“To every thing there is a season, and a time to every purpose under the heaven.”
– Ecclesiastes 3:1 (KJV)
“They say timing is everything. But then they say, there is never a perfect time for anything.”
– Anthony Liccione
There are a multitude of factors that can affect a land acquisition. How well funded is the acquirer? Are those funds readily available or is the acquirer forced to request those funds from a third party and hope they will be forthcoming? Does the community in which the subject tract lie support the activity intended by the developer? Are there competing interests trying to secure the same tract of land? How do the project economics of those other interests compare to yours? This blog is fortunate in that there are countless factors and actors that can affect a land acquisition and there is quite a deep well from which to draw new inspiration. But of all those potential influencers the single most consequential, even more so than funding levels, is the timing of when the acquirer chooses to enter the market and acquire the subject tract.
Timing will control or affect all aspects of a land acquisition program. In perhaps the most direct manner, the money that has been committed to the program is either from the corporate treasury or from outside investors. An expectation comes along with those funds that either a program aim is advanced or secured assuming the funds were internal or that a suitable return will be generated if they were sourced from external investors. Both of these entities expect results and from the moment those funds are announced or made available the clock is ticking. Failure to meet these expectations rarely ends well for the entity or individuals responsible for program execution.
When purchasing rural land an acquirer will find themselves at the mercy of livestock and crop schedules. When a farmer is harvesting crops or a rancher is selling cattle they have very little motivation, inclination, or practical ability to speak with a developer. Your schedule and landowner’s might not align, and it can be very difficult to convince an unaligned landowner to concern themselves with your priorities and needs. This is often a key point of friction between rural landowners and city/suburban dwelling developers. Rural landowners, primarily those engaged in agricultural occupations, live by the schedule that nature sets for them. Until the ground thaws in the spring, you cannot plant. Until the crops have been given sufficient sunlight, water, and time to grow you cannot harvest them. Livestock requires a certain number of years to grow to a mature enough age for sale and slaughter. The seasons and the years govern their lives and therefore their thinking. When it is time to plant, or harvest, or sell all else fades away into oblivion. Juxtapose this to managers and investors with artificially set timelines and stage gates and you can see where at times the developer and the landowner barely even speak the same language. I have witnessed no shortage of developers and investors seeking to jump the line or pressure the landowners into observing their time schedule and very rarely does it end well – and it never ends in a cost-efficient manner.
There are not only time considerations at the beginning and middle of a land acquisition program, but as a project progresses through various phases of its development there will be time considerations looming on the horizon as well. No corporate entity acquires land without an end purpose. While the eventual development goals will differ between industries and clients the general assumption is that something will be built on the land that is acquired. In order to begin the construction phase of a project it will be necessary to source and procure the equipment, service vendors, and materials to be used in the build out process. Whether these be drilling rigs, solar panel arrays, bull dozers, or any of the countless myriad other necessities required by large industrial and commercial development there is only just so much surplus supply in existence. This means that many key components to a project will have lengthy lead times and must be ordered early on in the development timeline. Failing to have these components and vendors in place when needed will at best add undue cost and delay to the project and if significant enough could force its termination. This means that as the project progresses the potential risks incurred as equipment and follow-on services are ordered and procured will continue to grow. Stalling the project in the site access and land acquisition phase with unproductive landowner negotiations should therefore be avoided if at all possible.
But of all the timing-related issues that must be understood and observed during the land acquisition program, perhaps the most important is the decision as to when to enter the process and market. In reality, there is always a market for well-situated and productive land. A rancher or farmer can always sell their acreage to another so long as they price it according to local, recent, comparable sales. But when a third party unaligned with local agricultural operations is the intended purchaser the assumptions, and the price, change radically. Most landowners are not entirely keen on selling to an outsider and even less so if that entity intends to remove the tract from agricultural operations to commercial, industrial, mining, or power generation operations. Complicate this with the reality that when something of value exists in a place for one entity there will be other competing entities that want the same benefit or opportunity.
Figure 1 – Acquisition Program Timeline with an Agrarian Region
As a region experiences a prolonged and concerted period of numerous entities attempting to secure site access and acquire acreage there will be several distinct phases that can be observed and studied. Each of these phases will have obligations germane and specific to it and the acquirer should approach each with a distinct set of expectations. Each of these will have different attendant costs and requirements but if the acquiring entity proceeds intelligently and properly given the particular circumstances, then each phase can still offer reasonably high odds of success. Figure 1 provides a visualization of the realities and challenges as a region progresses through these stages.
Initial “No External Market” Period
Prior to external actors developing an interest in a given region the local land market is governed by the value of that acreage for farm or ranch operations. Without external demand from non-agrarian businesses or investors, there will be no exaggerated rise in the land’s value. That is not to say that there will not be a healthy market between agrarian operators nor that the value of an acre of land will not slowly rise over time, but the year-over-year increase in that value will likely be measured in single point increments and not giant leaps.
Typically, when the first external entities enter a calm and contained market such as this they do so to test or prove a theory. They have at a remove studied the area’s geography, geology, accessibility, and existing infrastructure and have some idea as to the potential resources offered that could be of value. They will enter the area quietly looking to attract as little notice as possible. Prices will be only slightly above recent comparable sales as the area has yet to prove it can support a greater value. Competition will be almost non-existent and many of the initial actors will operate under assumed names so as to minimize the publicity that large, well-funded operations would normally garner. Most local landowners will not be aware of the activity at this stage.
There is a great deal of risk when an entity chooses to be the first into a new area. There is a fairly good possibility that the time, resources, and funds spent on the endeavor will be for naught. But if the theory being tested turns out to have merit the potential rewards can be massive. These audacious entities can situate and construct a project at a far lower cost than anyone else who follows them into the region. This greatly reduced cost basis allows these initial actors to enjoy robust and enlarged project economics that will provide them, and their investors, an advantage over later competitors forced to spend more to produce similar results.
Linear Market
Once a company has proven the accuracy of their theory and been able to generate the anticipated revenue from a given project it will be difficult to keep their presence and success a secret. In many instances they may not wish to keep these a secret now that they are engaged in the operational phase of their project. They may wish to use the success of this endeavor to aid in marketing whatever product, service, or resource is now being produced there. They may wish to entice further investment dollars for future endeavors. They might also be hoping to make repeating their success all the more difficult for any competitors who might wish to follow in their footsteps.
Local landowners will start to hear about this activity and begin to assemble the pertinent details at churches, lunch counters, coffee shops, and feed stores throughout the region. They will start to ponder whether the outside actor is bringing with them a financial lifeline to the community or whether they are a well-funded competitor that will soon start to challenge their own operations. At this stage they will have more questions than answers.
Even with the success of the initial market entrants the situation will still be somewhat tentative. No one yet knows what the market will bear in terms of new operations able to be supported and land valuations are only beginning to rise from their base values. Competitors late to the game will have to enter their own period of project planning and project economic review. It will be difficult during this phase to offer incredibly high payouts as the recent comparable sales will give pause to any lender or investor contemplating offering several multiples of these near-contemporary, preceding data points.
For these reasons this second phase tends be linear in its growth trajectory. There is ample land available that could serve as a suitable tract for development and payments will be reasonable and fair given the circumstances. This is balanced by much of the local populace being initially ambivalent to the proposed development as they neither suffer from “get rich quick” fantasies nor have they yet been entirely turned off to the process by the aggravations which naturally attach to the land acquisition process.
This is an ideal time to engage in a land acquisition and outreach program. While there will have to resources devoted to educating the local community of your presence, intentions, and value, the relative lack of competition and reasonable pricing will allow for projects to be successfully sited and developed.
Exponential Market
This becomes the land rush phase of the acquisition timetable. Developers and investors are now filled with a very well defined (and expressed) fear of missing out on the successes enjoyed by their timelier predecessors. It becomes very difficult for an entity unengaged in this endeavor to continue to justify their reticence and abstention while their competitors site, construct, and operate profitable enterprises.
While some, or even many, landowners in the community are growing frustrated with the presence and pressure being applied by countless developers, many others are now convinced that this is their chance to cash in on their greatest asset. For rural landowners their acreage is their greatest financial asset. There are no retirement plans, or investment accounts on Wall Street. Their land is not only where they live and operate their business, but it is also where they store their value and net worth. It is always a difficult initial conversation when seeking to purchase or lease all or portion of their acreage as you are in effect striking at the very core of their financial system. But for some the realization will set in that the well above market offers being made could not only supply needed additional streams of revenue but could also be life changing. The 40-year-old farmer struggling to make ends meet will welcome additional streams of passive revenue. The 65-year-old landowner who has already had their children inform them they don’t wish to continue the family business will see this as an opportunity to cash in and finally be able to afford retirement.
When sellers desperate to sell are met by buyers desperate to buy valuations quickly spiral ever higher. Fear of missing out becomes real on both sides of the equation and this can lead to rational thinking and logic being discounted in favor getting a piece of the action. Title insurance companies, appraisers, and eventually even investors struggle to keep up with the spiraling valuations. Wall aggravation becomes more pronounced within the community as by this point the process has become a full-on onslaught this is counterbalanced by evidence of lottery like payouts being given to fellow community members. By the end of this phase almost every established entity within an industry will be involved in some manner and if it persists long enough numerous startups will be present as well. Securing the services of land agents, surveyors, permit specialists, and engineers will become an increasingly fraught process as matters will have moved at such a pace that it is not possible to expand these specialized fields in time to meet all of the demand.
Peak Market
The exponential market phase can only last for just so long before it eventually topples under the weight of its own expectations. Eventually the exorbitant price per acre can no longer be justified by anyone’s project economics and so the potential acquirers eventually draw a line in the sand and begin to hold firm on their top offers. The number of landowners willing to engage in productive negotiations, let alone proceed to full acquisitions, will eventually be whittled down to almost nothing. There are only just so many landowners that for either financial or personal reasons are willing to sell or lease their acreage. The remaining landowners have no desire to part with some combination of either their acreage or their occupation regardless of the consideration offered.
At this point, the market stalls. There simply aren’t any levers left to pull that allow for the successful acquisition of tracts suitable for siting a project. Most parties are typically taken somewhat aback by the sudden calm that replaces what had been the clamour and furor of the preceding acquisition phases.
The peak market phase typically cannot and does not persist for very long. The unsigned landowners who did not wish to be a part of any acquisition program would prefer the external actors to leave their community. The potential acquirers, for their part, no longer able to advance project aims or goals, cannot sit idle for very long as management and investors begin to ask what’s next.
Declining Market
Inevitably, what goes up must come down. External actors only offered the above market offers when there was a possibility of securing the acreage necessary for their projects. Once the suitable and available acreage was acquired there was no longer any justification for those above market offers. At this point many of the entities external to the local community will begin to generate and send out letters of rescission retracting any offers still on the table. Shortly after that they will wrap up any acquisition efforts, leave the community altogether, and move to their next target area. This happens rapidly as organizations, like people, typically prefer to focus on one area at a time. Even large organizations will have one, maybe two, predominant focus areas at a time. Once that focus shifts funding, personnel, and resources are quickly removed from the previous target area.
Of interest in the declining market phase represented in Figure 1 is a small and brief plateau that exists along the downward slope. This represents an effort by those landowners who have been holding out until the last moment hoping to secure an offer higher than had been offered during the exponential phase. They have now come to the realization that such offers will not be forthcoming and that it will be necessary to quickly accept whatever secondary offer might be in existence before all external entities leave the region. There will always be a few organizations whose business plan is designed to identify and secure the acreage offered by these now desperate landowners. This acreage can be acquired for what is a significant discount from the eye watering valuations common only a short time before.
Once this slight pause has run its course, and once the last remaining landowners have salvaged whatever value they could, the decline curve will continue to its natural terminus.
A Return to the “No External Market” Period
As the last external entities leave the local community at the cessation of the declining market phase all that remains is the base market that existed prior to their incursion. The land acquired during the acquisition program will now enter into a permitting and design phase followed eventually and hopefully by a construction and then operations phase. All the land remaining that was not acquired during this acquisition program will remain as crop or pastureland. With no external influences driving value future land deals will revert to those between farmers and ranchers. The valuations for their acreage will revert back to the base value that existed before the external actors engaged with the community and artificially raised prices – albeit only temporarily.
At most phases along the acquisition timeline, it is possible that an acquirer with reasonable expectations can secure the acreage necessary for their intended project. The amount of energy, competition, and funding required will vary greatly along that timeline, but a sophisticated or well-advised entity should be able to acquire their target land. When organizations fail to behave appropriately according to the specific phase in which the market currently exists, they will typically suffer a failed acquisition campaign and the consequences which naturally follow.
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