Building Purchase for New HQ

 

Updated July 2022.

Background:  In February 2020, Capital Electric Cooperative purchased an existing facility and land as our future headquarters and material yard. The facility is located at 7401 Yukon Drive in Bismarck, ND. An existing lease with a tenant in place was assumed by CEC with the purchase. The lease ends August 31, 2022. Capital Electric will begin making necessary improvements to the facility and grounds beginning September 2022 and we plan to move into the Yukon Drive location in the November 2022 timeframe. The following Q&A relates to the purchase of the new facility.  

Why consider a new location?

Access challenges: This was the initial driving factor, as increased traffic and potential road improvement projects to 43rd and/or State Street could limit accessibility at our current facility in the future. It’s becoming increasingly difficult to get large trucks and pole trailers in/out on a regular basis.

Growth: We’ve had significant growth over the last 20 years and expect to continue the upward trend in both the residential and commercial sectors for many years. With the location and topology of our facility, future expansion is limited.

Facility investment projects: Prior to the decision to change our location, we had significant capital projects planned (paving pole yard, video board for operations room, front lobby remodel, yard fencing), and had discussions whether it made sense to invest into the current facility or put funds towards a new location? We decided to review the present market and landscape before starting projects.

Interest rates favorable: During a time of historically low interest rates, the cost of borrowing money was much less than in previous years which is advantageous when considering a larger transaction.

Why move to the new location?

During research, we learned that the new facility would become available for purchase. The facility was comparably affordable to building new.

The location is advantageous for servicing Capital's territory, as it has close  access to major roadways, avoids the majority of urban traffic, yet is reasonably close to Bismarck.

The new facility is a very visible location, and is a well-designed and constructed, attractive building. It is also a well-maintained site with good parking.

The flat topology with well-designed drainage, and a large, fenced yard allows for much improved materials handling and storage.

The large yard site allows for expansion without the need to acquire additional property.

The existing office space allows for room to add additional staff without need for expansion. Sub-lease options would be available also.

The building and yard are fully secured, yet configurable to allow for other options such as vendor access, sub-tenants, visitors, and member events.

Did the Board consider building a brand-new facility at some point in the future?

It was considered, which is actually how we became aware of the availability of the facility we are purchasing. However, costs to build new were estimated to be higher even with the modifications/addition to the facility being purchased. In addition, the location of the new facility would most likely have been less ideal than the newly acquired facility.

Isn’t this going to drive my rates up?

The purchase of the new facility will be offset significantly by the liquidation of our current real estate assets as well as lease income from the tenant. We expect that in the end, we will cover 58% of the new facility cost from those activities.

As of July 2022, three parcels have closed at or above asking price. Four other parcels are under contract on the existing campus, and two parcels remain active in the market. Selling commercial real estate became more challenging once Covid began in 2020, yet Capital has had success working with the CRA Group and local buyers having a vision for this area of town.

Couldn’t you have sold some of that real estate that you weren’t using and used it for other purposes like buying down debt or rate relief?

That was an option, but as the Board considered how the City of Bismarck is growing around our current facility it was determined that a move was imminent at some point in the future and that this was a prudent option.

Cut to the chase, how much could this impact my rates?

As of July 2022, the increased interest and depreciation related to the new facility is expected to increase pressure on rates by approximately $1.05 per month. Due to the increase in size of the facility, we are also expecting some increased expenses in maintenance and other services, which would add a relatively small additional amount to this estimate.

How did you determine sale and purchase prices for the real estate?

Licensed, third-party appraisers were used to determine appropriate pricing.The federal government requires that we sell property for at least market value and purchase property at market value. In each instance there has been external oversight as a result.

By moving outside of town, aren’t you making it more difficult for members to access the co-op?

The new facility is 2.6 miles further north and is estimated to take an additional 7 minutes to arrive there from our current location if approaching from the south. In addition, the Co-op continues to strive to be accessible in as many ways as possible. We can be reached by phone, email, and for payments we have drop-boxes throughout the Bismarck/Lincoln footprint.

Won’t there be modifications needed to transition the new facility from its present use to the co-op’s use?

As of July 2022, the Board has authorized approximately $5.7M for interior renovations for the lobby and locker room, creation of a control room and metering room, as well as a shop addition for vehicle and material storage. This amount is included in the impact on rates listed above.

What was/is the timeframe of the new facility?

Capital City Construction will begin renovations starting August 1, 2022. Work will be completed in the yard in the first few weeks to prepare for storing outdoor equipment; this is to allow for Capital to be moved out of the existing Service Center building and yard by September 30, which is the closing date for that transaction. Interior renovations are expected to be completed in October, after which office personnel will transition to the new facility; the goal is for all employees to be occupying the new building by Thanksgiving, 2022. The shop addition is expected to take about one year to complete, by August 2023.