Last winter’s Texas freeze reminded us how vulnerable the power grid is when stressed. But weather is not the only consideration for municipalities and property owners: We are about to see an increase in electricity demand as crypto miners migrate to the great state of Texas.
Crypto mining is the process of validating a cryptocurrency transaction using sophisticated computers performing complex calculations, and miners are rewarded for doing so. For example, the most common cryptocurrency, Bitcoin, is awarded to Bitcoin miners who complete blocks of transactions. The allure is that a miner can accumulate cryptocurrency without paying for it.
The majority of the world’s Bitcoin mining is performed in China; however, data from Statista shows that the U.S.’s contribution to the global total increased from 4% in September 2019 to nearly 17% in April 2021.
So, what does this have to do with real estate? And, specifically, real estate in Texas?
The computers used to mine cryptocurrency require enormous amounts of power, not unlike the equipment used in data centers. With mining on the rise in the U.S., many anticipate companies focused on this practice will choose Texas as their home due to the affordability of power in the state. Demand could soar by as much as 5,000 megawatts over the next two years, according to Bloomberg. How that may affect electricity prices and lease negotiations is something to start thinking about.
First and foremost, get a clear understanding of a potential tenant’s business and objectives. Over the past several months, my team, which focuses on landlord representation for over 20 buildings across Houston, has seen a few space requirements for sizable crypto mining tenants to lease flex office space. A common question is whether the property can accommodate at least 30 megawatts of power usage annually. To put this in perspective, most of our tenants utilize an average of 6 watts per square foot annually.
If prospecting cryptocurrency mining tenants, conduct a load analysis before moving forward with any requests from tenants. My team reaches out to preferred electricians for pricing to perform the analysis. They will request copies of the original building drawings. Without those, the cost of the analysis will require more due diligence, and ultimately, be more expensive. The cost will fluctuate based on providers, worthiness of consumer and usage demand.
To minimize the building’s rising operating costs, it is prudent to structure the transaction as a triple net lease. One of my team’s assignments is an office building that is being converted for flex industrial use. When brokers representing cryptocurrency manufacturers express interest in this type of asset, we will consider their tenancy with the understanding that they will be responsible for the cost of all electricity and equipment necessary to supply it.
Be aware that crypto miners are considered high-risk tenants due to the volatility of the market. Cryptocurrency pricing is subject to extreme fluctuation and if there’s a significant price drop, a company may no longer find it profitable to mine crypto because infrastructure costs are so high.
Because Texas is creating a welcoming environment for the cryptocurrency industry through tax incentives, sales tax credits, cheap power, and labor training from the state, expect to see more of these tenants in the market as cryptocurrency use among the general population rises in popularity. (Even Staples Center now accepts crypto as payment for concessions.) The commercial real estate sector, as always, must be prepared for what’s next.
Paula Musa is Vice President of Agency Leasing. Based out of Houston, she supports leasing efforts for office properties across the city, specializing in landlord representation.
SEE ALSO:
- Data Centers: Essential Real Estate in an Increasingly Online World
- Underwriting the Perceived Instability of Short-Term Office Leases
- Leveraging Building Technology for a New Tenant Experience
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