it down to elementary terms of exactly how one can benefit. You know, a landowner or a property owner could benefit by, by working with a gentleman like yourself.

Love it. Yeah. The easiest way that we explain this, and in fact, we've coined the term simple sustainability because when you think about the world of commercial solar energy, a lot of it is confusing. And so really our entire offer and Service was built around the idea that we can keep sustainability simple by serving as a bridge and streamlining everything done for those partners that we work with. So, for example, you know, in the world of commercial real estate, when it comes to cni, a lot of times what's most overlooked is the asset on top of the commercial property, which is the roof. And we use commercial solar as a value add for these investment properties. And it doesn't necessarily need to be a warehouse. You know, it could be a mall, it could be a multifamily unit, which, you know, is primarily what we work with. And so when we approach commercial real estate investors, again, not so much on the land side of things, but people with actual brick and mortar commercial properties, the whole idea is that they can participate in renewables, whether that's actually taking on the power themselves or just simply leasing out their space and really creating value add in their asset without having to do any of the work. So we deliver everything turnkey. And again, we're in the interest of helping these solar developers deploy assets. And so all we do is make sure that the transition into actually building one of these goes smooth. And so oftentimes for commercial real estate groups, they're looking to find additional ways to monetize their property without much effort. And obviously not having a tenant or toilets on top of their roof is a simple way to create additional value and passive income, maybe use.

Is there a recent case study maybe of a. Of a project that you worked on? You know, what type of property was it? You know, ultimately, what were the. What was the, the primary benefit that, that, you know, the landowner property owner was looking to achieve? Was it just to offset their, you know, their energy costs of the building? Was it to, you know, flow back into the grid and simply lease out the rooftop space? What was it? I mean, just. Do you have something that comes to mind that we can share as an example?

Okay, yeah, we have lots of case studies in different scenarios. I'll start with just a regular old roof lease. And so this is a play that we like to do all the time. I'll actually come into, you know, commercial real estate groups and essentially do like lunch and learns and educational series. But for example, just three weeks ago, we closed on a roof lease for a mall in upstate New York. So large commercial property, in fact, it's more of a sports complex than anything. This was an international investor. He was actually out of Canada, but owns lots of commercial properties in the States. We sat down with him and essentially walked him through the process of Monetizing his roof where again it is a no investment commitment. So it is something where he can keep his capital expenses on purchasing more real estate or doing what he wants to do in his business. So this is a $0 investment opportunity where we plugged him in and connected him with a solar developer. We are going to lease around 400,000 square feet of that Commerc commercial roof space on his mall in exchange for passive income. Now those prices are always going to fluctuate based on the market. If we need to upgrade his roof, which in this case he didn't because he just recently had a roof replacement, which is obviously the first, the perfect time to put a commercial seller asset on. But in this case, you know, after sitting down, it made sense for him to actually start to go through several of his properties. So what turned into a roof lease for one specific project actually turned into us doing a car port solution. So very similar. He had a parking lot, we're going to monetize that with carports. Same exact concept, zero dollar investment. That is going to be passive income where he is simply leasing out that site. We are generating power off of it with our solar asset and then selling that back into the grid. And from again what kind of turned into one scenario with people who have portfolios of commercial properties, whether it's parking lots, land or actual commercial real estates, they can actually monetize in a top down approach. Earning passive income on multiple properties.

Using these examples, I mean we could use the, the mall or sports complex which was the first project that you did for that client. What is the, the typical lease that, that he's into now as far as it, you know, as it relates to that, that roof lease, is it 20 years with a few options for renewal or just what does the long term, you know, the long term, I guess lock in period look like?

Yeah, great question. So the first couple years are all about completing the studies and so renewable assets don't go up overnight. Oftentimes there are environmental studies and other impact studies that need to be done, interconnection studies. One of the biggest problems in the commercial solar world is the amount of upgrades that need to happen at a utility level for their substations and oftentimes they don't want to make those investments in the upgrade and so they leave it to solar developers. So the first year or two, you know, if it all goes smooth, typically in 12 to 18 months, we can move past this phase. But that first initial phase is where no development takes place. It is all studies And a small milestone payment will be made where we're just doing our studies to make sure an asset can go up after that is complete and a site looks good is really when those passive income predictable payments will come. And that comes in the form of a one year payment. So this is something that happens annually. And typically these solar assets start off on 20 to 25 year terms. Now those assets, you know, there are solar farms that were originally built almost 100 years ago at this point that are still active today. And so as long as that site's good, typically after the 20 to 25 year investment period, the solar developer will just come in and renew that agreement under new terms. But that's an average of what it would look like. As far as a lease perspective.

Okay, then how is the, the price of that lease determined? I mean, obviously after the studies are done that, that 12 to 18 months of due diligence and, and studies, how does one arrive at what that price per, whether it be square foot or per acre, you know, however that's derived, how does one arrive at that number? And then I guess again using, again using the example here of this, the sports complex, which I think you occupied, you said, I think roughly 400,000 square feet on the rooftop. Just trying to back in from an economic sense as to what one might expect. I know every situation is different case by case scenario, but just again using this one as an example.

Yeah, yeah. So a lot of times it is very much custom tailored. And again that could be between the substation or a roof that needs to be repaired and also the type of project going up. And I'll give you kind of a tiered approach. So doing a solar farm on a ground mount on flat land is very simple and straightforward to develop versus doing carports which involve bending steel and a little bit more advanced technology. Oftentimes those projects are harder to pencil, which means less of a lease payment. So again, depending on the type of project that we're doing, you know, people can expect anywhere from, we'll call it $10,000 in the, as far as a lease payment goes for every maybe 50 to 100,000 square feet. And again, I know that's a very broad range, but it truly is because of, it comes down to a market level. You know, for example, we're doing another mall in Rhode island and the roof is too old for us to develop. So typically we're looking at wanting to develop on a roof that is less than 10 years old because we're putting an asset up there for 20 years. Otherwise it doesn't make economical sense for that specific investor because then they would need to pay to take the panels down, redo the roof, put the panels back up. And we're not in the interest of doing that. And so again, in the purpose of streamlining, which is why we kind of consult on this stuff, you know, in Rhode island, for example, we went from the roof to the parking lots. The cool thing about carports is yes, they are more expensive. So the lease payment isn't as fantastic, but it is multi value add. So not only are they getting the lease payment, but they are potentially being able to plug EV chargers into there, which is now going to be a requirement at retail centers as we kind of continue down the line. But it's also serving as car coverage as well as snow and ice already done for you as part of that service. And so again, it's a very broad range, but the point is, is that it is value add. And really what we do is in less than 30 days figure out for investors what those economics are going to look like. So when people bring us opportunities. Another example is a commercial real estate group came to us just yesterday. We had a conversation. They're developing a 300 unit multifamily complex in Texas and the architect is saying, hey, if you want to do commercial solar, you have to do it now. So what's your decision going to be? They have no experience in commercial solar, they're real estate guys. And so they come to us to get those details. And so very quickly we're able to do a brief study, get a good look at what those lease payments will be in that specific market and then within 30 to 45 days come back with tangible advice and studies to be able to say this is what it's going to look like if you were going to make that investment. And again, it's a zero dollar investment, but it is time, energy, etc.

And then as far as like the you know, long term upkeep, I'm assuming like the developer, I mean like as far as like the, the equipment done for you. Yeah, right. It's got it, got it. And how about again, just my, my head keeps going back to this example of the, of the sports complex. They just put a new roof in place. I guess with the commercial building you probably expect what, 25 years out of a roof, but in the event there's, you know, repairs that are necessary to the roof, obviously there's some plexis that probably get added with having all that equipment up There is some of that gets split with the, the solar developer. Or is that all the, you know, the building owner's responsibility still?

Yeah. So the O and M is typically always taken care of in the terms of a roof lease because again, they're the ones that own that asset. And when it comes to, like you said, really the solar asset is adding additional protection to the roof. So again, as far as a double value add, there's racking and bolsters and all of that protection in the event that those need to come down. Depending on what type, like if it's insurance because of fire, for example, oftentimes that will be completely covered. But if it's because the actual real estate owner wants to redo their roof halfway through, they are typically going to need to be responsible for doing that. As far as taking those panels down.

Is there an opportunity for just putting my investor hat on now? Is there an opportunity for really kind of backing into this, you know, determining you're getting with, you know, the top solar developers in the country, finding out exactly what their criteria is, where they're looking to put more assets. Right. Where's their, where would they like to expand their footprint or get more concentration in particular areas. And then you know, speaking of maybe raw land, like tracks of raw land, like literally going out and, and acting as a bird dog and scouting for good tracks of land that would be a good suited fit for the developers or you know, many different developers criteria. Right. Is that, is that, is that an opportunity? Am I, is my head not in the right space with that thought process?

No, it is. That's exactly what we do. Yep, that's part of our full services consulting. So not only do we, and again based on the legislation, so for example, there's legislation called community solar, which is typically 10 to 30 acres of solar farms. These solar farms, we help our developers identify potential sites and we'll work with landowners or potential commercial property owners to lease those spaces. So the roof lease works exactly like the land lease, just in different, you know, forms. And what will actually happen is we'll identify those good sites for land. We'll help those landowners form a lease so that they don't have to sell their property and they can monetize it and then from there that asset will be built. Our company will also subscribe that. So it's not necessarily one off taker joining that solar farm. It is a conglomerate of typically just like a strip mall, an anchor tenant, so a large consumer of electricity. You could think of municipality, university, hospital, etcetera. An anchor tenant, and then small businesses and residential homes will actually also join that solar farm. In exchange for participating in helping clean the energy grid, which is what that solar farm is doing, they get a guaranteed discount on their electric bill. And so this legislation is known as community solar and it's becoming very popular. So again, it's been around in states like New York, Illinois for five to ten years at this point. Our management partner, who essentially oversees the operational excellence of these solar assets actually helped pioneer the program into existence back in 2008, 2009. So that's how long community solar has been around. States are picking up at a legislative level. So again, we work with landowners that have 10 to 30 acres in states like New York, Illinois, California and essentially this community solar legislation is going nationwide because it's a way to help meet the state's renewable energy commitments. They say, hey, we're going to be 100% sustainable in the next 10 years. You can't just go throw solar panels on all residential homes or all commercial properties. Again, the roof, the financing, the shading, there's a million reasons why it won't work. And so that's why the deployment of these renewable assets in the form of solar farms are becoming so popular. And again, we'll put those on raw land, we'll put those on roofs, but that's exactly what we do is help people think through that.

Yeah, what I was thinking, what I was thinking of is obviously these developers don't want to buy the, they don't want to, they really would rather not own the real estate. Right? That's not their business, probably too cost intensive. They'd rather just develop the assets themselves and lease a space. Right. Much more cost effective, lighter asset model than owning the real estate. However, real estate guys, right, like we want to own the real estate. So is there, you know, just thinking of a, of an opportunity where again, knowing the exact criteria where, where these developers want to be going in and proactively negotiating with, with these landowners to purchase their property, knowing you know, what we might be able to, to get in the form of a lease from a sole developer and then basically creating a coupon clipper type investment to where literally there's no maintenance, easy breezy. We get our reoccurring revenue payments each and every month or year, however they come in. And again, it's very akin to that of what a triple net lease might look like owning a Starbucks or something along those, like a credit tenant that's you know, paying a set amount for a very Long period of time. Again, just very much a coupon clipper type investment. So that's where my head was at.

Totally. And again, we actively do that now. You know, we have a close friend who we've done business with, he's a real estate investor. We're helping him think through the process of leasing or excuse me, purchasing 100 acres and then immediately turning around and leasing that to a solar developer. So he's going to get anywhere from three to $5,000 an acre per year. As I said, he's going to purchase that property for, you know, 2ish million. And so he's going to create a long term cash flowing asset which is, I know what this podcast is all about. And that's exactly what he's doing and that's exactly what we do with other real estate investors.

Got it, Got it. Let's flip, you flip to the other side of this. I mean, what, you know, it all sounds great. I mean obviously lots of positives, lots of benefits of, of going down this road. I mean, what are some, it's, what are some red flags or I guess the better way to position this is solar. It's still kind of the wild, wild west, right? I mean, and so what are, what are some considerations a landowner or property owner might have things to be aware of. And I know that's what your business is. I mean your business is to basically help property owners basically play the middleman with developers and ensure that they get a fair lease, the developers get a fair contract, it's you know, win, win deal for all parties. But with that being said, what are some of the, the most common pitfalls or, or I guess again, red flags that, that might come up as it relates to a property owner.

Great question. Yeah, you know, I've been doing this for a long time, so I've seen it go from the wild west to I don't even know, it's gotten a little bit more concrete as these incentives become available. There are many solar developers and other companies that are basically leveling the playing field and making it more fair, which is exactly what we believe in. And so, you know, part of our service is the very diplomatic approach of not only connecting a solar developer to a landowner, but it's actually running an internal RFP so that we're running it against our entire network. So it's not like we have a specific developer in mind every single time, but really more or less we're going to say, okay, Mr. Landowner, we're going to work with you. Our commission is Always based off of how many renewable or really how many kilowatts or megawatts get added. And so our payments never affect the landowner's lease payments and we don't charge for our service. We could, but in the spirit of streamlining and just getting as many renewable assets deployed, we don't care about it because that's not our primary business. And so, you know, an example to, you know, kind of the downsides are I remember talking to, he was, he owned an aggregation business, so he did like a lot of sediments and stuff for construction as far as like groundwork. But he also had sold, I want to say it was 30 acres to a solar developer maybe a year and a half before I talked to him. And I was actually speaking to him to join and participate in the community solar legislation I was speaking on. And he said, well, you know, I just sold my land last year, about a year and a half ago to a solar developer and I sold it to him for 200 grand. So he sold 30 acres for 200 grand. And the pitfall here is that he could have just leased that property, kept it, received, you know, a lot more money per year on a 25 year basis and essentially not, you know, I'm not going to say he got hoodwinked or scammed per se, but that solar developer had a very clear intention, which is again why we created our service where it's like, hey, we already consult for these solar developers, we're able to run it and essentially get them to bid to bring you back the highest value. And so again, let us take the diplomatic approach where we can streamline this, make sure that you're getting a fair deal, make sure that there's good practices from the top down. And that's really what we help people avoid in those scenarios. But that's really the only thing that comes up around that.

Okay, got it. No, I appreciate that. And what are some other considerations, I mean, to determine whether or not, you know, your particular asset, whether it be a raw tract of land or, you know, a improved property, building, parking lot, what have you. I mean, maybe talk about, you know, proximity to, to subs, to a substation, you know, like what is too far, you know, to, to really even come into consideration?

Yeah, that's a great question. And I will say that we have multiple guides available and so we have a roof leasing guide as well as a landowner's solar leasing guide that I would happily provide. We can maybe put in the show notes, people can click it and it's literally a Walkthrough guide of, you know, your solar leasing checklist. What, what you want to check for, what you want to be on the lookout for. Again, this is a service we provide done for you. So let's say someone does have land, whether it's 10 to 30 acres in any given state or as many as 100 to 1,000. Because then we get into utility scale, which is the same concept except an electric utility would be purchasing it instead of a solar developer, which is no problems to us because they're all interconnected. What would happen is people would bring us a piece of land and they could either do this process themselves and figure it out themselves, or they can use our service and we'll do it all for you. But what we actually do, Kevin, is check. So we say, okay, what is the slope of this land? Is it in marshlands? All of these things are basically qualifying factors. And so very quickly we can essentially turn around to a landowner and say, hey, this is an opportunity that we would like to help you with. Or hey, based on X, Y, Z criteria, it's probably not going to be a good fit. Other considerations are proximity to substations. Like you mentioned, there needs to be what's called three phase power lines, which is the ability to plug in solar farms into that electric grid. So if you're in a, you know, someone brought me property in the Adirondacks in upstate New York where I'm from, about a month ago, and this was in the middle of nowhere in the mountains, and there was absolutely no three phase power lines. Right? So it's got to be close to three phase power lines. It's got to be close to a substation that doesn't need millions and millions of dollars in upgrades. Typically a substation will need 500,000 to a million in upgrades, which our solar developers will happily pay. And again, that's why I say it's always a case by case basis, because they may have to invest a few million to get that substation upgrade, which will in turn affect that lease payment. But typically people can see anywhere from 875 to 1200 dollars an acre as far as a lease payment goes. And that can obviously get much more attractive based on, like you said, that's why we kind of reverse engineer and back into deals where that lease payment might be much higher. And when we compare that with our checklist so that it, it looks like a good investment, those are the ones we actually work with investors on to purchase.

Yeah, that makes sense. And Dakota, what else? I mean, what are some other key points that we might not have hit on here today that you feel are relevant and important for the listeners to know?

Yeah, I mean, I think a good point, Kevin, is that the whole fact that leasing is not the only option. You said that there are people here that have maybe multi location commercial property portfolios or just manufacturing sites, cni, warehousing, where they're consuming a lot of electricity. The alternative is to consider taking on that power yourself and actually slashing your electricity costs over the next 20 to 25 years through what's called the power purchase agreement. So same exact concept is you can invest $0. So this is not a capital investment. A solar developer will come and build an asset and then a power purchase agreement sounds exactly as it does. That specific property is choosing to purchase electricity at a fixed cost over the next 20 to 25 years as a way to hedge against electricity inflation. And this obviously contributes to more ESG and sustainability commitments that that specific company might have. And so the other big factor to consider is if there's anybody listening who is looking for a hedge against inflation on a $0 investment. Again, states like New York, Illinois, California. I'll give you an example. We're finalizing a PPA on one of the largest paper mills in the country in upstate New York. These guys are using millions of dollars in electricity spent per year running their manufacturing site. And our PPA is essentially going to cut their electricity costs in half over the next 20 to 25 years. And basically the difference is those savings. And so they can create a massive amount of savings on a $0 investment. But again, the roof needs to be part of the consideration. We're actually developing a sludge pit that they used to have. So this is land that was on their parcel, otherwise not usable because it's a sludge pit. And we're actually just going to build a solar farm, which is actually a ppa. They're going to take on the power. And so it's a very good case study of really the possibilities of commercial solar.

Interesting. Very cool. I appreciate you sharing that. You know Dakota, for.

For those that want to learn more.

About you and the services that you provide, where's the best place to track you down?

Yes, so I create content on LinkedIn every single day. And so I always drive people to my LinkedIn because I am a long term relationship person. I'm in the interest of actually talking to people and building that relationship, like I said. So you can go to LinkedIn.com in/. Dakota Malone D A K O T A M A L O N E I invite people to connect with me on LinkedIn and always people can visit communitysolarauthority.com we are finalizing our new website which should be launched this week and so people can go there and access any of the resources we talked about today from the Roof Leasing Guide to the Land Leasing Guide and all of the other media that we put out there.

Alrighty. Fantastic. My friend, Dakota, I appreciate you joining us today. It's been a lot of fun having you on show.

Kevin, thank you so much for having me. I appreciate the time.

Alrighty, guys, that's all we have for this week's show. So until we meet again next week, this is your host, Kevin Bupp. Wishing you huge success.

Take care.

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