Building Purchase for New HQ

Building Purchase for New HQ

  • 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 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 our facility, future expansion is limited.
    • Facility investment projects: Last year, we had significant capital projects planned (paving pole yard, video board for operations room, front lobby remodel, yard fencing), does it make sense to invest into current facility or put funds towards a new location? We decided to review the present market and landscape before starting projects.
    • Interest rates very favorable: During a time of historically low interest rates, the cost of borrowing money is much less than in previous years which is advantageous when considering a larger transaction.
    • Ultimately decided to research potential new headquarters location in greater Bismarck area, looking for available land, visit with recent building projects as well as other cooperatives in ND to gather lessons learned.

 

  • Why move to the new location?
    • During research, we learned that the new facility would become available for purchase. The agreed transaction is comparably affordable to building new.
    • The location is advantageous for servicing Capital's territory, as it has good access to major roadways, avoids majority of urban traffic, yet 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 future 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.
  • Purchasing an existing facility presents many advantages to building new: acquiring fresh ground requires many improvements (water, sewer, roads, electric, telecom), significant staff time in the design process, many meetings to review and approve design and construction decisions.Additionally, the first years in any facility expose weaknesses or post-construction after thoughts that could have been addressed during initial design. Those modifications have been identified and resolved, resulting in a high-performance 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 at the new facility over the course of the next two years. Right now, our best estimate is that we should raise just over 86% from those activities. Since we do not have signed purchase agreements in place that number could change.The 86% is a middle-of-the-road estimate.
  • It is important to note that while these property transactions are playing out (expected to be 2.5 years), there will be normal rate pressure from increased expenditures and the like.It should be anticipated that some rate modifications are necessary during the period in any case.

 

  • 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?
    • We considered both best case and worst-case scenarios. In the best of cases, the change would result in a 10 cents per month increase. In the worst-case scenario, it would be 60 cents per month.

 

  • Did you consider the impact of the interest expense as well as operating costs of the new facility?
    • Yes. Interest rates are very favorable right now which lessens the impact. An analysis of operating costs was reviewed by the Board of Directors prior to entering a purchase agreement.

 

  • 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 1.6 miles further north and is estimated to take an additional 4 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?
    • Yes. At a minimum it is anticipated that $600,000 will be invested to make the necessary modifications. If the Board determines that additional shop space is needed an addition could be pursued. These modifications are included in the rate estimate above (10 cents to 60 cents per month impact)