Nobody will tell me what stage the power is at on my 50k

This is a small loss by the standards of this room but I'd rather write it up than pretend it didn't happen.

Early last year a guy I've done renovation work for put together an LLC to buy acreage near a market where data centers were going up fast. The pitch was that they'd get the site "powered" and sell it to a developer in 18 to 24 months. I put in $50k. I know houses. I did not know any of this, and I mostly went in because I trusted him and because the story made obvious sense to me, since I could see the buildings going up myself.

What's happened since: two capital calls, $9k and $6k. No distributions. We're now 22 months in and the last update said they're "in the study process" with the utility. I asked what stage and got a paragraph that didn't answer it. I've since read the operating agreement properly, which I should have done first, and there's a dilution provision that cuts my percentage if I skip a call. So the calls aren't really optional if I want to keep what I have.

I'm not writing it off. I might get my money back. But I locked up $65k for what's turning into a five year hold at best, and that money was going to be the reserve on my next rehab, so it cost me a project I didn't take.

What I'd do differently. Read the operating agreement before wiring, specifically the capital call and dilution language, because that's the clause that decides whether $50k is your maximum exposure or your opening one. And ask a plain question in writing before investing: what exact stage is the power application at today, and what's the next milestone with a date. If the answer is a paragraph instead of a stage and a date, that's the answer.

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1dpatel_reCS4A

Your last paragraph is the whole thing and I'd sharpen one part of it.

"In the study process" covers about four years of possible reality. There's a feasibility stage, then a system impact study, then a facilities study, then a signed interconnection agreement, and each one can come back with a cost number that kills the deal. A sponsor who won't tell you which stage they're at either doesn't know or doesn't want the follow-up question about the cost allocation. Both are informative.

The other number I'd have wanted before wiring is what the land is worth if the power never arrives. That's your floor, and on ag or rural residential acreage it's usually a small fraction of what the deal is priced at. If the floor is 20 cents on the dollar, then this is a binary bet dressed up as real estate, and the capital call schedule is how the sponsor keeps the bet alive with your money. Not saying that's what happened to you, only that it's the question that tells you what you own.

$65k for that education is on the expensive side of cheap. Ask for the stage in writing now anyway. Even at 22 months in, knowing whether the cost allocation exists yet changes how you think about the next call.

Nobody will tell me what stage the power is at on my 50k

2 replies