1 00:00:02,480 --> 00:00:07,360 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:08,560 --> 00:00:33,160 Speaker 2: As ascus. 3 00:00:24,000 --> 00:00:28,680 Speaker 1: Have you ever thought about investing in farmland? Real assets 4 00:00:28,760 --> 00:00:34,879 Speaker 1: have become increasingly popular, primarily accessed through alternative investments like 5 00:00:34,960 --> 00:00:40,440 Speaker 1: private equity funds. Farmland has seen broad non correlated gains, 6 00:00:40,800 --> 00:00:44,160 Speaker 1: and they show little signs of slowing down. After all, 7 00:00:44,360 --> 00:00:47,720 Speaker 1: they ain't making any more land. I'm Barry Ritcholts, and 8 00:00:47,760 --> 00:00:51,120 Speaker 1: on today's edition of At the Money, we're gonna discuss 9 00:00:51,360 --> 00:00:55,320 Speaker 1: investing in farmland. To help us unpack all of this 10 00:00:55,440 --> 00:00:58,360 Speaker 1: and what it means for your portfolio, let's speak with 11 00:00:58,440 --> 00:01:02,840 Speaker 1: Brandon Zick. He's chief investment officer of Sarah's Farmland Fund, 12 00:01:02,960 --> 00:01:06,840 Speaker 1: managing about two billion dollars in ag assets. By the 13 00:01:06,920 --> 00:01:10,800 Speaker 1: time you hear this, Sarah's will have closed their sale 14 00:01:11,440 --> 00:01:14,000 Speaker 1: to Wisdom Tree, where they're going to continue operating as 15 00:01:14,040 --> 00:01:19,240 Speaker 1: an independent agriculture investing firms. And full disclosure, I'm also 16 00:01:19,280 --> 00:01:23,480 Speaker 1: an investor in Sara's through my own personal investing. So Brandon, 17 00:01:23,560 --> 00:01:27,120 Speaker 1: let's just start with a basic question. What makes farmland 18 00:01:27,280 --> 00:01:32,400 Speaker 1: a compelling addition to any investment portfolio compared to other 19 00:01:32,480 --> 00:01:33,560 Speaker 1: real estate assets? 20 00:01:33,720 --> 00:01:36,840 Speaker 3: Thanks Barry and Farmland, it provides a lot of a 21 00:01:36,840 --> 00:01:39,039 Speaker 3: lot of different things that help in a portfolio. So 22 00:01:39,080 --> 00:01:42,080 Speaker 3: Parmerlan will generate a good amount of income. It's positively 23 00:01:42,080 --> 00:01:45,760 Speaker 3: correlated with inflation, and it's also non correlated with other 24 00:01:45,840 --> 00:01:49,080 Speaker 3: things in your portfolio and becomes a diversifier, and it's 25 00:01:49,120 --> 00:01:52,120 Speaker 3: a capital appreciating asset. It's not a depreciation play. 26 00:01:52,320 --> 00:01:56,800 Speaker 1: So yield capital appreciation and an inflation hedge. 27 00:01:56,960 --> 00:01:59,640 Speaker 3: That's correct. Yeah, and that's why investors have been investing 28 00:01:59,640 --> 00:02:01,440 Speaker 3: in farm land for a long time. But it's now 29 00:02:01,480 --> 00:02:04,480 Speaker 3: becoming more broad based to the public markets. 30 00:02:04,600 --> 00:02:08,400 Speaker 1: So let's talk about that historical pattern. If there's rent 31 00:02:08,480 --> 00:02:13,000 Speaker 1: and yields, is this potentially a fixed income substitute? Do 32 00:02:13,160 --> 00:02:14,880 Speaker 1: dividends get paid out to investors? 33 00:02:15,120 --> 00:02:16,799 Speaker 3: Yeah, that's the way that a lot of people look 34 00:02:16,840 --> 00:02:19,400 Speaker 3: at it. It's the annual income could be paid off 35 00:02:19,400 --> 00:02:21,840 Speaker 3: as a dividend. So you do see some public rates 36 00:02:21,880 --> 00:02:24,200 Speaker 3: and private rates that are structured that way that would 37 00:02:24,200 --> 00:02:27,440 Speaker 3: force that dividend out. But you can also just continue 38 00:02:27,480 --> 00:02:30,160 Speaker 3: to reinvest as well, and you have that capital appreciation. 39 00:02:30,800 --> 00:02:33,639 Speaker 3: And if you think back over the last seventy years 40 00:02:33,680 --> 00:02:35,960 Speaker 3: and look at data from the Chicago Fed, you'll see 41 00:02:35,960 --> 00:02:40,560 Speaker 3: that long term appreciations averaged about six percent annualized, and 42 00:02:40,600 --> 00:02:43,639 Speaker 3: the components of that are really just inflation plus gains 43 00:02:43,639 --> 00:02:47,680 Speaker 3: and productivity. So because farms these are living beasts where 44 00:02:47,680 --> 00:02:51,639 Speaker 3: they're actually growing crops every year, and improvements and technology 45 00:02:51,639 --> 00:02:55,000 Speaker 3: can help crop yields and increase the bottom line, you 46 00:02:55,080 --> 00:02:58,720 Speaker 3: see a number of those benefits fall to the landowner. 47 00:02:58,840 --> 00:03:01,520 Speaker 1: So you guys have scaled up to two billion dollars 48 00:03:01,520 --> 00:03:05,959 Speaker 1: in farmland investing. How do you identify and source attractive 49 00:03:06,080 --> 00:03:09,200 Speaker 1: farmland opportunities? What's the current market like? 50 00:03:09,680 --> 00:03:12,560 Speaker 3: Yeah, so there's a number of ways to buy farms. 51 00:03:12,560 --> 00:03:15,960 Speaker 3: So there are public auctions that exist. They're very localized 52 00:03:15,960 --> 00:03:18,040 Speaker 3: and will attend two to three hundred of those a year, 53 00:03:18,600 --> 00:03:21,920 Speaker 3: but the majority of farmland is done through private transactions. 54 00:03:22,000 --> 00:03:25,320 Speaker 3: And these aren't listings. You don't see for sale signs 55 00:03:25,360 --> 00:03:25,799 Speaker 3: on farms. 56 00:03:25,800 --> 00:03:28,040 Speaker 1: If there's no there's no Zillo for agriculture. 57 00:03:28,440 --> 00:03:30,840 Speaker 3: No, not yet, at least there are people trying to 58 00:03:30,840 --> 00:03:33,840 Speaker 3: do something like that. But there are there are ways 59 00:03:33,880 --> 00:03:36,640 Speaker 3: to source farms kind of off market, and we do 60 00:03:36,760 --> 00:03:39,360 Speaker 3: all of that through our farm tenant network. So we're 61 00:03:39,400 --> 00:03:41,240 Speaker 3: not even though I grew up on a family farm, 62 00:03:41,240 --> 00:03:44,440 Speaker 3: we're not operating the farms ourselves. We're renting the properties 63 00:03:44,680 --> 00:03:48,680 Speaker 3: to active family farmers. All of those farmers own ground. 64 00:03:49,000 --> 00:03:52,800 Speaker 3: They rent land from US, but they rent a real 65 00:03:52,880 --> 00:03:55,480 Speaker 3: a large preponderance of their acres from other people, and 66 00:03:55,520 --> 00:03:58,960 Speaker 3: those other people are usually not institutional investors. They're a 67 00:03:59,080 --> 00:04:02,960 Speaker 3: states trust, non farming airs, people that after two or 68 00:04:02,960 --> 00:04:06,120 Speaker 3: three generations they will likely sell the land, and so 69 00:04:06,200 --> 00:04:08,760 Speaker 3: we use our tenant network or our farmer network to 70 00:04:08,800 --> 00:04:11,200 Speaker 3: try to source some of those opportunities privately. 71 00:04:11,720 --> 00:04:15,400 Speaker 1: And you guys mostly invest in the US. What regions 72 00:04:15,480 --> 00:04:17,440 Speaker 1: or sectors do you find most attractive. 73 00:04:17,720 --> 00:04:20,839 Speaker 3: Yeah, we're the US only. Our mandate is really anywhere. 74 00:04:20,880 --> 00:04:24,159 Speaker 3: We invest in twelve states, but about two thirds of 75 00:04:24,160 --> 00:04:27,320 Speaker 3: our acres are located in Indiana and Michigan, and almost 76 00:04:27,400 --> 00:04:29,760 Speaker 3: ninety percent of our acres are in the Great Lakes States, 77 00:04:29,880 --> 00:04:34,440 Speaker 3: So add in Illinois, Wisconsin, Kentucky, Ohio, and western New York. 78 00:04:34,839 --> 00:04:38,200 Speaker 3: We think that's our sweet spot because there's a fantastic 79 00:04:38,279 --> 00:04:42,800 Speaker 3: market for rental with farmers. It's highly competitive, it's very 80 00:04:42,839 --> 00:04:45,640 Speaker 3: high quality soils, which are great for growing crops. We 81 00:04:45,680 --> 00:04:48,520 Speaker 3: also have a lot of water resources, both underground and 82 00:04:48,560 --> 00:04:50,839 Speaker 3: it rains. When you're trying to grow a crop and 83 00:04:50,920 --> 00:04:54,640 Speaker 3: these are commodities, so low cost producer wins and being 84 00:04:54,839 --> 00:04:58,560 Speaker 3: closer to the population centers of the East Coast and 85 00:04:58,720 --> 00:05:01,160 Speaker 3: where all of these crops generally move is a huge 86 00:05:01,160 --> 00:05:02,000 Speaker 3: benefit as well. 87 00:05:02,200 --> 00:05:07,200 Speaker 1: You mentioned inflation earlier. How does inflation and just general 88 00:05:07,560 --> 00:05:12,359 Speaker 1: macroeconomic trends affect farmland values and investor interests. 89 00:05:12,800 --> 00:05:16,279 Speaker 3: Farmland is positively correlated with inflation, and that comes from 90 00:05:16,800 --> 00:05:20,440 Speaker 3: in a few different ways. So you know, clearly crop 91 00:05:20,480 --> 00:05:23,440 Speaker 3: prices can increase, and you know that's one of the 92 00:05:23,480 --> 00:05:26,039 Speaker 3: bigger things that can help drive revenue on farms is 93 00:05:26,080 --> 00:05:30,080 Speaker 3: increase in crop prices crop yields. But over time, you know, 94 00:05:30,160 --> 00:05:33,560 Speaker 3: farmland has a number of different uses, so whether it's 95 00:05:33,560 --> 00:05:36,640 Speaker 3: for development or other types of things on top of 96 00:05:36,760 --> 00:05:40,159 Speaker 3: just your typical farmland, you'll see that increase value over time. 97 00:05:40,200 --> 00:05:42,640 Speaker 3: So even with a booming economy, you can see farmland 98 00:05:42,720 --> 00:05:45,839 Speaker 3: values increasing as well, even if the actual agg production 99 00:05:45,960 --> 00:05:47,400 Speaker 3: on that farm is not increasing. 100 00:05:47,520 --> 00:05:52,880 Speaker 1: So let's talk about those other opportunities briefly. Mineral rights easements. 101 00:05:53,000 --> 00:05:56,480 Speaker 1: You mentioned hunting when we were chatting about this earlier. 102 00:05:57,640 --> 00:06:02,359 Speaker 1: Even data Warehouse and AI they're looking for property in 103 00:06:02,400 --> 00:06:08,279 Speaker 1: those spaces. How significant add on, so those to basic 104 00:06:08,400 --> 00:06:09,200 Speaker 1: value of farms. 105 00:06:09,520 --> 00:06:11,800 Speaker 3: Yeah, so there's really two different groups. I would put 106 00:06:11,839 --> 00:06:14,720 Speaker 3: that in. You can have some of the ancillary income, 107 00:06:14,839 --> 00:06:18,400 Speaker 3: so like harvesting select timber on farms. Typically when you're 108 00:06:18,440 --> 00:06:21,359 Speaker 3: buying a property, it's not one hundred percent tillable, and 109 00:06:21,440 --> 00:06:23,440 Speaker 3: even during even if it were to be one hundred 110 00:06:23,480 --> 00:06:27,440 Speaker 3: percent tillable and growing crops, there are off seasons and 111 00:06:27,560 --> 00:06:30,880 Speaker 3: you want to continue to manage those properties. So we 112 00:06:31,560 --> 00:06:35,000 Speaker 3: lease out farms for hunting, We harvest select timber. We 113 00:06:35,200 --> 00:06:37,520 Speaker 3: like oil and gas rights or other types of minerals 114 00:06:37,560 --> 00:06:40,960 Speaker 3: that can be incremental. We've had wind turbines on properties 115 00:06:41,279 --> 00:06:44,400 Speaker 3: and those are all kind of incremental to your farm value. 116 00:06:44,560 --> 00:06:47,200 Speaker 3: Then there are other things like solar where you're taking 117 00:06:47,240 --> 00:06:50,080 Speaker 3: the majority of the farm to convert it. And in 118 00:06:50,120 --> 00:06:52,920 Speaker 3: that case you may have a thirty year lease inflation 119 00:06:53,040 --> 00:06:56,000 Speaker 3: hedged of course, but the income is going to be 120 00:06:56,120 --> 00:06:58,880 Speaker 3: anywhere from three to five times the farm income. Wow, 121 00:06:58,960 --> 00:07:01,320 Speaker 3: so you could be generating fifteen to twenty percent a 122 00:07:01,400 --> 00:07:03,680 Speaker 3: year in gross income off of your over your cost 123 00:07:03,800 --> 00:07:07,719 Speaker 3: basis for solar. For solar, and then there are other 124 00:07:07,760 --> 00:07:10,440 Speaker 3: opportunities when you own real estate, when you own dirt. 125 00:07:10,720 --> 00:07:13,760 Speaker 3: There's optionalities to your point, around concert or around easements. 126 00:07:13,800 --> 00:07:16,600 Speaker 3: So easements can be conservation easements, which we don't really 127 00:07:16,600 --> 00:07:18,800 Speaker 3: do much of, but they can also be easements for 128 00:07:18,880 --> 00:07:22,040 Speaker 3: running fiber, for running power, and there's a lot of 129 00:07:22,600 --> 00:07:25,800 Speaker 3: natural gas. There's a lot of opportunity there, and then 130 00:07:25,880 --> 00:07:28,920 Speaker 3: you can see for manufacturing. You can sell properties for 131 00:07:29,000 --> 00:07:31,840 Speaker 3: that for multiples of farmland value. And now in the 132 00:07:31,840 --> 00:07:36,000 Speaker 3: Midwest we're seeing a huge demand for data center development 133 00:07:36,360 --> 00:07:40,520 Speaker 3: and that's anywhere from eight to twenty times farmland value. 134 00:07:40,920 --> 00:07:44,720 Speaker 3: Because when they identify a site that has great power resources, 135 00:07:44,760 --> 00:07:49,520 Speaker 3: great water, hopefully few neighbors has fiber. There there's a 136 00:07:49,520 --> 00:07:52,520 Speaker 3: lot of ways to be able to, you know, build 137 00:07:52,520 --> 00:07:55,080 Speaker 3: these things that then you know they're going to be 138 00:07:55,080 --> 00:07:56,200 Speaker 3: willing to pay a strong price. 139 00:07:56,360 --> 00:08:02,040 Speaker 1: And this administration has been urging the owners of these 140 00:08:02,200 --> 00:08:05,160 Speaker 1: or builders of these to focus in the US. They're 141 00:08:05,160 --> 00:08:09,160 Speaker 1: not comfortable with the servers overseas, even if it's cheaper 142 00:08:09,160 --> 00:08:09,679 Speaker 1: to operate. 143 00:08:10,040 --> 00:08:13,400 Speaker 3: That's definitely an issue that's out there, and you really 144 00:08:13,440 --> 00:08:15,600 Speaker 3: need to be within the US and areas where there's 145 00:08:15,600 --> 00:08:22,680 Speaker 3: capacity on the grid. You certainly need favorable or favorable 146 00:08:22,920 --> 00:08:24,960 Speaker 3: government and all these areas to be able to do 147 00:08:25,000 --> 00:08:28,600 Speaker 3: it as well, and you will see a saturation in 148 00:08:28,680 --> 00:08:31,480 Speaker 3: certain spots that then they have to move to others. 149 00:08:31,520 --> 00:08:34,280 Speaker 3: So some of the largest data center campuses in the 150 00:08:34,400 --> 00:08:37,480 Speaker 3: US are outside of Chicago and Columbus, Ohio. You don't 151 00:08:37,480 --> 00:08:40,200 Speaker 3: see much new development going on there because of lack 152 00:08:40,240 --> 00:08:43,720 Speaker 3: of power over saturation. So we're seeing much more demand 153 00:08:43,760 --> 00:08:47,319 Speaker 3: in places where we have a big footprint, like Indiana, Michigan, 154 00:08:47,720 --> 00:08:49,800 Speaker 3: parts of Kentucky, parts of upstate New York. 155 00:08:50,080 --> 00:08:54,200 Speaker 1: So what are the risks unique to farmland investing? How 156 00:08:54,280 --> 00:08:57,720 Speaker 1: much of this is climate change and weather, water access 157 00:08:58,240 --> 00:09:02,880 Speaker 1: and just government relation and nimbiism. What do you have 158 00:09:02,920 --> 00:09:06,199 Speaker 1: to think about when you're considering risky business. 159 00:09:06,640 --> 00:09:09,280 Speaker 3: Yeah, so when you think of the climate side, those 160 00:09:09,320 --> 00:09:13,280 Speaker 3: are the traditional risks to farmland, so droughts and floods 161 00:09:13,320 --> 00:09:15,480 Speaker 3: and things like that. So we prefer to invest in 162 00:09:15,520 --> 00:09:19,080 Speaker 3: areas where you have that natural rainfall, you have strong soils, 163 00:09:19,080 --> 00:09:21,280 Speaker 3: good drainage. You don't buy farms right next to big 164 00:09:21,360 --> 00:09:25,920 Speaker 3: rivers because they can flood. So there's and then as 165 00:09:25,960 --> 00:09:29,320 Speaker 3: you think over time, okay, there's climate change, Is there 166 00:09:29,320 --> 00:09:32,720 Speaker 3: a warming happening? Is the grain belt moving farther north. 167 00:09:33,200 --> 00:09:36,440 Speaker 3: So our position around the Great Lakes, we think, mutes 168 00:09:36,480 --> 00:09:37,480 Speaker 3: a lot of that risk. 169 00:09:37,640 --> 00:09:39,480 Speaker 1: In other words, this is an area that's only going 170 00:09:39,520 --> 00:09:41,199 Speaker 1: to become more attractive for farming. 171 00:09:41,400 --> 00:09:43,640 Speaker 3: That's right. If the Great Lakes region is running out 172 00:09:43,679 --> 00:09:46,760 Speaker 3: of water, then everyone else already did. So it's an 173 00:09:46,800 --> 00:09:50,079 Speaker 3: interesting dynamic, and so that's where we focus our investment. 174 00:09:50,160 --> 00:09:53,000 Speaker 3: But there's farmland all across the US that has all 175 00:09:53,040 --> 00:09:56,080 Speaker 3: different types of values and different ways to manage risk. 176 00:09:56,120 --> 00:09:59,560 Speaker 3: And in farmland you can do that through implementation of 177 00:09:59,640 --> 00:10:03,120 Speaker 3: drainage structures. You can do it through irrigation to try 178 00:10:03,160 --> 00:10:05,480 Speaker 3: to be able to have water when others don't. So 179 00:10:05,520 --> 00:10:08,320 Speaker 3: there are ways to mitigate some risk there. To your 180 00:10:08,360 --> 00:10:11,920 Speaker 3: other point about regulation, I mean, the history of the 181 00:10:12,040 --> 00:10:14,280 Speaker 3: US is agriculture, so there are a lot of regions 182 00:10:14,320 --> 00:10:20,319 Speaker 3: that agricultures encouraged, and development always brings pressure. So when 183 00:10:20,360 --> 00:10:23,760 Speaker 3: you think about what are the issues in farmland that 184 00:10:23,840 --> 00:10:28,280 Speaker 3: farmers face today, it's development pressure, it's labor pressure, the 185 00:10:28,320 --> 00:10:30,960 Speaker 3: input cost and things that come in. So if you're 186 00:10:31,000 --> 00:10:34,200 Speaker 3: in areas like California where we don't invest, there is 187 00:10:34,240 --> 00:10:37,640 Speaker 3: a lot more regulation around water, around labor that makes 188 00:10:37,640 --> 00:10:39,679 Speaker 3: it more difficult to be an operator when you're growing 189 00:10:39,679 --> 00:10:42,800 Speaker 3: a commodity crop. So you know, there are places that 190 00:10:42,840 --> 00:10:46,360 Speaker 3: we move away from or we don't invest in generally. 191 00:10:46,400 --> 00:10:48,480 Speaker 3: I'm not saying we never would, but we haven't yet 192 00:10:48,520 --> 00:10:50,679 Speaker 3: because we just don't think it's an attractive. 193 00:10:50,440 --> 00:10:53,080 Speaker 1: So let's talk about California for a second. Every time 194 00:10:53,120 --> 00:10:56,640 Speaker 1: I'm on the West Coast, I marvel at how local 195 00:10:56,679 --> 00:11:01,240 Speaker 1: and fresh the food is. Avocados are everywhere, Tomatoes are wonderful. 196 00:11:01,720 --> 00:11:06,080 Speaker 1: They have a lot of really good local crops. But 197 00:11:06,120 --> 00:11:08,680 Speaker 1: what I'm hearing from you is California may not be 198 00:11:08,720 --> 00:11:15,600 Speaker 1: an attractive agricultural investment area. Is that taxes, is that regulation? 199 00:11:15,800 --> 00:11:19,480 Speaker 1: Is that water availability? What are the challenges of farmland 200 00:11:19,600 --> 00:11:20,719 Speaker 1: in California? 201 00:11:20,880 --> 00:11:24,520 Speaker 3: Yeah, so those local crops that are going to local markets, are, 202 00:11:25,559 --> 00:11:28,080 Speaker 3: you know, the produce you can get in California second 203 00:11:28,080 --> 00:11:30,520 Speaker 3: to none. I would agree with that. That's not a 204 00:11:30,600 --> 00:11:33,440 Speaker 3: scalable large business from our standpoint. 205 00:11:33,480 --> 00:11:33,720 Speaker 2: Now. 206 00:11:34,000 --> 00:11:36,600 Speaker 3: While there are some very large owners of farmland that 207 00:11:36,679 --> 00:11:42,160 Speaker 3: produce the California QT oranges, the big pistachio growers and 208 00:11:42,240 --> 00:11:46,079 Speaker 3: almond growers, they're all large corporate groups that this is 209 00:11:46,120 --> 00:11:48,880 Speaker 3: the only spot to grow that the avocado. So that 210 00:11:48,960 --> 00:11:52,240 Speaker 3: makes sense. But from the row crops standpoint, there's a 211 00:11:52,280 --> 00:11:55,240 Speaker 3: lot of water being used to grow crops that you 212 00:11:55,320 --> 00:11:58,400 Speaker 3: kind of have this misalignment of incentives longer term around 213 00:11:58,520 --> 00:12:01,400 Speaker 3: use it or lose its strategies around water. So you'll 214 00:12:01,400 --> 00:12:03,960 Speaker 3: see a lot of cotton and rice grown in California 215 00:12:03,960 --> 00:12:06,839 Speaker 3: that I would probably say that's not where you should 216 00:12:06,840 --> 00:12:09,800 Speaker 3: be growing that and using that water. But you know, 217 00:12:09,880 --> 00:12:14,440 Speaker 3: we look at regulation. It's coming everywhere around water because 218 00:12:14,480 --> 00:12:16,880 Speaker 3: water will be you know, the next big battle that's 219 00:12:16,920 --> 00:12:20,679 Speaker 3: out there, and restriction is going to come right after regulation. 220 00:12:21,240 --> 00:12:24,800 Speaker 3: So as things get restricted, we think it's more prudent 221 00:12:24,840 --> 00:12:27,439 Speaker 3: to be in areas where there's an abundance of water 222 00:12:27,600 --> 00:12:30,679 Speaker 3: or an aquafer recharge, as opposed to California, where you 223 00:12:31,320 --> 00:12:34,960 Speaker 3: have no new infrastructure being built to capture water, no 224 00:12:35,080 --> 00:12:35,920 Speaker 3: new reservoirs. 225 00:12:36,760 --> 00:12:40,199 Speaker 1: What about desalination, You would think there's the Pacific Ocean adjacent, 226 00:12:40,240 --> 00:12:41,800 Speaker 1: they should have all the water they want. 227 00:12:42,000 --> 00:12:44,679 Speaker 3: Well, you for municipal, that actually might make sense at 228 00:12:44,679 --> 00:12:47,240 Speaker 3: some point. I mean the cost is significant, the energy 229 00:12:47,280 --> 00:12:50,560 Speaker 3: costs are significant. As those costs come down for the 230 00:12:50,640 --> 00:12:54,600 Speaker 3: highest and best use of water, municipal that would be 231 00:12:54,640 --> 00:12:57,560 Speaker 3: the right answer. And an industrial agriculture is a low 232 00:12:57,640 --> 00:13:00,200 Speaker 3: value use of water. It doesn't mean an area is 233 00:13:00,240 --> 00:13:04,319 Speaker 3: like California that they don't have senior water rights. Agricultureally 234 00:13:04,440 --> 00:13:07,400 Speaker 3: does have senior water rights in parts of California and 235 00:13:07,440 --> 00:13:10,640 Speaker 3: Arizona because the farmers were the first to settle out there, 236 00:13:10,679 --> 00:13:14,080 Speaker 3: so they're actually ahead of cities in Arizona, farmers are 237 00:13:14,080 --> 00:13:16,920 Speaker 3: ahead of cities like Phoenix in terms of where they stack. 238 00:13:16,679 --> 00:13:19,520 Speaker 1: And hence the water issues in places like New Mexico 239 00:13:19,559 --> 00:13:20,239 Speaker 1: and Arizona. 240 00:13:20,280 --> 00:13:22,760 Speaker 3: That's right, and then you just have this the actual 241 00:13:22,760 --> 00:13:25,719 Speaker 3: climate is not it's not recharging aquifers, and if you're 242 00:13:25,720 --> 00:13:29,600 Speaker 3: not going to build infrastructure to take advantage of when 243 00:13:29,600 --> 00:13:32,840 Speaker 3: it does rain, then that's an area that we don't 244 00:13:32,880 --> 00:13:34,840 Speaker 3: find an attractive investment opportunity. 245 00:13:35,200 --> 00:13:41,640 Speaker 1: Let me ask another California investing farm and land question, vineyards. 246 00:13:41,800 --> 00:13:45,679 Speaker 1: Are these an investable asset or is that essentially a 247 00:13:45,720 --> 00:13:48,960 Speaker 1: sort of vanity project that all these separate vineyards are running. 248 00:13:49,520 --> 00:13:53,920 Speaker 3: That's an interesting question because you know, wine consumption's gone 249 00:13:53,920 --> 00:13:56,960 Speaker 3: way down, and the same for craft beer. You know 250 00:13:57,000 --> 00:13:59,560 Speaker 3: people have moved a non alcoholic they've moved to Seltzer's, 251 00:13:59,640 --> 00:14:03,880 Speaker 3: high New etc. So from that standpoint, it's a little 252 00:14:03,960 --> 00:14:08,559 Speaker 3: challenged on the macro level. The idea of investing in vineyards. Actually, 253 00:14:08,600 --> 00:14:11,880 Speaker 3: one of my brothers went to Cornell and he ran 254 00:14:11,960 --> 00:14:15,319 Speaker 3: vineyards in California and other parts of the country, and 255 00:14:15,600 --> 00:14:17,760 Speaker 3: he would tell you it's just very difficult with labor. 256 00:14:18,080 --> 00:14:19,920 Speaker 3: You have to be able to sell the bottles for 257 00:14:19,960 --> 00:14:22,600 Speaker 3: a very high price. If you're just producing grapes and 258 00:14:22,640 --> 00:14:25,160 Speaker 3: then selling them someone else that's selling the retail product, 259 00:14:25,360 --> 00:14:27,920 Speaker 3: that's a difficult business to be in. So we don't 260 00:14:27,920 --> 00:14:31,480 Speaker 3: get excited about investing in vineyards, although in Michigan we 261 00:14:31,480 --> 00:14:33,920 Speaker 3: do have one juice grape farm and I think Welch's 262 00:14:33,960 --> 00:14:36,120 Speaker 3: will continue to produce grape juice for a while. 263 00:14:36,800 --> 00:14:40,800 Speaker 1: Really interesting as an investor in farmland, how do you 264 00:14:41,200 --> 00:14:47,920 Speaker 1: balance the two different forms of gains annual income from 265 00:14:47,960 --> 00:14:52,120 Speaker 1: rent and crops versus just long term appreciation of the 266 00:14:52,240 --> 00:14:53,080 Speaker 1: underlying land. 267 00:14:53,480 --> 00:14:56,800 Speaker 3: That's really the benefit of farmland is you can you know, 268 00:14:56,840 --> 00:14:58,840 Speaker 3: if we look at our return series over time, in 269 00:14:58,920 --> 00:15:01,840 Speaker 3: areas of strong come prices, you tend to have much 270 00:15:01,880 --> 00:15:05,320 Speaker 3: higher land appreciation and in an are in cycles, the 271 00:15:05,360 --> 00:15:08,520 Speaker 3: parts of the cycle with low commodity prices, income comprises 272 00:15:08,560 --> 00:15:11,440 Speaker 3: a bigger point, a bigger portion of your return, and 273 00:15:11,480 --> 00:15:15,200 Speaker 3: that high income actually mutes volatility over time because you're 274 00:15:15,240 --> 00:15:18,240 Speaker 3: going to generate that four or five percent income every year, 275 00:15:18,640 --> 00:15:23,000 Speaker 3: and that can really across cycles dampen the volatility you 276 00:15:23,080 --> 00:15:26,080 Speaker 3: might see from changes in commodity prices. Now, you would 277 00:15:26,120 --> 00:15:28,800 Speaker 3: think if commodity prices are changing, your rents are materially 278 00:15:28,920 --> 00:15:32,440 Speaker 3: changing all of our leases. We like multi year leases 279 00:15:32,480 --> 00:15:34,560 Speaker 3: that are negotiated kind of three years at a time, 280 00:15:34,960 --> 00:15:38,800 Speaker 3: so even if commodity prices are moving down, our rents 281 00:15:38,840 --> 00:15:40,960 Speaker 3: aren't really moving down, or only a portion would be 282 00:15:41,000 --> 00:15:43,760 Speaker 3: negotiated down, and then as they go up, we try 283 00:15:43,800 --> 00:15:46,160 Speaker 3: to build a call option into the lease that we 284 00:15:46,200 --> 00:15:47,720 Speaker 3: can benefit somewhat along the way. 285 00:15:47,920 --> 00:15:52,000 Speaker 1: Final question, what are the most significant challenges emerging in 286 00:15:52,080 --> 00:15:54,120 Speaker 1: farmland investing looking forward? 287 00:15:54,520 --> 00:15:56,320 Speaker 3: Yeah, I think there's going to be a lot more 288 00:15:56,520 --> 00:16:01,120 Speaker 3: competition because historically there really hasn't been much institutional investment 289 00:16:01,120 --> 00:16:03,880 Speaker 3: in this space. Only about three percent of US farmland 290 00:16:03,920 --> 00:16:07,240 Speaker 3: is institutionally owned, and some of that is weighted much 291 00:16:07,240 --> 00:16:12,480 Speaker 3: more heavily toward permanent crops like vineyards or orchards. Areas 292 00:16:12,480 --> 00:16:15,760 Speaker 3: of the country where you can put larger dollar amounts 293 00:16:15,760 --> 00:16:18,560 Speaker 3: to work, so the southeast or the west. But I 294 00:16:18,560 --> 00:16:21,560 Speaker 3: think a lot of people are identifying farmland as a 295 00:16:21,640 --> 00:16:25,760 Speaker 3: great asset, especially for long term oriented investors. This is 296 00:16:26,000 --> 00:16:28,520 Speaker 3: an asset you can hold for thirty, forty to fifty 297 00:16:28,600 --> 00:16:33,800 Speaker 3: years with some of that optionality around solar, wind, timber, 298 00:16:34,480 --> 00:16:39,160 Speaker 3: even selling into manufacturing or data center construction. Infrastructure funds 299 00:16:39,160 --> 00:16:41,120 Speaker 3: should have a lot of interest in this because it's 300 00:16:41,680 --> 00:16:43,520 Speaker 3: a long term asset you can pare with these long 301 00:16:43,600 --> 00:16:45,000 Speaker 3: term goals and liabilities. 302 00:16:45,520 --> 00:16:49,280 Speaker 1: Really fascinating. So to wrap up, if you're looking for 303 00:16:49,320 --> 00:16:54,440 Speaker 1: a non correlated investment class, an alternative that's a little 304 00:16:54,440 --> 00:16:59,280 Speaker 1: different than multifamily or office space or other traditional real estate, 305 00:17:00,920 --> 00:17:06,480 Speaker 1: consider farmland. You get regular income, appreciation of the underlying land, 306 00:17:06,720 --> 00:17:11,040 Speaker 1: and you're somewhat hedged against rising prices and inflation. I'm 307 00:17:11,080 --> 00:17:14,080 Speaker 1: Barry Ridholts. You've been listening to Add the Money on 308 00:17:14,240 --> 00:17:17,400 Speaker 1: Bloomberg Radio.