1 00:00:02,480 --> 00:00:24,480 Speaker 1: Bloomberg Audio Studios, podcasts, radio news as have you ever 2 00:00:24,520 --> 00:00:31,160 Speaker 1: thought about investing in farmland? Real assets have become increasingly popular, 3 00:00:31,360 --> 00:00:37,280 Speaker 1: primarily accessed through alternative investments like private equity funds. Farmland 4 00:00:37,320 --> 00:00:41,680 Speaker 1: has seen broad non correlated gains, and they show little 5 00:00:41,720 --> 00:00:45,320 Speaker 1: signs of slowing down. After all, they ain't making any 6 00:00:45,360 --> 00:00:48,960 Speaker 1: more land. I'm Barry Richolts, and on today's edition of 7 00:00:49,040 --> 00:00:53,880 Speaker 1: At the Money, we're gonna discuss investing in farmland. To 8 00:00:54,000 --> 00:00:56,120 Speaker 1: help us unpack all of this and what it means 9 00:00:56,120 --> 00:01:00,360 Speaker 1: for your portfolio, let's speak with Brandon Zick. He's chief 10 00:01:00,360 --> 00:01:04,920 Speaker 1: investment officer of Sarah's Farmland Fund, managing about two billion 11 00:01:04,959 --> 00:01:08,760 Speaker 1: dollars in AG assets and full disclosure, I'm also an 12 00:01:08,840 --> 00:01:12,840 Speaker 1: investor in Sara's through my own personal investing. So Brandon, 13 00:01:12,959 --> 00:01:16,480 Speaker 1: let's just start with a basic question. What makes farmland 14 00:01:16,680 --> 00:01:21,800 Speaker 1: a compelling addition to any investment portfolio compared to other 15 00:01:21,880 --> 00:01:22,920 Speaker 1: real estate assets? 16 00:01:23,080 --> 00:01:26,200 Speaker 2: Thanks Barry and farmland. It provides a lot of a 17 00:01:26,200 --> 00:01:28,399 Speaker 2: lot of different things that help in a portfolio. So 18 00:01:28,440 --> 00:01:31,440 Speaker 2: parmland will generate a good amount of income, it's positively 19 00:01:31,480 --> 00:01:35,160 Speaker 2: correlated with inflation, and it's also non correlated with other 20 00:01:35,200 --> 00:01:38,479 Speaker 2: things in your portfolio and becomes a diversifier, and it's 21 00:01:38,480 --> 00:01:41,720 Speaker 2: a capital appreciating asset. It's not a depreciation. 22 00:01:41,240 --> 00:01:46,200 Speaker 1: Play, so yield capital appreciation and an inflation hedge. 23 00:01:46,319 --> 00:01:49,040 Speaker 2: That's correct. Yeah, and that's why investors have been investing 24 00:01:49,040 --> 00:01:51,240 Speaker 2: in farmland for a long time. But it's now becoming 25 00:01:51,320 --> 00:01:53,840 Speaker 2: more broad based to the public markets. 26 00:01:53,960 --> 00:01:57,760 Speaker 1: So let's talk about that historical pattern. If there's rent 27 00:01:57,840 --> 00:02:02,360 Speaker 1: and yields, is this putentally you fixed income substitute? Do 28 00:02:02,560 --> 00:02:04,280 Speaker 1: dividends get paid out to investors? 29 00:02:04,520 --> 00:02:06,200 Speaker 2: Yeah, that's the way that a lot of people look 30 00:02:06,240 --> 00:02:08,760 Speaker 2: at it. It's the annual income could be paid off 31 00:02:08,800 --> 00:02:11,239 Speaker 2: as a dividend. So you do see some public rates 32 00:02:11,240 --> 00:02:13,600 Speaker 2: and private rates that are structured that way that would 33 00:02:13,600 --> 00:02:16,840 Speaker 2: force that dividend out. But you can also just continue 34 00:02:16,840 --> 00:02:19,559 Speaker 2: to reinvest as well, and you have that capital appreciation. 35 00:02:20,200 --> 00:02:23,040 Speaker 2: And if you think back over the last seventy years 36 00:02:23,040 --> 00:02:25,360 Speaker 2: and look at data from the Chicago FED, you'll see 37 00:02:25,360 --> 00:02:29,960 Speaker 2: that long term appreciations averaged about six percent annualized, and 38 00:02:30,000 --> 00:02:33,000 Speaker 2: the components of that are really just inflation plus gains 39 00:02:33,000 --> 00:02:37,040 Speaker 2: and productivity. So because farms these are living beasts where 40 00:02:37,080 --> 00:02:41,000 Speaker 2: they're actually growing crops every year, and improvements and technology 41 00:02:41,040 --> 00:02:44,400 Speaker 2: can help crop yields and increase the bottom line. You 42 00:02:44,440 --> 00:02:48,079 Speaker 2: see a number of those benefits fall to the landowner. 43 00:02:48,240 --> 00:02:50,880 Speaker 1: So you guys have scaled up to two billion dollars 44 00:02:50,919 --> 00:02:55,360 Speaker 1: in farmland investing. How do you identify and source attractive 45 00:02:55,440 --> 00:02:58,600 Speaker 1: farmland opportunities? What's the current market like? 46 00:02:59,040 --> 00:03:01,920 Speaker 2: Yeah, so there's a number of ways to buy farms. 47 00:03:01,960 --> 00:03:05,320 Speaker 2: So there are public auctions that exists. They're very localized 48 00:03:05,360 --> 00:03:07,440 Speaker 2: and will attend two to three hundred of those a year, 49 00:03:08,000 --> 00:03:11,320 Speaker 2: but the majority of farmland is done through private transactions 50 00:03:11,400 --> 00:03:14,720 Speaker 2: and these aren't listings. You don't see for sale signs 51 00:03:14,720 --> 00:03:15,160 Speaker 2: on farms. 52 00:03:15,160 --> 00:03:17,440 Speaker 1: If there's no there's no Zillo for agriculture. 53 00:03:17,800 --> 00:03:20,200 Speaker 2: No, not yet, at least there are people trying to 54 00:03:20,240 --> 00:03:23,240 Speaker 2: do something like that. But there are there are ways 55 00:03:23,280 --> 00:03:26,040 Speaker 2: to source farms kind of off market, and we do 56 00:03:26,120 --> 00:03:28,760 Speaker 2: all of that through our farm tenant network. So we're 57 00:03:28,760 --> 00:03:30,600 Speaker 2: not even though I grew up on a family farm, 58 00:03:30,639 --> 00:03:33,799 Speaker 2: we're not operating the farms ourselves. We're renting the properties 59 00:03:34,080 --> 00:03:38,040 Speaker 2: to active family farmers. All of those farmers own ground, 60 00:03:38,400 --> 00:03:42,200 Speaker 2: they rent land from us, but they rent a real 61 00:03:42,440 --> 00:03:45,080 Speaker 2: large preponderance of their acres from other people, and those 62 00:03:45,120 --> 00:03:49,520 Speaker 2: other people are usually not institutional investors, their estates, trusts, 63 00:03:49,560 --> 00:03:53,200 Speaker 2: non farming heirs, people that after two or three generations 64 00:03:53,240 --> 00:03:56,000 Speaker 2: they will likely sell the land, and so we use 65 00:03:56,040 --> 00:03:58,440 Speaker 2: our tenant network or our farmer network to try to 66 00:03:58,520 --> 00:04:00,560 Speaker 2: source some of those opportunities privately. 67 00:04:01,120 --> 00:04:04,760 Speaker 1: And you guys mostly invest in the US. What regions 68 00:04:04,840 --> 00:04:06,840 Speaker 1: or sectors do you find most attractive. 69 00:04:07,080 --> 00:04:10,240 Speaker 2: Yeah, we're the US only. Our mandate is really anywhere. 70 00:04:10,280 --> 00:04:13,520 Speaker 2: We invest in twelve states, but about two thirds of 71 00:04:13,560 --> 00:04:16,719 Speaker 2: our acres are located in Indiana and Michigan, and almost 72 00:04:16,800 --> 00:04:19,119 Speaker 2: ninety percent of our acres are in the Great Lakes State, 73 00:04:19,279 --> 00:04:23,839 Speaker 2: So add in Illinois, Wisconsin, Kentucky, Ohio, and western New York. 74 00:04:24,240 --> 00:04:27,560 Speaker 2: We think that's our sweet spot because there's a fantastic 75 00:04:27,680 --> 00:04:32,200 Speaker 2: market for rental with farmers. It's highly competitive. It's very 76 00:04:32,240 --> 00:04:35,000 Speaker 2: high quality soils, which are great for growing crops. We 77 00:04:35,080 --> 00:04:37,880 Speaker 2: also have a lot of water resources, both underground and 78 00:04:37,960 --> 00:04:40,200 Speaker 2: it rains when you're trying to grow a crop, and 79 00:04:40,320 --> 00:04:44,040 Speaker 2: these are commodities, so low cost producer wins and being 80 00:04:44,240 --> 00:04:47,960 Speaker 2: closer to the population centers of the East Coast and 81 00:04:48,120 --> 00:04:50,560 Speaker 2: where all of these crops generally move is a huge 82 00:04:50,560 --> 00:04:51,400 Speaker 2: benefit as well. 83 00:04:51,560 --> 00:04:56,600 Speaker 1: You mentioned inflation earlier. How does inflation and just general 84 00:04:56,920 --> 00:05:01,680 Speaker 1: macroeconomic trends affect farmland value use and investor interest. 85 00:05:02,160 --> 00:05:05,600 Speaker 2: Farmland is positively correlated with inflation, and that comes from 86 00:05:05,680 --> 00:05:08,880 Speaker 2: a few in a few different ways. So you know, 87 00:05:09,200 --> 00:05:12,680 Speaker 2: clearly crop prices can increase, and you know that's one 88 00:05:12,680 --> 00:05:14,919 Speaker 2: of the bigger things that can help drive revenue on 89 00:05:15,000 --> 00:05:19,000 Speaker 2: farms is increase in crop prices crop yields. But over time, 90 00:05:19,279 --> 00:05:21,920 Speaker 2: you know, farmland has a number of different uses, so 91 00:05:22,400 --> 00:05:25,479 Speaker 2: whether it's for development or other types of things on 92 00:05:25,560 --> 00:05:28,679 Speaker 2: top of just your typical farmland, you'll see that increase 93 00:05:28,800 --> 00:05:31,279 Speaker 2: value over time. So even with a booming economy, you 94 00:05:31,279 --> 00:05:34,000 Speaker 2: can see farmland values increasing as well, even if the 95 00:05:34,040 --> 00:05:36,760 Speaker 2: actual egg production on that farm is not increasing. 96 00:05:36,880 --> 00:05:41,320 Speaker 1: So let's talk about those other opportunities briefly. Mineral rights 97 00:05:41,520 --> 00:05:45,760 Speaker 1: easements you mentioned hunting when we were chatting about this earlier. 98 00:05:47,000 --> 00:05:51,760 Speaker 1: Even data warehouse and AIS are looking for property in 99 00:05:51,800 --> 00:05:57,640 Speaker 1: those spaces. How significant add on So those to basic 100 00:05:57,760 --> 00:05:58,560 Speaker 1: value of farms. 101 00:05:58,920 --> 00:06:01,240 Speaker 2: Yeah, so there's really two different groups. I would put 102 00:06:01,240 --> 00:06:04,120 Speaker 2: that in. You can have some of the ancillary income, 103 00:06:04,240 --> 00:06:07,800 Speaker 2: so like harvesting select timber on farms. Typically when you're 104 00:06:07,839 --> 00:06:10,719 Speaker 2: buying a property, it's not one hundred percent tillable, and 105 00:06:10,800 --> 00:06:12,839 Speaker 2: even during even if it were to be one hundred 106 00:06:12,839 --> 00:06:16,840 Speaker 2: percent tillable and growing crops, there are off seasons and 107 00:06:16,920 --> 00:06:20,280 Speaker 2: you want to continue to manage those properties. So we 108 00:06:20,920 --> 00:06:24,440 Speaker 2: lease out farms for hunting. We harvest select timber. We 109 00:06:24,600 --> 00:06:26,920 Speaker 2: like oil and gas rights or other types of minerals 110 00:06:26,920 --> 00:06:30,360 Speaker 2: that can be incremental. We've had wind turbines on properties 111 00:06:30,640 --> 00:06:33,760 Speaker 2: and those are all kind of incremental to your farm value. 112 00:06:33,960 --> 00:06:36,560 Speaker 2: Then there are other things like solar, where you're taking 113 00:06:36,600 --> 00:06:39,480 Speaker 2: the majority of the farm to convert it, and in 114 00:06:39,520 --> 00:06:42,280 Speaker 2: that case you may have a thirty year lease inflation 115 00:06:42,400 --> 00:06:45,400 Speaker 2: hedged of course, but the income is going to be 116 00:06:45,480 --> 00:06:48,400 Speaker 2: anywhere from three to five times the farm income, so 117 00:06:48,440 --> 00:06:51,000 Speaker 2: you could be generating fifteen to twenty percent a year 118 00:06:51,040 --> 00:06:53,680 Speaker 2: and gross income off of your over your cost basis 119 00:06:53,880 --> 00:06:57,760 Speaker 2: for solar, for solar, and then there are other opportunities 120 00:06:57,800 --> 00:07:00,320 Speaker 2: when you own real estate, when you own dirt, there's 121 00:07:00,360 --> 00:07:03,279 Speaker 2: optionalities to your point, around concert or around easements. So 122 00:07:03,400 --> 00:07:06,080 Speaker 2: easements can be conservation easements, which we don't really do 123 00:07:06,200 --> 00:07:08,960 Speaker 2: much of, but they can also be easements for running fiber, 124 00:07:09,080 --> 00:07:12,560 Speaker 2: for running power, and there's a lot of natural gas. 125 00:07:12,640 --> 00:07:15,560 Speaker 2: There's a lot of opportunity there, and then you can 126 00:07:15,600 --> 00:07:18,600 Speaker 2: see for manufacturing. You can sell properties for that for 127 00:07:18,720 --> 00:07:21,840 Speaker 2: multiples of farmland value. And now in the Midwest we're 128 00:07:21,880 --> 00:07:26,200 Speaker 2: seeing a huge demand for data center development and that's 129 00:07:26,280 --> 00:07:30,760 Speaker 2: anywhere from eight to twenty times farmland value. Because when 130 00:07:30,800 --> 00:07:34,760 Speaker 2: they identify a site that has great power resources, great water, 131 00:07:35,080 --> 00:07:39,160 Speaker 2: hopefully few neighbors has fiber there, there's a lot of 132 00:07:39,200 --> 00:07:42,440 Speaker 2: ways to be able to, you know, build these things 133 00:07:42,440 --> 00:07:44,760 Speaker 2: that then you know they're going to be willing to 134 00:07:44,800 --> 00:07:45,600 Speaker 2: pay a strong price. 135 00:07:45,760 --> 00:07:51,440 Speaker 1: And this administration has been urging the owners of these 136 00:07:51,560 --> 00:07:54,520 Speaker 1: or builders of these to focus in the US. They're 137 00:07:54,560 --> 00:07:58,520 Speaker 1: not comfortable with the servers overseas, even if it's cheaper 138 00:07:58,560 --> 00:07:59,080 Speaker 1: to operate. 139 00:07:59,400 --> 00:08:02,720 Speaker 2: That's definitely an issue that's out there, and you really 140 00:08:02,800 --> 00:08:04,960 Speaker 2: need to be within the US and areas where there's 141 00:08:05,000 --> 00:08:12,080 Speaker 2: capacity on the grid. You certainly need favorable or favorable 142 00:08:12,320 --> 00:08:14,360 Speaker 2: government in all these areas to be able to do 143 00:08:14,400 --> 00:08:18,000 Speaker 2: it as well, and you will see a saturation in 144 00:08:18,040 --> 00:08:20,840 Speaker 2: certain spots that then they have to move to others. 145 00:08:20,880 --> 00:08:23,680 Speaker 2: So some of the largest data center campuses in the 146 00:08:23,800 --> 00:08:26,840 Speaker 2: US are outside of Chicago and Columbus, Ohio. You don't 147 00:08:26,880 --> 00:08:29,600 Speaker 2: see much new development going on there because of lack 148 00:08:29,640 --> 00:08:33,080 Speaker 2: of power over saturation. So we're seeing much more demand 149 00:08:33,120 --> 00:08:36,679 Speaker 2: in places where we have a big footprint, like Indiana, Michigan, 150 00:08:37,120 --> 00:08:39,200 Speaker 2: parts of Kentucky, parts of upstate New York. 151 00:08:39,480 --> 00:08:43,600 Speaker 1: So what are the risks unique to farmland investing? How 152 00:08:43,679 --> 00:08:47,120 Speaker 1: much of this is climate change and weather, water access 153 00:08:47,640 --> 00:08:52,280 Speaker 1: and just government regulation and nimbiism. What do you have 154 00:08:52,320 --> 00:08:55,719 Speaker 1: to think about when you're considering risky business. 155 00:08:56,000 --> 00:08:58,679 Speaker 2: Yeah, so when you think of the climate side, those 156 00:08:58,679 --> 00:09:02,640 Speaker 2: are the traditional risk to farmland, so droughts and floods 157 00:09:02,679 --> 00:09:04,840 Speaker 2: and things like that. So we prefer to invest in 158 00:09:04,880 --> 00:09:08,440 Speaker 2: areas where you have that natural rainfall, you have strong soils, 159 00:09:08,480 --> 00:09:10,640 Speaker 2: good drainage. You don't buy farms right next to big 160 00:09:10,720 --> 00:09:15,320 Speaker 2: rivers because they can flood. So there's and then as 161 00:09:15,360 --> 00:09:18,679 Speaker 2: you think over time, Okay, there's climate change, is there 162 00:09:18,720 --> 00:09:22,120 Speaker 2: a warming happening? Is the grain belt moving farther north, 163 00:09:22,559 --> 00:09:25,840 Speaker 2: so our position around the Great Lakes we think mutes 164 00:09:25,840 --> 00:09:26,840 Speaker 2: a lot of that risk. 165 00:09:27,000 --> 00:09:28,880 Speaker 1: In other words, this is an area that's only going 166 00:09:28,920 --> 00:09:30,600 Speaker 1: to become more attractive for farming. 167 00:09:30,800 --> 00:09:33,040 Speaker 2: That's right. If the Great Lakes region is running out 168 00:09:33,040 --> 00:09:36,160 Speaker 2: of water, then everyone else already did. So it's an 169 00:09:36,200 --> 00:09:39,520 Speaker 2: interesting dynamic, and so that's where we focus our investment. 170 00:09:39,559 --> 00:09:42,400 Speaker 2: But there's farmland all across the US that has all 171 00:09:42,400 --> 00:09:45,440 Speaker 2: different types of values and different ways to manage risk. 172 00:09:45,520 --> 00:09:48,959 Speaker 2: And in farmland you can do that through implementation of 173 00:09:49,040 --> 00:09:52,520 Speaker 2: drainage structures. You can do it through irrigation to try 174 00:09:52,559 --> 00:09:54,840 Speaker 2: to be able to have water when others don't. So 175 00:09:54,880 --> 00:09:57,720 Speaker 2: there are ways to mitigate some risk there. To your 176 00:09:57,760 --> 00:10:01,320 Speaker 2: other point about regulation, I mean, the history of the 177 00:10:01,400 --> 00:10:03,640 Speaker 2: US is agriculture, so there are a lot of regions 178 00:10:03,679 --> 00:10:09,719 Speaker 2: that agricultures encouraged, and development always brings pressure. So when 179 00:10:09,760 --> 00:10:13,160 Speaker 2: you think about what are the issues in farmland that 180 00:10:13,200 --> 00:10:17,480 Speaker 2: farmers face today, it's development pressure, it's labor pressure, the 181 00:10:17,720 --> 00:10:20,360 Speaker 2: input costs and things that come in. So if you're 182 00:10:20,360 --> 00:10:23,600 Speaker 2: in areas like California where we don't invest, there is 183 00:10:23,640 --> 00:10:27,000 Speaker 2: a lot more regulation around water, around labor that makes 184 00:10:27,040 --> 00:10:29,079 Speaker 2: it more difficult to be an operator when you're growing 185 00:10:29,080 --> 00:10:32,160 Speaker 2: a commodity crop. So you know there are places that 186 00:10:32,240 --> 00:10:35,720 Speaker 2: we move away from or we don't invest in. Generally, 187 00:10:35,760 --> 00:10:37,800 Speaker 2: I'm not saying we never would, but we haven't yet 188 00:10:37,880 --> 00:10:40,000 Speaker 2: because we just don't think it's an attractive. 189 00:10:39,840 --> 00:10:42,440 Speaker 1: So let's talk about California for a second. Every time 190 00:10:42,480 --> 00:10:46,000 Speaker 1: I'm on the West Coast, I marvel at how local 191 00:10:46,080 --> 00:10:50,000 Speaker 1: and fresh the food is. Avocados they're everywhere, the tomatoes 192 00:10:50,000 --> 00:10:55,280 Speaker 1: are wonderful. They have a lot of really good local crops. 193 00:10:55,360 --> 00:10:57,880 Speaker 1: But what I'm hearing from you is California may not 194 00:10:57,960 --> 00:11:04,320 Speaker 1: be an attractive agricultural investment area. Is that taxes, is 195 00:11:04,320 --> 00:11:07,920 Speaker 1: that regulation, is that water availability? What are the challenges 196 00:11:08,040 --> 00:11:10,120 Speaker 1: of farmland in California? 197 00:11:10,240 --> 00:11:13,679 Speaker 2: Yeah, so those local crops that are going to local markets, 198 00:11:13,720 --> 00:11:17,040 Speaker 2: are you know, the produce you can get in California 199 00:11:17,160 --> 00:11:19,720 Speaker 2: second to none. I would agree with that. That's not 200 00:11:19,800 --> 00:11:23,800 Speaker 2: a scalable large business from our standpoint. Now, well, there 201 00:11:23,800 --> 00:11:27,800 Speaker 2: are some very large owners of farmland that produce the 202 00:11:27,840 --> 00:11:32,480 Speaker 2: California qt oranges, the big pistachio growers and almond growers. 203 00:11:32,760 --> 00:11:35,840 Speaker 2: They're all large corporate groups that this is the only 204 00:11:35,840 --> 00:11:38,880 Speaker 2: spot to grow that the avocado. So that makes sense. 205 00:11:38,960 --> 00:11:42,000 Speaker 2: But from the row crops standpoint, there's a lot of 206 00:11:42,080 --> 00:11:45,000 Speaker 2: water being used to grow crops that you kind of 207 00:11:45,000 --> 00:11:48,120 Speaker 2: have this misalignment of incentives longer term around use it 208 00:11:48,200 --> 00:11:51,120 Speaker 2: or lose its strategies around water. So you'll see a 209 00:11:51,120 --> 00:11:53,520 Speaker 2: lot of cotton and rice grown in California that I 210 00:11:53,559 --> 00:11:56,640 Speaker 2: would probably say that's not where you should be growing 211 00:11:56,640 --> 00:11:59,640 Speaker 2: that and using that water. But you know, we look 212 00:11:59,679 --> 00:12:04,360 Speaker 2: at regulation. It's coming everywhere around water because water will 213 00:12:04,400 --> 00:12:08,280 Speaker 2: be the next big battle that's out there, and restriction 214 00:12:08,520 --> 00:12:11,760 Speaker 2: is going to come right after regulation. So as things 215 00:12:11,800 --> 00:12:14,560 Speaker 2: get restricted, we think it's more prudent to be in 216 00:12:14,640 --> 00:12:18,439 Speaker 2: areas where there's an abundance of water or an aquafer recharge, 217 00:12:18,679 --> 00:12:22,599 Speaker 2: as opposed to California where you have no new infrastructure 218 00:12:22,640 --> 00:12:25,280 Speaker 2: being built to capture water, no new reservoirs. 219 00:12:26,160 --> 00:12:29,600 Speaker 1: What about desalination, You would think there's the Pacific Ocean adjacent, 220 00:12:29,640 --> 00:12:31,160 Speaker 1: they should have all the water they want. 221 00:12:31,400 --> 00:12:34,079 Speaker 2: Well, you for municipal that actually might make sense at 222 00:12:34,080 --> 00:12:36,600 Speaker 2: some point. I mean the cost is significant, the energy 223 00:12:36,640 --> 00:12:39,960 Speaker 2: costs are significant. As those costs come down for the 224 00:12:40,040 --> 00:12:43,960 Speaker 2: highest and best use of water, municipal that would be 225 00:12:44,000 --> 00:12:46,920 Speaker 2: the right answer. And then industrial agriculture is a low 226 00:12:47,000 --> 00:12:49,680 Speaker 2: value use of water. It doesn't mean in areas like 227 00:12:49,760 --> 00:12:54,040 Speaker 2: California that they don't have senior water rights. Agriculturecally does 228 00:12:54,080 --> 00:12:57,360 Speaker 2: have senior water rights in parts of California and Arizona 229 00:12:57,400 --> 00:12:59,960 Speaker 2: because the farmers were the first to settle out there, 230 00:13:00,080 --> 00:13:03,440 Speaker 2: so they're actually ahead of cities. In Arizona, farmers are 231 00:13:03,480 --> 00:13:06,240 Speaker 2: ahead of cities like Phoenix in terms of where they stack. 232 00:13:06,040 --> 00:13:08,920 Speaker 1: And hence the water issues in places like New Mexico 233 00:13:08,960 --> 00:13:09,559 Speaker 1: and Arizona. 234 00:13:09,640 --> 00:13:12,120 Speaker 2: That's right, and then you just have this the actual 235 00:13:12,160 --> 00:13:15,079 Speaker 2: climate is not it's not recharging aquifers, and if you're 236 00:13:15,080 --> 00:13:18,959 Speaker 2: not going to build infrastructure to take advantage of when 237 00:13:19,000 --> 00:13:22,240 Speaker 2: it does rain, then that's an area that we don't 238 00:13:22,240 --> 00:13:24,199 Speaker 2: find an attractive investment opportunity. 239 00:13:24,559 --> 00:13:31,040 Speaker 1: Let me ask another California investing farm and land question vineyards. 240 00:13:31,200 --> 00:13:35,040 Speaker 1: Are these an investable asset or is that essentially a 241 00:13:35,080 --> 00:13:38,360 Speaker 1: sort of vanity project that all these separate vineyards are running. 242 00:13:38,880 --> 00:13:43,280 Speaker 2: That's an interesting question because you know, wine consumption's gone 243 00:13:43,320 --> 00:13:46,320 Speaker 2: way down, and the same for craft beer. You know, 244 00:13:46,360 --> 00:13:48,960 Speaker 2: people have moved a non alcoholic, they've moved to Seltzer's 245 00:13:49,040 --> 00:13:52,959 Speaker 2: high noons, et cetera. So from that standpoint, it's a 246 00:13:52,960 --> 00:13:56,760 Speaker 2: little challenged. On the macro level, the idea of investing 247 00:13:56,800 --> 00:14:00,680 Speaker 2: in vineyards. Actually, one of my brothers went to Cornell 248 00:14:00,720 --> 00:14:03,440 Speaker 2: and he ran vineyards in California and other parts of 249 00:14:03,480 --> 00:14:06,160 Speaker 2: the country, and he would tell you it's just very 250 00:14:06,160 --> 00:14:08,640 Speaker 2: difficult with labor. You have to be able to sell 251 00:14:08,720 --> 00:14:10,440 Speaker 2: the bottles for a very high price. If you're just 252 00:14:10,480 --> 00:14:13,600 Speaker 2: producing grapes and then selling them someone else that's selling 253 00:14:13,600 --> 00:14:16,319 Speaker 2: the retail product, that's a difficult business to be in. 254 00:14:16,480 --> 00:14:20,240 Speaker 2: So we don't get excited about investing in vineyards, although 255 00:14:20,240 --> 00:14:22,560 Speaker 2: in Michigan we do have one juice grape farm and 256 00:14:22,600 --> 00:14:25,080 Speaker 2: I think Welch's will continue to produce grape juice for 257 00:14:25,120 --> 00:14:25,520 Speaker 2: a while. 258 00:14:26,200 --> 00:14:30,200 Speaker 1: Really interesting as an investor in farmland, how do you 259 00:14:30,560 --> 00:14:37,240 Speaker 1: balance the two different forms of gains annual income from 260 00:14:37,320 --> 00:14:41,520 Speaker 1: rent and crops versus just long term appreciation of the 261 00:14:41,640 --> 00:14:42,480 Speaker 1: underlying land. 262 00:14:42,880 --> 00:14:46,200 Speaker 2: That's really the benefit of farmland is you can you know, 263 00:14:46,200 --> 00:14:48,200 Speaker 2: if we look at our return series over time, in 264 00:14:48,320 --> 00:14:51,200 Speaker 2: areas of strong commodity prices, you tend to have much 265 00:14:51,280 --> 00:14:54,960 Speaker 2: higher land appreciation and then an in cycles the parts 266 00:14:55,000 --> 00:14:58,000 Speaker 2: of the cycle with low commodity prices, income comprises a 267 00:14:58,040 --> 00:15:01,040 Speaker 2: bigger point, a bigger portion of your retail and that 268 00:15:01,160 --> 00:15:04,720 Speaker 2: high income actually mutes volatility over time, because you're going 269 00:15:04,760 --> 00:15:07,600 Speaker 2: to generate that four or five percent income every year, 270 00:15:08,040 --> 00:15:12,400 Speaker 2: and that can really across cycles dampen the volatility you 271 00:15:12,480 --> 00:15:15,480 Speaker 2: might see from changes in commodity prices. Now you would 272 00:15:15,480 --> 00:15:18,720 Speaker 2: think if commodity prices are changing, your rents are materially changing. 273 00:15:19,200 --> 00:15:21,960 Speaker 2: All of our leases. We like multi year leases that 274 00:15:22,000 --> 00:15:24,440 Speaker 2: are negotiated kind of three years at a time, so 275 00:15:24,600 --> 00:15:28,480 Speaker 2: even if commodity prices are moving down, our rents aren't 276 00:15:28,480 --> 00:15:31,400 Speaker 2: really moving down, or only a portion would be negotiated down, 277 00:15:31,680 --> 00:15:34,000 Speaker 2: and then as they go up, we try to build 278 00:15:34,040 --> 00:15:36,160 Speaker 2: a call option into the lease that we can benefit 279 00:15:36,200 --> 00:15:37,080 Speaker 2: somewhat along the way. 280 00:15:37,320 --> 00:15:41,360 Speaker 1: Final question, what are the most significant challenges emerging in 281 00:15:41,480 --> 00:15:43,480 Speaker 1: farmland investing looking forward? 282 00:15:43,920 --> 00:15:45,640 Speaker 2: Yeah, I think there's going to be a lot more 283 00:15:45,880 --> 00:15:50,440 Speaker 2: competition because historically there really hasn't been much institutional investment 284 00:15:50,520 --> 00:15:53,280 Speaker 2: in this space. Only about three percent of US farmland 285 00:15:53,320 --> 00:15:56,600 Speaker 2: is institutionally owned, and some of that is weighted much 286 00:15:56,640 --> 00:16:01,960 Speaker 2: more heavily toward permanent crops like vineyards orchards. Areas of 287 00:16:02,000 --> 00:16:05,440 Speaker 2: the country where you can put larger dollar amounts to work, 288 00:16:05,520 --> 00:16:08,360 Speaker 2: so the southeast or the West. But I think a 289 00:16:08,360 --> 00:16:12,240 Speaker 2: lot of people are identifying farmland as a great asset, 290 00:16:12,320 --> 00:16:15,880 Speaker 2: especially for long term oriented investors. This is an asset 291 00:16:15,920 --> 00:16:18,840 Speaker 2: you can hold for thirty, forty fifty years with some 292 00:16:18,920 --> 00:16:25,000 Speaker 2: of that optionality around solar, wind, timber, even selling into 293 00:16:25,040 --> 00:16:29,000 Speaker 2: manufacturing or data center construction. Infrastructure funds should have a 294 00:16:29,040 --> 00:16:31,960 Speaker 2: lot of interest in this because it's a long term asset. 295 00:16:32,000 --> 00:16:36,359 Speaker 2: You compare with these long term goals and liabilities really fascinating. 296 00:16:36,680 --> 00:16:39,240 Speaker 1: So to wrap up, if you're looking for a non 297 00:16:39,360 --> 00:16:44,480 Speaker 1: correlated investment class, an alternative that's a little different than 298 00:16:45,080 --> 00:16:49,800 Speaker 1: multifamily or office space or other traditional real estate investing, 299 00:16:50,280 --> 00:16:54,280 Speaker 1: consider farm land. You get regular income, appreciation of the 300 00:16:54,360 --> 00:16:59,480 Speaker 1: underlying land, and you're somewhat hedged against rising prices and inflation. 301 00:17:00,240 --> 00:17:03,200 Speaker 1: I'm Barry Ridolts. You've been listening to Add the Money 302 00:17:03,360 --> 00:17:04,639 Speaker 1: on Bloomberg Radio.