Battery Storage Operations

Battery storage developments are increasing, adding advantages to industrial properties’ business models. According to Matthews™ Vice President Robert Lawrence, while these developments are new in New York City’s industrial sector, owners may begin to see this concept more often in their day-to-day activities.

 

“Recently, I’ve had a few listings where battery storage companies submitted offers, and I’ve also heard from several owners that these groups have become increasingly aggressive with their direct outreach,” Lawrence said.

 

The Basics

Battery storage companies stabilize the power grid in New York City, which has become increasingly unreliable during peak demand months and led to more frequent blackouts. “To fix this, the city is encouraging the development of Battery Energy Storage Systems (BESS) that can store energy and release it when demand spikes,” Lawrence said.

 

BESS buys energy from the city when electricity is less costly, like in the late evening or early morning, and sells it back when demand and prices are high, such as hot summer afternoons. “They’re also paid for their availability, acting as a backup generator for the city during an emergency,” he added.

 

Structure of Battery Storage Offers

“These aren’t your typical industrial leases,” Lawrence said. Recent offers for these companies feature a NNN lease with annual increases. “One example from a recent offer I received on an industrial building in the Bronx had an initial term of 26 years, and I have also seen longer terms, four- to five-year extensions, and an average due diligence period of 270 days.”

 

Tenants are also able to demolish any structures and are not required to rebuild. “The biggest objections I hear from owners are the length of the lease and the long due diligence period,” Lawrence said. “The due diligence period is necessary because battery companies need up to 12 months to get approvals from ConEd. And, given the amount of capital they’re putting into these sites, they require long-term control.”

 

Best-Fit Scenario for Battery Storage

These are various situations where a battery storage offer makes sense. “Owner-users looking to retire in the next few years and don’t want to deal with a 1031 exchange can keep operating while they complete due diligence,” Lawrence said. Also, owners in tertiary or lower-demand markets where the battery company’s offer exceeds what the market would typically pay may also find battery storage properties advantageous.

 

“Owners seeking passive income and willing to sign a long-term lease with minimal landlord responsibilities” is another situation Lawrence described as beneficial for acquiring a battery storage property. Overall, battery deals can be a great fit under the right circumstances, but they’re very different from a standard lease or sale. “With long-term commitments like these,” Lawrence said, “the devil is in the details.”