Real Estate Diversification: Generating Cash Flow from Vacant Land

The cost of land across many global markets is down. In areas like Florida or Costa Rica, the opportunity to develop this land is likely one or two decades out as absorption rates have slowed yet long term demand for more temperate climates will continue. I believe there is a real opportunity to take advantage of the current prices, harness this vacant land AND the emerging market for renewable energy by building out solar farms and selling back the energy to a number of potential customers.

On February 3rd, I attended the Effective Energy Policy conference in Florida’s capital city, Tallahassee. Eighteen international speakers addressed a large audience of industry advocates, policy makers, lobbyists, manufacturers, and financiers. I have been following the industry since 2006 as a number of our institutional clients want greater industry diversity in their investment portfolio. I have been developing a business model where solar panels are placed on large tracts of vacant land and the electricity created can be sold either to the local utility, municipalities, or large institutional users like hospitals or school systems.

In Florida, Governor Charlie Crist is working aggressively to put an energy policy in place that will create energy independence, reduce utility fees and create jobs from an emerging industry. Ironically, Florida as the Sunshine State lags behind most of the states in solar deployment and usage. This type of macro policy making would have an obvious impact on the scalability of this emerging market.

Free market forces are already at work, though, as there are municipalities already coming up with solutions or incentives towards this end. Individual municipalities are developing their own policies because their own constituencies demand it. Sarasota County, as an example, has the audacious goal of powering 50% of the county’s residential water heaters by solar energy within five years. (Note: it is estimated that 40% of ones energy cost is just from the water heater) In Gainesville, there is a program in place that guarantees prices to anyone that wants to sell electricity back to the local utility. There is already opportunity for early adopters.

Looking outside opportunities in the US, we are working with institutional clients who are keenly interested in Foreign Direct Investment. I will elaborate more on this in my next article, however suffice it to say that countries where we see strong opportunities- such as Abu Dhabi, Costa Rica, and Germany, are all at various stages of renewable energy policy. Costa Rica currently gets 85% of its electricity from hydroelectric power and they are in the process of developing a policy so that they can actually export electricity. Right now I believe there is another opportunity to place solar farms in areas of that country to help meet their own growth and development needs.

I will soon be meeting with the largest manufacturer of photovoltaics in the world, a German entity, as well as the largest financier of renewable energy systems, based in Paris. As global warming and national security advocates work together on green policy, my team and I are working on one of the common threads underlying this shift, the real estate underfoot, both in the United States and abroad. If you know of individuals or institutions that are looking to diversify into new geographies and industry, I’d like to talk to them.