Lent against a queue position that did not survive the network upgrade study
Closed this out in the fall and it cost me about $2.4m of principal plus roughly $180k of carry and legal, so I've had time to work out where it actually went wrong.
The loan was $6.8m, 12 months, two six month extensions at a point each, secured by 62 acres of ag-zoned land outside a growing metro with transmission running along the eastern boundary. Borrower was assembling a site to sell to a hyperscaler developer. Appraised at $11.2m as powered land, so I was at about 61%. On raw ag comps the same dirt was worth maybe $1.9m, and I knew that. I told myself the spread was the whole business.
The file had a feasibility study and a completed system impact study request with a queue position. I read the position as an asset. What I didn't do was get anyone who understood transmission planning to read the study assumptions. When the facilities study came back fourteen months later, the network upgrade cost allocation to that position was $19m, most of it a rebuild on a line segment three substations away. Nobody was paying $11m for land that carries a $19m entry fee.
Borrower stopped funding interest in month 16. We took a deed in lieu rather than foreclose, which was the right call on timing though the mechanics and the timeline for that vary a lot by state and mine is one of the slower ones. Sold the acreage eleven months later to a farmer and a small solar developer splitting it, $4.1m combined.
What I'd do differently: I'd treat a queue position as a lottery ticket until the facilities study is in hand with a signed cost allocation, and I'd size the loan off ag comps plus whatever premium I can defend without the interconnection. That's a $2m loan on that parcel, not a $6.8m one. I'd also have paid an independent transmission engineer three or four thousand dollars to read the study assumptions before funding, which in hindsight is the cheapest thing I declined to buy that year.