Comment by arjie
3 hours ago
What is the actual procedure through which this happens? You buy the land and then are granted permission on a discretionary basis? It seems to me that if you were a small business this becomes much harder to participate in because you need to acquire and hold the unproductive asset.
This would mean that land use tends towards that which large firms (which can sustain the costs easily by self-financing) find useful.
My employer went through a similar process, not for a data center but for a large recycling yard/center. We had to buy the land first, and it was basically unproductive for 2.5 years of mostly waiting for permits, and it was already zoned industrial so no zoning changes were needed.
The whole project was several million in expenses before even making a dollar. We aren't huge either, the permitting was not supposed to take that long it but a real strain on the business.
So yeah, you're correct. The current process favors large firms, at least those large enough to absorb the cost for multiple years or however long permitting takes, which in some municipalities can be a very, very long time.
It’s unusual to buy the land and take a gamble on its utility, at least whenever datacenter construction is involved. Purchasing parties are risk averse to this exact scenario and work hard to craft contracts that reduce risk.
Often the choices are —
1. Buy land at $/acre that reflects very little premium, based on a short feasibility study, but without any ultimate contingency that permitting will occur. This is your example. But problematically all permitting applications are typically public record, so when you fail, the land can’t be sold on to someone else as if that didn’t happen, any sophisticated buyer will know the exact issues the city/county had with your usage. Land often transacts onward at firesale prices under these circumstances.
2. $/acre for land is bid upon at a substantial premium reflecting the future value as a datacenter, it remains under contract for potentially years pending outcome of approvals, then it transacts. Permitting being denied usually results in either no money changing hands or a small termination fee reflecting the carrying cost of the land during that period. If permitting works out the seller of land walks away very happy as the $/acre was extremely lucrative.
The second option also incentivizes the seller, who is often a local real estate magnate, to pressure local officials to issue the permits.
Fun fact: Large businesses are often tapped to write the laws intended to target large businesses. The process is called “model legislation.” Fox and henhouse.
That's not what model legislation is.
That can be an example of model legislation but, broadly, model legislation is created by an organization for use as an example for multiple different legislatures (usually states). Everyone from think tanks, busineses, the EFF, the ACLU and PETA draft model legislation.
Well, businesses — and all parties — who will be affected by legislation should be able to provide input. Otherwise we too often get clueless legislation that is massively mocked and rightly bemoaned on this site — because the legislators have no real clue of the technical issues involved.
Of course, the businesses should be only one part of the expertise that goes into writing the laws; other experts MUST be involved, or it will indeed be a fox and henhouse situation where the fox designs the legal locks so they can always be opened by foxes...
Depending on things, you might enter a land purchase (or lease) contract that's contingent on issuance of a building permit.
But a seller would probably prefer to sell without contingency, so what terms are available depends on market conditions.
Title insurance for residential real estate may sometimes cover properties that are unbuildable due to unsatisfiable permit requirements.
All told, it's easier as a buyer if you purchase an existing structure that was built under permits and is currently in use under appropriate occupancy permits.
From what I can tell Microsoft hasn't purchased the land yet. It's apparently owned by WE energies as part of the power plant next door.
Zoning laws. Many parts of the US but not all have land use zoning. The zoning for any property you buy is public record, so any business knows well in advance of what they are buying. If you want to deviate from the zoning you have to submit an application for that zoning variance which requires usually a community hearing.
Neither small or large businesses really have any big advantages here. Got to win over the community. If anything, the small business may be local and the operators more readily able to convince the community for a variance than some corporate lawyer.
Zoning is only part of it. If a plot is already zoned industrial, but is empty, you still need to get the permitting for building construction, utility hookup, waste water & stormwater, environmental inspections, etc.
It varies from state to state (and city specific laws), but to go from empty land to productive asset can take several years.
Also for a large enough utility hookup you will need to coordinate with the utility and or government since you can’t just plop down a large consumer on any old power line or pipe.