Episode #161: Brandon Zick, Ceres Partners, “In Row Crops You’re Generating A Lot Of Current Income”

June 19, 2019

Episode #161: Brandon Zick, Ceres Partners, “In Row Crops You’re Generating A Lot Of Current Income”

Guest: Brandon Zick focuses on managing all assets of the farm portfolio, performing valuation analysis and due diligence of property acquisitions, deal sourcing and negotiating acquisition terms, tenant sourcing and ongoing relationship management and oversees all portfolio management of the Fund.

Date Recorded: 6/5/19 | Run-Time: 1:28:54

Summary: Brandon begins talking about his background in farming, and the current ownership structure he’s seeing in the farm business; land ownership and operations are a generation or two removed, which creates a robust rental market, and what makes investment possible.

Meb asks Brandon why investors should consider farmland in their investment portfolios. Brandon discusses the tangibility of owning a real asset such as farmland, the inflation hedge it provides, and its ability to diversify a portfolio. Next, Brandon gets into the structural inefficiencies of the farmland market, and the risk/return profile it can provide investors.

Meb then asks about the ownership structure of their investments. Brandon talks about Ceres buying land from absentee land owners, their goal of partnering with top decile farmers, and putting more incentives in place for their tenants. He also mentions the farmer relationship and involving them in the underwriting process when looking at acquiring farms.

The conversation then turns to some history on the farmland bust phase in the 80s, and how leverage in the system contributed to that environment, but has also influenced how people acquire and own farmland today. Brandon then goes on to explain why investors should embrace volatility, and how important it is as a land owner to have equity in land and cash in hand to be able to make acquisitions and grow.

As the conversation winds down, Meb asks Brandon about his thoughts on technology and it’s impacts in agriculture. Brandon talks about it being an exciting development, allowing farming to be less labor intensive and freeing farmers to make higher value, broad scale decisions. Brandon wraps up with a discussion of Ceres’ fund, and what is on the horizon for Ceres.

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Interested in sponsoring an episode? Email Justin at jb@cambriainvestments.com

Links from the Episode:

0:50 – Welcome to our guest, Brandon Zick
1:38 – Brandon’s background on a dairy farm
2:34 – Changes in the farming landscape
4:55 – Brandon’s background in finance
6:09 – Brandon’s move to Ceres
7:23 – The case for investing in farming
9:15 – Defining row crops
11:03 – How Ceres partnerships work
14:21 – Process for evaluating farms
16:21 – Institutional investors moving into the space
20:08 – The inefficiencies of this market
24:40 – Improving farms
27:57 – Historical returns and opportunities for farming
33:24 – Benefits of volatility in farming
36:54 – Leverage in farmland and ethanol production’s impact
38:26 – Meb’s farmland tweet
41:52 – Technology in the farming space and what it means for the workforce
42:10 – Farmers Plow Through Netflix While Plowing Fields
46:24 – Value add for the farmers to work with Ceres
51:02 – Balancing the liquidity in this illiquid asset class
56:01 – Alternative opportunities with farmland
1:01:40 – How the fundraising pitch to investors has changed over the years
1:08:28 – Ceres’ capacity
1:10:09 – Expansion plans
1:14:03 – Startup tech in the space
1:18:39 – Looking ahead to things on the horizon that excites or frightens Brandon
1:24:45 – Most memorable investment
1:28:03 – Follow Brandon, cerespartners.com

Transcript of Episode 161:

Welcome Message: Welcome to “The Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Meb: Welcome back, podcast listeners. It’s fun summertime. We’ve got an excellent show for you today on a topic that’s near and dear to my heart. You guys have requested this a bunch. So let’s get down to it.

Our guest is the director of acquisitions and portfolio management at Ceres Partners, a specialist investment managers focused exclusively on food, agriculture, and farming. Welcome to the show, Brandon Zick.

Brandon: Thank you.

Meb: Brandon is here live in studio from South Bend, Indiana. And, listeners, you missed it, but he just promised me tickets to Virginia vs. Notre Dame in Notre Dame this year. I’m excited. They’re on the schedule. I’m sure we’ll get drubbed. But thank you. That’s very thoughtful.

Brandon: Yeah, anytime.

Meb: I’m excited. We’re gonna talk about farming today, one of my favourite topics. We’re gonna get pretty deep into it. But a question before we start. Did I see in your background you grew up on a dairy farm?

Brandon: Yes, I grew up on a dairy farm in northeastern Pennsylvania. And after working there during grade school and high school, I was pretty motivated to do something else in my life. So I made it to Notre Dame. And then prior to joining Ceres in 2010, I worked for nine years at Lehman Brothers and Morgan Stanley. And then I’ve became the first employee on the investment side of Ceres Partners back at the end of 2010.

Meb: This is quite an eclectic background. First, milking cow, harder or easier than one would expect?

Brandon: More difficult. I was one of three brothers. I was entrusted with doing that. I was an expert at shovelling manure so that’s really where my expertise lied.

Meb: It’s funny. What do you think our expected podcast listenerships that have milked a cow? It’s got to be under 5%, right?

Brandon: It’s pretty low. I think farmers represent less than 1% of the total population, and dairy farmers are a smaller percentage of that.

Meb: It’s a crazy thing about as we think about the future and how times have changed, my old man grew up on a farm in Nebraska. And when we say farm, meant like no running water outhouse, right? And when he moved into town, town being like a couple hundred people. So I’ve spent a lot of time on farms, growing up over the years. But from being such a high percentage of U.S. workforce, and now it’s like almost nothing. It’s been a major transition.

Brandon: And that’s really indicative of the whole market when you think of the land market. When people think, who owns all this farmland out there, there certainly are investors like us, but we only represent 2% to 3% of the total market owner/operator farmers. Your typical farmer represents only about 40%. But the majority of land ownership are people like yourself that are a generation or two removed from actually working on the farm, living on the farm.

So you have a lot of absentee landowners, non-farming heirs, estates, trusts, and that creates a pretty robust farm rental market. Because unlike another real estate, farmland doesn’t have a vacancy rate in the U.S. It’s always farmed every year, which what makes investment possible, because there are tenants who rent a lot of farmland.

Meb: And most of the kids don’t wanna be doing it, it seems like.

Brandon: Yeah, I think for the last two generations, a lot of people have moved off the farm, myself included, while we still own our family farm, and my mom still lives there. And one of my brothers still raises beef cattle there. There aren’t a lot of people over the last few generations that have come back to the farm.

There was a little bit of a dynamic in 2012 and 2013 where there were people coming back to the farm, because grain prices were so high. We probably at Ceres even underestimated how much money farmers made in those years and were able to bank. So there was a little bit of an influx then. But like in any commodity market, high prices solve high prices, and low prices solve low prices. So people came back, prices went down for a number of reasons. And now we don’t see a lot of people coming back to the farm.

Meb: It’s funny because so many my formative memories growing up, we used to…I grew up partially Colorado and partially North Carolina, but we spent a lot of time on farmland in western Kansas and also in Nebraska. First car I ever drove was 1983 Toyota Land Cruiser out on the farm, driving it around, trying to learn how to drive stick shift. But I certainly love being out there.

Before we get super deep into farming, let’s talk about your background a little bit. Were you still at Lehman at implosion, or would you have predated it?

Brandon: No, I was there from 2001 to 2004. And then I joined Morgan Stanley after that. So while I still had some restricted stock at Lehman Brothers that I figured out we’re going to zero, man, I wasn’t there when it happened. I saw a lot of friends and colleagues that were there. But Morgan Stanley wasn’t immune from all the issues either, but when you don’t go to zero, you have a definite advantage.

Meb: And then Morgan Stanley focused on what sort of part of the business world? It wasn’t farming, was it? Or was it?

Brandon: No, not at all. I was on the investment management side of the business. The last role I had there was in strategic acquisitions, where Morgan Stanley itself was buying minority stakes or taking control of primarily alternative investment managers, whether it was hedge funds, some like Frontpoint and Avenue Capital. And then eventually after the financial crisis, the role transitioned to more of selling off some of the assets to generate capital and liquidity for the business.

Meb: You were right around the time we’re recording this of all the interns and summer people start showing up to New York. That’s a fun time. I have many, many friends that went through in those programs. I love New York during that time. And then post-Morgan Stanley, how did you end up at Ceres?

Brandon: So I met our founder, Perry Vieth, who had started the firm in 2007 through a mutual friend at Notre Dame’s investment office, the endowment office. And I was looking…

Meb: Is your mutual friend Scott Malpass?

Brandon: He runs the office.

Meb: One of the most storied investment managers really of our time.

Brandon: Yeah, Notre Dame has done a great job of investing capital on behalf of the university. And so I met our founder, Perry, through the endowment office. And it was really small. The fund was very small at the time. And he said if I can ever get to $20 million in investor equity, I can pay you something. So it took a few years. And then by probably mid-2010, he called me and said, “All right, your background is exactly what I’m looking for. I need someone who has farming experience and agricultural experience, because we’re gonna work directly with the farm tenants. We’re not gonna outsource any of that. We need someone who knows it means to be a fiduciary.” So I joined just in December of 2010 as the first investment employee.

Meb: And great timing. It’s been almost a decade. You guys are knocking on a billion in assets. Congratulations.

Brandon: Thank you.

Meb: That’s a pretty awesome story. All right. Let’s talk farming. What’s the investment case? You’ve been chatting with a lot of institutional investors here in LA. What’s the two-minute overview? Why should people be considering this asset class?

Brandon: There are a number of reasons why our current investors, who have been in the strategy for a while, have remained in the strategy, and also why new people are looking to come in. It’s a real asset. So it’s very tangible. We own dirt, in most cases. And in farmland, there are a few different ways to attack this asset class. We’re focused more primarily on row crops, where dirt is the asset. It’s not trees or vines, like in permanent crops, where you have a lot more depreciation and crop risk. In row crops, you’re generating a lot of current income. So we’re targeting 5% to 6% in current income. So that’s a great investment case for why people should be in this product.

It tends to be very inflation-hedged. We have a positive correlation with inflation. And it’s also well-diversified from other asset classes. It tends to be non-correlated there, and in a portfolio context, would dampen a lot of volatility that you would see. And that income is a great offset over time. So as we sit here today, one of the reasons we’re pitching the investment case as we’ve been in four years of really low commodity prices, which were a result of high production everywhere in the world and fantastic weather. And until recently, we would tell investors, it’s tough to know when that’s going to change, but eventually, we know it will. And it’ll lead to increased prices for the commodity crops and the grain crops, because demand has continued to grow.

And that’s where we are today. We have a very wet spring in the Midwest. We’re coming up on what I would consider a greatly reduced amount of planted acres to corn, specifically, and we’re seeing a response in price. So we view this as a great time to be putting money to work. As we sit here today, our fund is fully invested. So we’re looking to continue to make acquisitions at high cap rates that we think will provide an attractive return in the future.

Meb: When you say row crops, what falls under that umbrella?

Brandon: Yeah, so primarily in the U.S., the biggest commodity crops are corn, soybeans, wheat, cotton, rice. And those tend to be the biggest crops that are in the rotation you’d look at, depending on the region where you own farmland. Our focus is primarily the Midwest. We think that’s the best soil, the most competitive farmers. We actually have rain during the growing season, which is the cheapest form of irrigation you can have. And we think it is what we would consider the core asset in this space. So if you think of it in a fixed income portfolio context, this is core. And then as you look at every other region, then you have to generate core plus type returns. And we think the Midwest provides that best return base.

So corn and soybeans are the two biggest rotational crops, but we’re actually over half irrigated at our portfolio. So we grow a lot of specialty crops. So in Southern Michigan, Northern Indiana, Northern Illinois, parts of Northern Ohio, there are actually a lot of vegetable crops grown there that people might not anticipate. And some of it is fresh market, but a lot of it is for processing markets. So green beans for Green Giant, sweet peas for Gerber, tomatoes for Red Gold, potatoes for Lay’s Potato Chips or Frito-Lay Potato Chips.

So we have about 20% of our portfolio are in these what we call specialty crops. And they tend to be much higher revenue, but they have a more strict requirement for the quality of land and the access to irrigation that you need to grow them.

Meb: I remember, right around my dad and tractor in the early days and everyone, I feel like…I was always nervous that the aquifer under Nebraska was gonna go dry.

Brandon: For good reason.

Meb: Yeah, because we never irrigated. And it’s funny. So are you guys actually own all these farms out there on the combines doing all the work, you partner with farmers? How does it work?

Brandon: Yeah, so we don’t do the farming ourselves. And our view is, if we have to find a farmer and teach him how to farm, we have the wrong operator. The quality of farm operators out there is really diverse across the U.S. And we try to partner with that top quartile, top decile farmer, and they ran all of our ground from us… Right now we work with over 100 different farm tenants. And for the 130,000 acres that we own, we don’t need 100-plus tenants, but we’ve been building the portfolio for growth.

We actually view those farmer relationships as one of the only proprietary things we have. If you go on our website, you can see all the farms we own, the improvements we’ve made, and you can kind of see how we’ve aggregated properties over time. But what we don’t put out there for the public is who are the tenants. Because we’ve developed these relationships over time, and those relationships can become really scalable.

So the farmers we work with, your typical profile is a farming family, they’re all family farms. But what’s different from how I grew up, or maybe even how your father grew up, as I grew up, we had a dairy farm, and then all of my uncles and cousins that farmed, we all farmed separately. So we all had separate businesses. There’s no way to really leverage any economies of scale, whether it was in terms of capital, equipment, even expertise. It was more competitive, I think.

And now what you tend to see our brothers, rather than splitting up, or sisters, splitting up and farming separately, you’ll have three or four families that are actually farming together. And the leaders of those families will specialise in certain areas, whether it’s planting, agronomy, marketing grain, etc. And they all own a lot of land themselves. So our typical farmer, if he farms, or he or she farms, 5,000 acres, they probably own 1,500 to 2,000 acres themselves. They may rent 1,000 acres from us, but then they rent 2,000-plus acres from other landlords, those absentee landlords I referred to, the widows, estates, and trusts.

So we partner with these farmers, because they’re the local experts in every area, but also all that rented land they have from other people tends not to be from investors. So we view that as a long-term proprietary deal pipeline, that when those landowners wanna sell, and there’s about 1% of farmland in the U.S. that turns over every year it, it tends not to be opportunistic. It tends to be based on people settling estates or looking for liquidity. Having access to that deal flow is actually a very difficult thing, because it tends to be very local. So those farmer relationships are key for us for sourcing new deal flow.

Last year, for instance, we put about $90 million to work in new acquisitions, but we looked at $1.4 billion in transactions to do it. We’re a deep value buyer. And just having access to that deal flow. It’s not like buying stocks where everyone can go into their brokerage account, and at the same time, every day, you have access to all the securities at the same price. In farmland, even having access to the deal flow to consider is a hurdle to overcome. And then finding land that meets your valuation targets is a further hurdle to overcome. So those tenant relationships for us are what I consider, and what we consider at the firm, the secret sauce to what we do.

Meb: So what’s the process, say, that you guys, obviously, through the human relationships, is there like a Zillow for farming? Can you go on there and search all the properties for sale? Is it traditionally auction? Or how did that most these sales go down?

Meb: So, yeah, it’s a really unique market. So there are public auctions. And that really is the only open outcry system that exists in the farmland market. But they tend to be pretty local. There are some really successful farm auctioneers. They have a national presence. But on a given day, when a farm is for sale, you really have to be there to participate.

And you might go into the auction thinking that there’s going to be a value there, and then that doesn’t materialise that day. And at other auctions, you may believe, well, I think our likelihood of success here is going to be pretty low, and then you’re surprised, whether it’s a snowstorm occurs or there’s a planting window that certain farmers just aren’t there. Or in some cases, farmers are waiting for maybe another farm that they know is coming for sale.

And most farm operators, while a lot of them do have a lot of capital, a lot of working capital, and they own a lot of land, there still are opportunities where maybe farmers, they don’t have enough capital to buy everything they want, so we can buy something at an attractive price. But most farms turn over privately.

There are some tech companies out there now that are trying to, I think, become that Zillow of farmland, both on the sale side and then also on the rental side, to try to do things more over the internet, lower transaction costs, generally. So that may change over time. Right now we don’t see that as a threat to any type of land acquisition. And the presence is so small, it doesn’t move the dial.

But of that 1% of farmland that turns over every year, it’s a $3 trillion market in the U.S. So that 1% is a big number. And if you added up all the investment funds that are in this space, including big investors like the Bill & Melinda Gates Foundation, the Mormon Church, who tend to be some of the largest donors…

Meb: I feel like CREF has had a big move into farming. I know CalPERS has some as well.

Brandon: Yeah, so you have some of those investors that are all in the space now. The good thing is, if you add up everything that people own, you’re not going to get to $50 billion of institutional ownership. So it’s pretty small yet. And there also tend to be areas where there’s just a much higher concentration. If you want to find those institutional investors, which we don’t, because they’re our competition, and we think we have a much higher cap rate target. And when you’re bidding against someone else, low cap rate wins. So that doesn’t excite us.

So there are certain regions where there is a much higher concentration of institutional ownership. We try not to focus on those regions. So that’s why we’re in the Midwest.

Meb: California?

Brandon: California is one of them, that’s right. And permanent crops generally is one. People will say, and we go to a lot of ag conferences. There’s a big one in New York every year in April that really…the who’s who of institutional investors in agriculture.

Meb: Which one I ought to go?

Brandon: That’s called Global Ag. I’ll give them a pitch. Global AgInvesting. It’s always in New York. We participate every year. And everyone who’s doing just about anything is there. And what we’ve heard, and what we’ve observed, people focus more on permanent crops. The sales pitch is that they’re much higher returns over time. We believe on a risk-adjusted basis, that’s not true.

We also think one of the reasons a lot of people like to invest in permanent crops is, if you’ve raised a lot of money and done a closed-end fund raise and you have an investment window, you can put that money to work a lot quicker at $100,000 an acre for a vineyard than you can at $5,000 an acre for a corn and soybean field.

And we think for the risk that you take on with permanent crops, which, in most cases, you need to direct operate, because your asset is not dirt. For our portfolio, even if we had a bad farmer for a year, there’s not that much damage they could do that’s lasting on a farm. But if your real asset is not the dirt, but it’s the vine or the tree that could be worth…the cost of putting up trees can be $40,000 or $50,000 an acre, if they damage that tree, and you have a 7-year window to replant to get back up to full production, you have a lot of risks.

And also what you see a lot now in California is a reallocation of water. And initially, that happened because of scarcity of the resource. And now it’s also being reallocated just based on the price of the water and the allocation. So you’ll see more farms fallowed when you drive through I-5 through the Central Valley, because that water is being transferred from a farm that was growing cabbage to an almond farm. They need to be able to water those trees to keep them alive throughout the year if it’s not raining.

So we actually think those are areas that we’ve looked at over time, we’ve tried to underwrite some deals, and we just didn’t think the risk/return was that attractive compared to what we can generate in the Midwest. And what I would say is there is an index out there. There’s no cheap beta in this market. And that’s difficult for a lot of people to understand.

There is an institutional index. It’s a tracking index at the MCRI front, and they have a permanent crop and a row crop index. And if you look at income returns for row crops, and especially in the Midwest, the index would say you’re only going to generate a 3% to 3.5% income return. We won’t even look at something if it’s not generating 5% plus. And over the last year, the money we’ve put to work in 2018 and 2019, we’re at 5.5% plus.

So we consider what we’re doing deep value, but it takes a lot of deal flow that you have to go through to find that. And we’re still trying to buy the highest quality land. So to buy the prime asset at higher cap rates is very difficult. Some people will tell you it’s impossible, but we’ve been doing it for 12 years.

Meb: There’s a couple things you touched on there. We talked a lot on this podcast about asset allocation, institutional investing in the global market portfolio, which is, meaning, if you went out and just bought all the assets in the world, it’s pretty easy to replicate public. It’s basically half stocks, half bonds, half U.S., half foreign. That’s simple. But if you were to say actually all the assets in the world, including privately held assets, by far the biggest chunk that’s missing is two. It’s single-family housing, which is hard to access around the world. But farming and farmland all over the world, nearly impossible to access as an asset class for the public market investor. There’s a couple REITs that do it, but really there’s almost no involvement.

And you talk about it, this also lends itself to being an inefficient market or a challenging market, because your examples were spot on. I mean, when my brother was looking to sell some of his farmland, I mean, his first step was, “Hey, let’s reach out to our neighbours. Anyone interested?” And not necessarily trying to optimise to the third decimal of what he could get for it, but, “Hey, we’ve been friends for decades. Are you guys interested? Let’s get a reasonable price,” which is probably illiquid discount, but I, like you, instead of it going to some Morgan Stanley banker in New York City.

Brandon: All right. The structure of this market, it’s really structurally inefficient to date because of the history of land ownership. So it’s not like timber that when Jeremy Grantham started talking about timber almost 30 years ago, and it became a really investable institutional asset class, it was actually pretty easy for the institutions to have access to it. They could go to the big end-users that previously had… so GP and International Paper that had previously pursued a strategy of owning all of that supply over time so that they had access.

That moved from you had these two or three really large owners that could sell all the land to the TIMOs, to all the other institutional investors, and then just be able to buy the timber over time. So you had two or three really large owners that had all the supply that they could sell it off.

In farmland it’s different. You have a totally fragmented ownership. In certain parts of the U.S., so the Mississippi Delta region, for instance, where the history of ownership was plantations. You have larger owners. And as you move out west in the U.S., the history of ownership is ranches. You have larger tracts of land.

Those tend to be areas where there’s more institutional presence because you can do a $30-million or $40-million deal a lot more often than you can in the Midwest, where we do own some 3,000 and 4,000-acre farms in the Midwest. But if you looked at a plat book or an ownership book 100 years ago, that was probably a lot of 100-acre farms that were aggregated by some farmers over time. And then we continue to do that aggregation.

So what’s exciting for us is we find that we’re actually doing the institutional roll-up here in the Midwest. So we can buy a property for $5 million or $10 million. And over the course of, now it’s 12 years in the portfolio, now we have a property that combined is worth $20 million or $30 million that we’ve put together.

So if you can do that roll-up at a higher cap rate than when larger institutional investors, whether it’s public REITs, large pension funds, family offices, foundations, and endowments, etc., when they wanna come in, they’re probably not gonna be willing to do that hard work, base themselves in South Bend, try to make all these farmer relationships, and roll it up over time. They’d rather just pay us a higher price to have already done it.

So that’s really been part of our strategy, is do the roll-up. That’s why we’re an evergreen structure. We don’t think necessarily the right structure for this asset class is raise a lot of money, invest it over 2 or 3 years, and then liquidate the portfolio in 8 to 10 years. Because in farmland, it really does matter to the farmer who owns the land.

So if they had their druthers, they would own it all themselves, if they had unlimited capital. They’re naturally independent or entrepreneurial. While we don’t dictate to them how they farm, we do have input in what they do and how they do it, how sustainable their practises are. And if they didn’t have to take input from someone, that’s what they’d prefer. Having grown up on the farm and knowing my dad, that’s exactly how it would have been. But because there is a robust market out there, you really have to focus on, all right, well, how do you identify that right farmer and put them on your land?

One of the things that we think is a huge advantage over time is just having access to that deal flow, having the farmer relationships, and we think that’s what’s gonna allow us to continue to scale the business.

Meb: So talk to me a little bit about you bought a farm, you guys…you’re thoughtful about valuation. You talk a fair amount as you have some value-add as to then doing some improvements, some work on the property. What’s kind of the process there? Are there any particular things that you think are…I’m sure it’s property-dependent of course, but any major categories of ideas that you guys work on or look to when you’re buying some of these properties that may need some work or that can be improved?

Brandon: Yeah. Given that most of the people who are selling land are not active farmers, while that may happen occasionally, and they’re sale-and-leaseback transactions, you may see, in most cases, you’re buying land from an absentee landowner. And what that means is that while they may have a great farmer on the property, the way that they managed it previously may not have been incenting the farmer to do the right thing.

And one of those things would be something as simple as having a multi-year lease, where if a farmer is going to put some sweat equity into it, maintain ditches, make sure they fertilise in the right way and maintain the fertility of the farm, if you have an annual leases, which actually is the typical norm for most landowners, we don’t pursue that strategy. But if you have an annual lease, it doesn’t really incent the farmer to do the right thing.

So anytime we’re buying a property, we assume there’s going to be something that can be improved. In some cases, it’s really low-hanging fruit. Like in an area where we have plentiful irrigation potential, if you add irrigation to a well-draining kind of sandier soil farm, you can increase the yield on that farm and totally change the crop mix by going from corn and soybeans that are really at the whim of Mother Nature and whether or not it rains to now, with the irrigation, you’re growing these higher revenue specialty crops that just are much more profitable overall in rotation with corn and soybeans, but now with a lot less risk.

So we do a lot of that. And all that is really determined pre-purchase. So as part of our underwriting process, we know, in talking with our tenant, pre-purchase…because while we may own a lot of farms in that area, each farm is idiosyncratic, and our tenants in most cases have been driving past that specific property for 20 or 30 years. They know what the issues are year in and year out and on a relative basis to the other farms we own. So we really involve them in the underwriting. We’ll budget as part of our acquisition price the cost of irrigation, drilling wells, if drainage is something that’s more important on that property based on the soil type, we budget all that out. And then it just comes down to, if we purchase the farm, doing the execution.

So our strategy is not a black box strategy. It is blocking and tackling. And if you’re an active manager in an inefficient market, you should be able to do that. But it doesn’t mean it’s all easy to do. A lot of it just comes down to, do you understand what has to be done and cannot be done on that property?

Meb: So much of this conversation is so familiar to me. I remember when my brothers started taking over operation of the farms and talking with some local friends in Kansas. And being based in Los Angeles, in particular, a long way from Kansas, I remember somewhere I was smiling and talking about that we we’re gonna manage the farm. He smiled and said, “Good luck.”

Brandon: Yeah, that was right.

Meb: That was the short answer. But farming as an asset class has seen its share of cyclical booms and busts. I remember, I think the big would have been in the 1970s or ’80s, a lot of farmers really struggled with leverage and got caught into some trouble there. Maybe talk to us a little bit about the returns of farming over time. You mentioned one of the indexes, which is a little different, I think, in kind of what you are up to. And in the cycle, is there any opportunity that presents? And also the total return potential. Because we’ve talked almost exclusively about income, but haven’t talked much about the actual land appreciation as well.

Brandon: Yeah, in the mid ’80s, there was a huge farm bust in the U.S. And a lot of that was driven by a lot more leverage in the system, both on the operating side and on the real estate side. So right now, if you wanna buy a farm with debt, you’d be putting down 50% to 60% of the equity. You can’t buy a farm with 20% down from a traditional ag lender.

Part of the reason for that is a lot of these senior bankers at the ag banks were around in the ’80s when all this happened. You really had a perfect storm then of much higher interest rates. So if you remember back then, you could buy a savings bond, and it would double in value in six years. Well, that’s what happens when you have 15% to 16% interest rates. You also had a little bit of a trade battle going, and the Russian grain embargo really limited a lot of the market for wheat, so that became a bigger issue. And overall, you had a situation where it took a lot of farmers under because they couldn’t cover their debt load.

And what happened then were all these farms were still farmed. Farmers with stronger hands bought most of those properties. And it is a cyclical market. I think a lot of people paint farmers with a brush that they’re all the same, and they all will react the same way to certain conditions, and they’ll all be impacted in the same way by certain conditions.

We really try to partner with farm tenants that have been through a number of cycles. The best way for them to withstand a cycle is to have a lot of equity. And that comes from, in most cases, real estate. Most farmers don’t do an asset allocation the way that you or I might. It usually comes down to what do they have invested in dirt, what do they have invested in iron in terms of equipment, and then how much cash do they have on-hand to opportunistically invest in those two things.

So to some people, it may not seem very sophisticated, but these really are the operating parts of their business. If they wanna gain scale over time, the more land they own provides a lot of opportunity to do that. And one of the reasons is that land will appreciate over time.

So if you look back, the Chicago Fed has some great data for the Seventh District, which is really the Corn Belt region of the U.S. on land appreciation over the last 60 years. And when we underwrite land appreciation in our valuation models, we assume zero. So when we’re underwriting something, we do use income as that real target. And then any land appreciation, which will usually come in two forms. It’ll be one is just your passive land appreciation. And that’s usually a mix of inflation plus gains and productivity. If you own the land, and it can produce more every year because of greater technology, that should be more income and more value to you.

And the Chicago Fed says, over the last 60 years, that’s averaged roughly 6% to 6.5% annually. And that includes years that were down 20%, 30%, 40% in the mid ’80s. And it includes in 2012 and 2013 when we saw a big run-up in grain prices, years where they were up 20% a year, 25% a year. So that’s really through a number of cycles. And that’s really the beta, what we consider the beta in the market.

The other form of land appreciation, where we actually think you see a lot more bang for your buck, is when you can do that value-add. So you can take a farm that has a certain return profile based on its soil types and how much yield it can generate. And then you look at the price of those commodities to figure out what’s the income based approach for valuing that. But if you can do something that can really increase that yield or change the crops that you can grow to higher revenue crops, that creates a lot more value over time. And that can be substantial.

So when we think about… We tell investors, “Okay, if you’re investing in farmland, you shouldn’t expect 20% type returns a year.” If you think of income plus that beta plus then the alpha that someone like us should be able to generate, we want people to expect 8% to 10% on a net basis through a cycle. And we’ve been investing for 12 years. We’ve done a little bit better than that. But what we’ve seen are some of the best years in 2012 and 2013.

And now what we’ve seen over the last 4 years are what we would have described 10 years ago as maybe not your worst case scenario, but real headwinds. We have four years of very low commodity prices in the grain complex because of big global yields, which that becomes difficult. We also have a really strong dollar. And we’re an export-driven agricultural market, so that’s a negative for our farmers.

And we probably would have said, “No politician will be crazy enough to start a trade war if you care about the Midwest and farmers because that will directly impact you.” And right now we have one going on with China. It seems like we’re fooling around with Mexico that we definitely don’t want either. But in the face of all that, if you buy the real estate at the right price, and you can generate good income, you should still see positive returns through that cycle.

Meb: A lot of stuff you mentioned there, I think, is interesting. One is almost all the academic literature shows that farmland, when you combine the yield and appreciation, one of the best performing asset classes you can allocate to, right there with stocks. And the beauty that you’ve kind of touched on, and certainly in the non-correlation, your fund has done great. But essentially, times when U.S. stock market does poorly, you’re looking at up years during the bear markets that’s been fairly consistent, it’s a real fantastic allocation to an asset class that really doesn’t correlate traditionally with traditional assets.

And right now, we drone on about this, so the podcast listeners are tired, but you probably haven’t heard as much of it, that the opportunity set for U.S. traditional stocks and bonds is very poor. U.S. bonds now are almost down to 2%. U.S. stocks, we project low single digits.

But the interesting part about, and believe me, and the listeners have been moaning about me talking about wheat prices and corn prices, although they’ve been popping recently, is that this concept of, if you’re a strong hand that’s not over leveraged… And Buffett talks a lot about this. You don’t cheer for the bad times, but it creates a lot of opportunity.

Brandon: Right, and you want volatility. If everything were always low or always high, it creates issues. So in 2012 and 2013, while grain prices were really high, the rents on our farms were really strong, values were going up, we were a $230 million strategy. And we wanted to grow. We saw opportunity. But our biggest competition for buying land are not institutional investors. It’s farmers with cash in their pocket.

When farmers would net $500 to $600, in some cases, even more dollars per acre on land that they hadn’t paid $500 or $600 an acre for 30 years ago, that became a very challenging market for us to put new money to work. Because farmers with strong hands and a real appetite for land was difficult. So while the strategy was great on the income side and appreciation as we wanted to continue to grow and scale up these farm holdings, that was becoming more difficult.

Now you still have, when we go to a public auction, typically, we’re competing with farmers, we lose 12 out of 13 times. And those are farms that we’ve underwritten, we have a reservation price that we want to buy it at, and it just means it’s trading well above that. When we’ve lost at auctions over the last 3 or 4 years, it’s typically not by 10% or even 5%. It’s 40%. So there’s a real demand from neighbouring farmers or close-by farmers with cash to buy those properties.

Now there may be some farmers today that their operating lenders are saying, “We really don’t want you to liquidate working capital for a long-term asset.” That being said, there are a lot of farmers that are still buying land. And the cash that they have on hand to do that creates a lot of opportunity for them. And that’s the challenge for us.

So we view these last four years of lower commodity prices as a great way for us to really add value to the portfolio. And we’ve invested about $300 million during those last 3.5 to 4 years, and what we consider tremendous value. So you wanna see that volatility in the market. I think Warren Buffett did say, “When the tide goes out, you find out who’s wearing shorts.” And in farmland, that has definitely happened. But what you’ll tend to see are the farmers with the strongest hands are those that have been farming for multiple generations. There aren’t a lot of first-generation farmers. And it’s because equity in that land is the biggest advantage you can have in this market.

Meb: Funny you mentioned Buffett, too, because his son is a huge farmer, I think.

Brandon: Yeah, Howard Buffett has a lot of land. And again, when you own a lot, and you operate a lot, you can still be very profitable even with lower commodity prices. So if you’re a farmer that has… I think there’s a statistic that says, in Iowa, 82% or 83% of farmland is owned debt-free, 100% paid for. And that’s operating farmers and your estates and heirs. And I think Illinois has a very similar number like that too. It’s above 80%.

So when you think about that, there’s not that much leverage in the system. And that still creates strong hands. So while farmers want higher prices for their crops, and they want bigger yields, those two tend not to go hand in hand, usually it’s the opposite. But they can weather these years that they were breakeven and slightly profitable to be around for those years, like 2011, 2012, 2013 when they made more money than they had ever made in their lives.

There were farmers in those years that probably, if you think about farmers who should have been retiring just based on their age and the typical cycle of when someone retires and then either sells their land or rents it out, there were people that continued to farm because they had never made that much money in their entire careers.

Meb: I had tweeted in 2014, just reminded me of it, I said, “Name the asset class that had returned, at this point, mid-teens for the past decade, no down years,” and I said, “Mine trades at a price earnings multiple about $35.” And it was linked to an article from GMO who was talking about farmland. But yes, right, that was right after some just five years of just monster returns, not just the yield, but also appreciation.

Brandon: And like I said, what that did… So while farmers initially benefit from that, and they can sell their crops for great prices if they had it. So farmers that had irrigation during that drought year really hit a homerun. Because not only did the price go from the high threes in terms of corn, it reached over $8 at certain points. And if you were selling directly to end users, whether it was hog or cattle operations or ethanol plants, you could even see a real positive basis on top of that.

So farmers made a lot of money. But what that will do, as in any other commodity market, it destroys demand at those prices. So you heard people calling their herds. There were ethanol plants that were going under, because there is a formula between the price of oil and the price of corn and where they make money and where they don’t, depending on the efficiency of those individual ethanol plants. So demand was destroyed. And also when you have that really high price, it created a price signal globally for more acres to come on.

So in the U.S., we’re a pretty mature market in terms of how many farmable acres there are. And every year in the U.S. the gross amount of farmed acres goes down because of development, whether it’s industrial, housing, in some cases now, solar, and other things that are happening. So in the U.S., there is not a real ability to bring on new acres.

Now there are conservation programs that farmers can put land in and take it out. So you did see in 2012 and 2013 some of those conservation acres came out, and they were being planted again. But globally, there were more acres that were brought on. And typically, that’s a two or three-year cycle from clearing the land, fertilising and getting it ready to plant, and actually making it productive. And what happened was you added all these additional acres globally, and that took prices down, because demand was going down at the same time. So you had this perfect storm of grain prices being reduced.

Right now we’ve had four years of really low grain prices globally in great crops. And you’ve seen demand increase every year, because it’s been very profitable, whether it was ethanol, cattle. There’s one headwind now in China with a swine disease, which is not good for overall demand, but it may mean that their demand switches more on the cattle side from pork.

So in the commodity markets, again, you just have to survive the cycles. And when you own land, the big benefit we have is we don’t have any direct volatile exposure to the price of a crop. In most cases, our farmers this year, 90% of our rents are cash-based rents with some type of embedded call option, so that if we see…if we’re gonna sign a three or five-year lease in a low commodity market cycle, we wanna have a call option in there, that if prices go up in a sustained way, that our rent can increase with it.

But the majority of our rent is already collected this year, even before the seeds are in the ground. We tend to not wanna be the lender to the farmer. We don’t wanna be their bank. So we wanna be paid upfront at the beginning of the year. And then the farmers are the ones with the expertise, they know who they wanna market to. They like to store their grain and sell throughout the year. So if you can identify the right operator to work with in each area, then they’re much better at handling some of that risk than someone like us would be equipped to be.

Meb: Talk to me a little bit about…I remember the last time I was riding around on a tractor, and it was like being in a spaceship. It was like the nicest technological…there was GPS. There’s air conditioning. There was a joke. I think it was in “The Wall Street Journal” or somewhere recently, where it was a riff off the old Netflix and chill. And they said, “Farmers, Netflix and till.”

But I was thinking, as I was riding around with a buddy, I said, “Man, no offense, but you’re just sitting here watching TV at this point. Why do either of us need to be here at all?” Like in the not-too-distant future of drones and robotics and automation, most farms are usually grid-like sort of infrastructure anyway. How is tech gonna sort of impact? I mean, I imagine in the short term, it’s great for productivity and yield, really optimising the land, which, depending if everyone does it, may not be good for price. But how do you see sort of tech playing a role in this asset class? Are there any major implications or things to be worried about or excited about?

Brandon: Yeah, from our standpoint, when you’re the landowner, it’s really exciting for us. Because anything that our tenants can do to increase productivity over time, and that may mean growing more yield, or it may mean growing the same yield at just a lower input cost, is very valuable to us and should increase land value.

I think some of the things that have been around for a little while now, like GPS, drones, irrigation technology, for instance, what it’s brought to the table for farmers is just an ability to scale at a different level. So irrigation pivot. If you’ve been in Nebraska, you’ve seen a lot of crop circles everywhere. We have a lot of irrigation pivots in the Midwest, in the Eastern Corn Belt, but they tend to be more supplemental in nature. You add water when you need to as opposed to you don’t have to add water all the time to grow the crop, because it does rain.

That being said, in the past, if a farmer had 20 irrigation pivots that they were operating across a number of different areas, the only way to start those was to have someone driving a truck and drive out there in the middle of the field and start them up. And later in the day, if it was a hot, dry day, someone had to drive by later to make sure it was still running. And there wasn’t a flat tire, or something happened.

Well, now, when we add irrigation to a farm, we’re really looking to add the latest technology to it. So we work with a few very large, publicly traded irrigation companies, one of which we have a national account with, that we have a standard irrigation pivot order so that our tenants, from their iPhone or their Android, they can not just start and stop those pivots, but monitor how much water has been put on, how quickly it’s moving, what the soil moisture is.

And now there’s even more technology where there are models based from these irrigation companies that look at weather models, and other things in terms of soil moisture, to start recommending, “We think you should start irrigating now at this rate, at this speed.” So that type of new information for the farmers is really important. The ability to do more with less labour. Labour is an issue everywhere in agriculture.

In row crop agriculture, you’re not looking for a lot of hourly or migrant labour per se. It’s skilled labour. That’s the biggest challenge. Because if you have a combine that costs, $400,000 or $500,000, you’re not gonna let some high school kid drive it. It just doesn’t work. You have to find people that are really good. They’re gonna show up every day. These are jobs that…if you look at our tenants, for the non-family members, if they have key employees, these are jobs that are probably $75,000, $80,000-a-year jobs. These are not little rural jobs. These are high-paying jobs in those areas. You need people with a lot of skill.

And I think what technology will do is allow farmers to be less labour-intensive, and they can think more about the broader business that they’re in. These farmers really are…they’re little CEOs. And in some cases, not that little. They have operating budgets of $10, $15 million a year. And the amount of decisions they make which directly impact the bottom line, it’s really unbelievable, from what crops they’re going to plant, when they’re gonna plant, how they’re going to grow it, because there are a lot of different agronomy practises out there, and then who they sell it to and when.

So identifying that right tenant, I’ve been saying it from the beginning today, that is the most important thing. The thing that our portfolio managers do best I think is really identifying who are the best farmers to work with, and then convincing these farmers that they should work with someone like us.

Meb: What’s the value-add for the farmers? Why would they wanna work with you guys?

Brandon: All right. So we have to convince them of what that should be. So there’s a reason why every one of our portfolio managers has a very similar background to me. We all grew up on family farms. I actually think that does matter when you’re talking to a farm operator. They wanna know that you actually care about agriculture, interested in the asset class. You’ve been around it for a long time.

And what we tend to see is that if a farmer found someone that did everything we would do, so we’d help them scale their business by buying more land, give them long-term leases, make improvements to the farm so that they’re not just increasing the number of acres they farm and the quantity, but really increasing the quality of the acres they farm, if they found someone like that, but that only wanted a 2% or 3% return, that’d be their best case scenario.

Now we want 5% plus. And it doesn’t mean we twist their arm to get a rent that’s unsustainable. It means we have to pay less for the real estate. So from our farmers’ perspective, one of the frustrating things is probably we are value buyers. So we have to look at 10 farms to buy 1 generally. So they spend a lot of time with us. But I think what they do like is, once we own a farm, we try to scale that up over time and scale that relationship.

And they actually view it as we become their long-term partner for land acquisition. And in some cases, if we’ve sold some farms, we’ve sold them to our farm tenant, but we’re still in probably only the fourth or fifth inning of where we wanna be. So when a farmer looks at us, they say, “Okay, this is gonna be long-term.” We’re not a private equity fund that’s gonna sell everything in 8 or 10 years. Because in farming, it really matters to the tenant who the landlord is.

Now if we’re at this office here, you probably don’t care who owns it. They’ll take your rent check every month, whether it’s Brookfield, or KKR, Blackstone, or whomever, they’re unlikely to knock on your door and say, “You know what, I’d rather use this for our office. Find a new place.”

But in farmland, when something sells, typically, it’s being bought by another farm operator. So if you’re the farmer that’s been renting it for a number of years, the family decides, “We wanna sell it,” if you don’t buy it yourself, you’re probably out of luck. And if you’ve made an investment in fertiliser or sweat equity, that all accrues to the benefit of the new owner and the new operator.

So farmers view us as a way not just to increase their acreage over time and grow, but also a way to maintain what they have. So if they’ve made hiring decisions and overhead decisions based on farming 5,000 acres, but one of their landlords who owned 500 acres surprises them and says, “One of the heirs wants money, and the only way to do that is to sell the farm.” Well, the farmer might not have been planning for that. And 500 acres could be a $2 to $3-million purchase for him. And he’s not prepared for it.

Now we can’t guarantee we’re going to be able to buy it, because it comes down to valuation, but that’s a huge value-add to them. We’re working on a deal today that’s very similar. One of our tenants, who’s actually our first farm tenant, we own 900 acres within…well, I probably couldn’t, but you could probably hit a driver into that 900 acres we own from his home operation, but there’s a 640-acre section right across the street from them. Their family has farmed it for 50 years, but he recently just made a large purchase. He did not expect this to come to market.

So we’re negotiating with the landowner today to buy it. It’s great for us, because now we’ll have over 1,500 contiguous acres, but our tenant is right across the street. That’s a farm that he’ll probably wanna own a portion of it over time, but he wants to farm it. And he can’t afford to lose it, from his perspective. So that’s the value-add that we bring the farmers.

And I think, overall, when our investors, both current and prospective investors, come out and do a due diligence trip, we want them to meet some of our tenants, because we want them to ask the hard questions, which are, “Why are you working with these guys?” And I think, universally, one of the first things that our farmers tell these investors, we feel like we can trust them, because they tell us what they’re gonna do, and then we observe them doing it over the last 12 years.

And ultimately, in any asset class, but especially in a real asset, where you actually have something that you have to maintain and you want it to improve over time, you want both the operator and the owner to be on the same page. So we don’t just manage farms. We manage farms that we own. And we’re investors in the fund as well. So we own a piece of this. So when a tenant is talking to us, they’re not talking to a property manager. They’re talking to one of the owners who can make decisions. And I think that’s very meaningful, because farmers like to get things done. And that’s really what it comes down to.

Meb: How do you balance the liquidity of a somewhat illiquid asset class? So as new money comes in, I imagine sometimes you’re like, “Oh my god, we have, like, 20 properties we’d love to buy. Maybe we should do a capital call,” or reach out to people and say, “Hey, we should raise some more money,” or other times where maybe money is coming in, resist the temptation to go pay too much. Is it a struggle to deal with? Is there a lock up on the fund? I mean, how do you deal with sort of the liquidity challenges of not particularly liquid asset?

Brandon: Sure. So there’s a few ways that we deal with it. So in our evergreen strategy, we have annual liquidity. So when people come in, they’re locked up for a year. And then after that year, on an annual basis, in September, they can ask for income to be paid out, or they can do a partial or full principal redemption, depending on what they want.

Now our largest investor is $100 million in the fund. They have a little bit different liquidity lock up. Because if we’re only investing $75 million to $150 million a year, we can’t have ins and outs of $100 million. But we did have, a few years ago, we had a redemption of, I think, for the year, it was just about $45 million. We were about a $500-million fund. And we were able to meet that in a very timely manner.

So what we try to do, we generate a lot of income. So we build that up throughout the year. We also keep in touch with our largest investors. Well, we have over 600 investors and an $800-million fund ranging from high net worth to endowments and foundations and pension plans. Our top 20 investors are about 80% of the asset. So we don’t want hot money. We don’t want people who are saying, “This is an opportunistic allocation alone.” We want a strategic allocation to real assets and then farmland or ag being a portion of that.

But we wanna make sure that any money we take in, we can meet the liquidity provisions that we put out there. So we build up a lot of income. We actually try not to carry a lot of cash throughout the year, because it creates a drag. So when we’re buying properties, we have a line of credit of $50 million that we actually use that’s secured with unencumbered properties to usually pre-buy. And then as new equity comes in, we pay that down. So we feel like for a $100-million redemption, we could meet that in a very timely manner.

One of the other aspects is, because we’re not just buying these huge institutional properties, which some other investors are doing, if you don’t get out of bed or have your investment committee together, unless it’s $20 or $30 million, if you wanna sell something, that certainly limits the buyer universe to other people like that.

And we actually tend to have a lot of farms that we’ve aggregated over time, but we have a lot of farms that are $1 million, $2 million in value, or even less that we continue to aggregate around. They actually tend to be very liquid. If we wanted to sell them, the likely buyer or the prospective buyer would be the neighbouring farmers. In a lot of cases, we bought the farm without them ever even having access to it.

So we try to have assets that tend to more liquid, but there will always be some inherent trade-off between… We can’t have daily liquidity, we can’t have monthly liquidity, but we set our notice date for September 30th, because we know if we ever wanted or had to sell properties to meet liquidity, that is when the market is most liquid, because it’s a farmer-driven market.

One of the things that provides, when you have properties that are more, I would say, in the farmer realm than the institutional investor realm, is, if there’s something that’s going on in the credit markets or liquidity markets, they’re gonna directly impact those institutional investors. You may have a lot of buyers that just aren’t there.

Farmers and their appetite for land is not really driven by credit, because they’re typically paying cash. It’s driven by farmer profitability. And if they have cash on hand, or if they’re looking at, today, as our farmers are looking at, well, the next three years, what should they be doing, a lot of them are forward contracting and hedging prices, especially corn, at these higher levels now. Because they know at $4.25 or $4.50 corn, they’re booking gains.

Meb: You don’t do any hedging on your side of the business, do you, guys?

Brandon: No. So we have 10% of our farms are on crop shares. And they tend to be on the farms that are the highest revenue, those specialty crop farms. But we do grow on a lot of irrigated ground in Indiana and Michigan, we grow a lot of what’s called seed corn. So our tenants are growing the seed corn for Monsanto and Syngenta and DuPont Pioneer that next year will be the retail product in a bag that’s getting sold to farmers to plant corn or soybeans.

And that’s something that we actually can do some hedging. We don’t have to actually sell bushels. You just sell a percentage of the crop. That tends to be our most profitable crop, because we have some great farms that produce high yields. And then you can just hedge directly through or sell directly through Monsanto or DuPont Pioneer.

So we’d like to have more of those. It’s a very specialised area, where you need very specific soil types, irrigation resources. You actually have to be close to a processing plant. And you need really sophisticated farmers that are willing to grow that too. So we really like to have seed corn growers and other specialty crop growers as part of our tenant mix.

Meb: About once a year, maybe a couple times a year, I’ll get an envelope in the mail. It’ll be somebody saying, “Hey, Meb, were interested in putting solar panels on your farm. We’re interested in drilling for oil.” Do you guys do any other sort of alternative opportunistic investments or situations like that, where it may make more sense to actually diversify or invest in some other opportunity of the land other than growing? Has that ever come up?

Brandon: To me, that’s one of the biggest opportunities for investing in farmland, is when you own the real estate, you actually have all the options. So if you’re the farmer and you’re renting it, you’re growing a crop, you have a lease, that’s the only option you have, is you decide do you wanna continue to lease or not. When you own the land, there are a number of different options that have come around. So we’ve always really actively managed the portfolio to whatever the highest and best use of a property would be.

So traditionally, that had been if you buy a farm that had some wooded acres, we’d harvest timber in a regenerative manner. We would then lease out the farms for hunting or recreation. If there were oil and gas royalties, we’d manage what was there. We’ve had cell phone towers. We have wind turbines.

And now one of the bigger pushes, we’ve actually been a part of a number of wind projects where you’re still farming the land and you just have these turbines there, but they actually…they seem to become a lot harder to permit, part of the reason being you need a big footprint of 20,000 or 30,000 acres. So that’s a lot of neighbours that might not like them. And you also have some professional protesters that go around the country fighting wind projects on behalf of birds and things. So it just has become more difficult.

There’s a big push for solar and renewables in general. But in some of the states where we have a high concentration of acres, like Michigan, Western New York State, Indiana, and Ohio, where you have big population centres, a lot of transmission lines and electric power infrastructure. And you also have demand from, whether it’s public utilities, big private end users, like factories and manufacturing. And also the states themselves that are saying, “We want a higher percentage of renewable energy over time.” There’s a big push for solar.

And a lot of our farmers, and we ourselves as landowners, would get some of these things in the mail that are essentially promising. If something happens, you hit a home run. If nothing happens, you get nothing. And we tend to not like those binary outcomes. So we started developing internally what we consider a best of breed lease for solar options, where we would say, “We’ll give you an option on the land for three to five years, because we know you have to go through an RFP process, and there’s a queue that you have to be in. So it takes time. But showing control of the land is a gating factor for any of these solar companies to respond. So we need you to start paying for that option.”

So typically speaking, we’re generating…we have 20% of our farms under solar option agreements. So it’s a lot of acres. And right now we don’t have a single solar panel, but just an option payment will generate $1.2 million in portfolio revenue this year. That’s on a $30-million portfolio revenue. So it’s just starting to become meaningful. What we tend to see is that we want an option payment. And if they exercise and you’re no longer farming the land, then you wanna see payments that are two to three times what the farm rent would be. And it’s going to be put on a 30-year lease. So you have to have an annual escalators built in there that you can get comfortable with.

So we think we can take some of these farms that are generating 5% income now, and they will be at 15% to 20% income, something there. And then we can decide, “Do we keep them? Do we sell off that revenue stream?” But we’ve always liked things like oil and gas rights. We own mineral rights on 90% of our properties. The family dairy farm I grew up in in Northeastern Pennsylvania is kind of the heart of Marcellus Shale in Susquehanna County. And we’ve experienced that we’ve made a lot more money in terms of gas royalties than we ever did milking cows.

And what you tend to see is that land is worth 5X to 10X, the minerals are worth 5 to 10 times what the land itself was worth. So we wanna make sure when we’re buying properties that we’re acquiring all these rights. We wanna have the optionality, but what we’ve maintained is we’re not going to pay an extra dime upfront for any of that optionality. These have to be free options.

So if there’s a farm for sale that even has residential or industrial development potential, we underwrite everything based on ag prices, farm prices. And then once we own it, we’ll pursue these other options. So we actually own a very large farm in the state of Michigan that was the runner up to the Foxconn Development that went to Wisconsin. That’s a farm we bought for a farm price. It’s 1,000 acres on the corner of I-69 and I-94. And it has rail access.

The State of Michigan itself is marketing it as their number one industrial development property. And it’s one that when something does happen, we’re not gonna pay a commission or realty fee to anyone. The state views this as a good thing. They’re marketing it. It costs them nothing, really, but having access to that land is key. And having a landowner that’s willing to say, “If there’s a higher and better use, we’ll pursue it, and then we’ll reinvest whatever proceeds we have at a higher cap rate somewhere else.”

So we love that type of optionality, but that’s where having some expertise in-house. So we have…one of our PMs has a big focus on renewables. Given my experience with our family, I focus more on oil and gas. When you own all this land, you’re always dealing with things like easements. We have sold some land for wetlands mitigation. So there’s a lot of optionality that you have that, if you can find a higher and better use, that’s what we would like to pursue.

Meb: It’s interesting. There’s been a fair amount of oil found in the region we are in Northwest Kansas. And I’ve always been curious. I haven’t done any drilling there yet. And I don’t think our land is close enough to transmission lines to do solar, but always curious about those things.

I wanna bounce around a little bit. I have about three more questions kind of on varied topics. You guys started the fund, and you probably joined, I think, you said around ’07…

Brandon: I joined end of 2010. The fund started December.

Meb: End of 2010. I mean, that must have been an interesting time. You guys put up great numbers ’08, ’09’, ’10. I mean, there’s no down years yet, knock on wood, but that’s a decade of great returns. I’d be curious, like, how is the fundraising world, the reception to the pitch, changed over the years? Because I imagine post-’08, you would have this sort of dual challenge of it being, “Hey, we did great during the crisis, but no one has any money.” Or they’re shell-shocked and don’t know what to do.

And then, you know, you had a period of monster returns and then the period of still positive but lower returns. Has the message been received the same, or is it a different cohort of investors over the years? What’s that process been like?

Brandon: So the investor base started as friends and family when Perry started the fund. Really the strategy came out organically. He was a CIO of fixed income and currencies at Panagora Asset Management in Boston. And in 2005 and 2006, he just wanted to get his own personal money out of paper and in the real assets, especially assets that generated income.

So his timing was really pressing. It was a good time. And then in 2006 and 2007, I think, he had friends and family that said, “Well, how do we do this? How do we get involved? That’s an interesting investment. It sounds like a lot of fun.” So he launched the fund. And it started as just friends and family.

And when I started at the end of 2010, hit $30 million in assets in that fund. Our investor base has grown, and it’s diversified over time. So now many more endowments and foundations, single and multi-family offices, a lot of municipal pension funds who are interested, and even some larger state pension plans have invested in farmland and continue to look.

The pitch has changed a little bit. Because we were telling people from the beginning that 8% to 10% net is what you should shoot for, but we were doing much higher than that. So it was kind of the under-promise and over-deliver, but we definitely had the benefit of some tailwind with commodity markets. And while land will never be as volatile as those commodity markets, there certainly is a correlation there. So over the last four years, we’d like to say, “What you’re really seeing in terms of our returns is really just the income component, because there hasn’t been really much appreciation in the market.”

We think there should be some embedded gains in the portfolio, but that’ll take time to flesh out and see how it’ll be. But what you have when you generate a lot of income, and if you can make it on the buy side and not overpay for land, you really should have an asset that… Anything can go negative, but there should be a real dampening effect so that you have positive years. And we’ve always had positive years. And over the last four years, while the returns on an absolute basis have been lower, we still did beat the S&P two out of those four years.

So what we have seen overall is there seems to be a more dedicated effort on the part of institutions to grow the real asset bucket. And most that have had real assets as part of their asset allocation tend to be commercial real estate and energy. And a lot of people took a bath on energy over the last two years ago. And they’ve made some of that back. And I think within real assets, there’s been a really small allocation to agriculture.

Meb: Not to interrupt, but both commercial real estate and energy have shown throughout history to be, at times of stress, fairly correlated to the traditional capital markets of equities. Look at ’08. REITs had worse performance than stocks. I think REITs decline like 70% top to bottom and drawdown during the financial crisis. And energy, because they correlate to sort of the business cycle.

Brandon: Yeah, business cycle. And once you equitise, no matter what the underlying asset is, when you equitise it, you allow people to trade it like an equity. It doesn’t matter what the underlying asset is. It will trade in line with stocks.

And you had mentioned earlier, there are two publicly traded farmland REITs. We talked to our investors a lot to say, “Well, do they think there’s a benefit there?” Both of those REITs went public at really small levels. So $50-million flow, which is kind of absurdly low, and they both had their mix of challenges throughout the time as they’ve grown and continued on.

But we’ve thought about that as a legitimate exit for this portfolio. You have access to permanent capital. Investors have access to daily liquidity. And almost universally, when we talk to our advisory committee that’s made up of our largest investors, most of them said they’re not interested in that type of correlation with the markets. If you’re a farmland REIT, you still generate income, you still have a positive correlation with inflation, but that non-correlation and diversification that we can deliver totally goes away.

Meb: You don’t wanna see… Daily market-to-market drives everyone crazy.

Brandon: Well, right. And I think that’s one of the things when you think financial crisis, there were a lot of people that slept well having this asset in their portfolio. You’re definitely right. Coming out of that crisis, there were a number of investors that said, “Well, we need to do things differently, but we don’t have the capital today, because we’ve had a 40% or 50% drawdown.”

So we try to work really hard to have investors that are in for the right reasons, they understand this is a cyclical bottom, in our view, in terms of commodities. So we view from here that there should a lot of upside, a lot of positive momentum. We need a catalyst. And what that will likely be is some move in grain prices. And until we had a weather event here in the spring, those headwinds of strong dollar, big crops everywhere, and trade war, trade conflict, those are headwinds, not tailwinds.

So we viewed over the last few years, being able to put money to work in that environment is really laying the foundation of the next run in terms of returns. But yeah, I think, ultimately, farmland is going to be a major asset allocation for every institution that’s in the space. It’s just gonna be harder. There have to be more managers. And unfortunately, like I said, there’s no cheap beta. So there’s some expensive beta from people.

And I think, from our standpoint, we view what we’re doing as the model that other investors are gonna have to copy at some point to generate the same types of returns. And those that don’t, and they try to do it differently, and really, from that 30,000-foot view, where everything is top down rather than bottom up, I think we’re gonna look pretty tall compared to them over time.

Meb: So all you new Uber and Lyft millionaires, give Brandon a call when you guys are trying to diversify. Get a little real diverse case instead of just buying some Google and Facebook. Capacity seems to be pretty large for you guys.

Brandon: Yeah. Investors ask us that question all the time. Because you look at the overall market is only 2% to 3% invested by institutions. And if it’s a $3-trillion market, you said it, if it moved to 10% or 20%, there’s so much that could be put to work. The problem is, from our standpoint, we usually answer that question with, ultimately, there’s no capacity on the strategy. But for us, there is capacity in how much money you can put to work annually, because we are value buyers. And while there will be some people… Farmland is not like private equity where there’s been so much money raised. I think the statistic now over the last five years, there’s enough private equity money that’s been raised that’s on the sidelines, the outstrips, the market cap of the S&P. It’s ridiculous.

So in farmland, there are some people that have raised $500-million to $700-million funds. Their investment period is now… We’re not going to compete with them to buy something. Because they have an investment window that they have to get it put to work. And they’re gonna tend to be investing more in permanent crops, more in the Mississippi Delta region. You just see a much higher concentration there.

So for us to do $150 million a year or $200 million a year in new acquisitions, we think we can do that, but that’s probably that realistic capacity that we’d see. So we don’t wanna be on a distribution platform that says we have to be able to take $1 billion a year in new money. That doesn’t work, to generate the same returns. Because when new investors come in, they’re fully invested in this already diverse portfolio, and we use their new capital to knock down other farms on our pipeline and add to the portfolio. We want them to be accretive overall.

Meb: It’s good to hear this value philosophy. Because a lot of managers, particularly ones that have fee-based structures, the incentive is just bigger, you know. It doesn’t matter what you pay. $10 billion is better than $1 billion, and $100 billion is better than $10 billion. And so we see this, the vast majority of the public mutual fund landscape is simply people that say they do certain thing, but if you actually look at what they’re holding, they can’t possibly. So this concept the closet indexers, but, hey, they don’t mind, because they’re charging their fee, and no one is the wiser. So it’s good to hear this conversation has been permeated with that concept of value.

Do you guys ever think about, as you debate, as you guys grow, expanding into other states, into other crops, into anything beyond our borders?

Brandon: We’ve thought over time. And we’ve looked. Our mandate within our fund is all U.S., now there are certain states that have some ownership restrictions based on the fact that we’re an LLC. So there are some corporate ownership restrictions.

Meb: But why is that?

Brandon: They’re legacy, kind of going back to the beginning, late 1800s, early 1900s. Most of those were put in place to try to keep our big livestock operator. So there are certain states like Missouri that big hog operators wanted to come in. They allowed, within three counties, they could buy land to do that, but the rest of the state is off-limits.

Nebraska had a rule similar to that. It was just recently overturned as unconstitutional. They probably all are. They violate Interstate Commerce and other clauses, but we’re not going to go fight them so that everyone else has a free ride. And within our current footprint, so we’re in 10 states. Our biggest concentration are Indiana, Michigan, Illinois, Ohio, Wisconsin, Kentucky, Western New York, and then we do own a few farms in Georgia, Arkansas, and Tennessee.

We have a map that shows where we’ve looked over time, where we’ve been sourcing tenants. So we’ve looked at California. We’ve looked at the Pacific Northwest, more in the southeast. Over time I think we’ll do some deals there. But because we’ve always been more capital-constrained than opportunity-constrained, we have to do the best deals, the highest return for the least risk. And for our money and for our clients’ money, that has been in the Midwest.

I do think there’s more opportunity, especially as we look to more specialty crops, what you’re seeing now is more specialty crops that traditionally would have been grown in the Central Valley of California. As water becomes more scarce and more expensive, there’s more opportunity for those contracts in the Midwest on irrigated, well-draining ground. So while in the Midwest, you may only see one crop a year as opposed to one and a half or two in California. You’re doing it at a much lower cost.

So we think there’s a big opportunity there. And I believe that percentage of specialty crops in our portfolio will continue to grow. And you can’t be all specialty crops, because you need rotation. And in certain areas like California, you can grow strawberries, but paying $100,000 an acre or $80,000 an acre to do that doesn’t seem like a great return from our point of view, especially when some things are moving more indoor.

So there is a step change that’s happening around organics and around indoor ag that are changing kind of the overall profile. We actually have a small private equity fund that invests more in agribusinesses as opposed to land itself. And they’re focused more on what are these higher concentration of capital products that are gonna be able to generate high returns. And one of those will be lettuce, over time, in a greenhouse. And we’re co-locating that next to an ethanol plant so that you can have free CO2, free heat off of that. And we think there will be more of that over time.

Right now if you buy a cherry tomato at the grocery store, whether it’s Costco or Ralph’s or wherever else out here, that was probably all grown indoors from one or two big growers that have a lot of greenhouses.

Meb: You sort of hear a lot more about that. I invest a fair amount in private startups and see a bunch in the ag space but have very low capacity to vet those.

Brandon: There’s a lot of them out there. I mean, we see them every day. And that private equity fund that we started really came out of our presence in the Midwest market or in the ag market. A lot of deal flow just came to us, where people said, “Would you guys be interested in this?” And it never fit the investment profile of our current fund. But over time, there were a few that our general partnership decided, “Well, why don’t we invest in this together?”

And as we did that, some of our investors said, “Well, again, how do we participate?” So we launched the first fund that was really small, made six investments across a number of different areas, but one was a greenhouse, one was a wine crush facility that was more of a tolling type arbitrage on a license, we have a hops business in Michigan, and we have an aquaculture investment in Mexico, where they’re growing Kampachi, which you can see at SUGARFISH restaurants out here in LA all the time.

Meb: Big news is they just opened…not opened yet, but I saw the signage is up, in walking distance from my house in Manhattan Beach. Have you been to one?

Brandon: Yes, yeah. I’ve been to New York and out here, yes.

Meb: I really wanted to hate them so much, because I love sushi. And I was like, “Man, this is gonna be like the chipotle of sushi,” and was blown away. I do all my meetings when I have to cross the city. Almost everyone is up on the west side or downtown, but there’s one in Marina del Rey. That’s where I host all my meetings, particularly because you can’t have reservations, so it’s not that hard to get in. But I love SUGARFISH.

Brandon: Yeah, the next time you go there, if you order the Kampachi, the good amount of that will come from our fish farm in Mexico. And the last one of those investments was manure filtration technology that can take cow manure, so a big problem for dairies, and I was at one of the pilot programs in Wisconsin, where we were drinking water earlier that day, that water was part of cow manure, and I lived to get around it. But it helps to…

Meb: A little grassy taste.

Brandon: Yeah, a little bit. So a lot of those private investments, they’re all over the place, but you need someone who…and our team I think is really skilled of being able to…because we have access to so many farmers and people who ultimately are gonna use this technology to help us vet some of that out. But there’s a lot of ways to attack the ag space. We think that core asset is U.S. row crop farmland. And then everything else you do, you can kind of measure those returns versus the risk profile you’re taking on them.

Meb: That’s the core, yeah. I mean, you hear a lot about vertical farming and about these chefs in New York that are buying these heritage lettuces or something that you can sell for high prices. I’m gonna give you an idea. This is how you get a 10X multiple on your current business. You do a reverse merger, and do a Canadian shell, change your name to Ceres Cannabis, announce that you’re gonna start doing cannabis growing. And next thing you know, this is a $50-billion firm. I’m just kidding, of course.

But we’ve always want to start a farmland ETF to invest in farmland businesses. There’s just not that much, even globally. And some that invest in pure land or timber. But the problem is so many of them are either the structure is poor or it’s just not a pure…like, you end up owning John Deere Caterpillar or something.

Brandon: To be honest, when I was first thinking, when I was at Morgan Stanley, and I thought, “Well, how do I get involved in agriculture again?” And I talked to some people Morgan Stanley Real Estate about investing in farmland. And they hadn’t done that in the U.S. and weren’t really interested. And it seemed like the only avenues to really do that were to go to investment banking and cover the industrials or chemicals or something and the equipment manufacturers. And so actually getting into the land, it’s still very early days in terms of that land investment.

And I do think people overall wanna invest in agriculture. It’s just so difficult. Because previously, to own a farm, you had to go buy one, and then you had to manage it. And if you didn’t know what you were doing, there’s no way that was ever gonna be a good investment.

Meb: I think a great quote, I don’t know who to attribute this to, might be Brent Beshore, but said one of his favourite investment categories is anything that involves frustration arbitrage, where it’s hard. It’s just a pain in the butt to invest in. And I don’t know of an investment category I’m thinking that has less institutional involvement than farmland. Low, single digit percentages, I mean, that’s like, to the rest of the world, it’s crazy compared to what farmland is.

We’re gonna start winding down, otherwise we’re gonna keep you all day, which I would love to. I’d like to talk about until the cows come home. Two more questions. Anything that, as you look to the horizon, next 5 to 10 years, anything keeps you up at night? Or, and you can answer this both or different or anything that you’re particularly excited about as you look into the just the farming space, anything that is on your brain or you’re thinking about?

Brandon: Yeah, so from the risk standpoint, if you had asked us seven or eight years ago what keeps you up at night, we did answer a number of times anything that disrupt global trade is a negative for agriculture generally, particularly in the U.S. And we certainly have that right now. So our anticipation was a trade deal with China would have been worked out back before the election. That didn’t happen. And now there’s a big question out there. So when will things be resolved?

One way to find a resolution pretty quickly is, if there’s any type of real disruption in global supply, one thing that seems to be pretty true about China is that, while they wanna negotiate, they’re gonna play hardball. If it ever came to the point that there was gonna be a problem to actually acquiring the grain to feed their population, the calculus is gonna change.

And if you think about this year, we have this really wet spring, and there’s a lot of… I mean, we look at the crop reports daily, we’re talking to our farmers to estimate how many acres of corn are really not gonna be planted to corn this year. And what we’re seeing, there was an estimate of 93 million acres of corn, which was up 5 million from last year. It’s definitely going to be somewhere in that 5 to 10 million fewer acres will be planted to corn.

And if you just do the simple math of what does that mean for stocks, it’s gonna cut ending stocks in half. And when people think about how much grain is actually out there, I think some people have a misconception that there’s five or six years’ worth of grain sitting in a pile somewhere globally, that if you have one bad year, it doesn’t change things. When you think of stocks to use or ending stocks to use, it’s usually a range of 10% to 15%. So that’s about two months’ worth of grain. So if there’s a big disruption, it can change things pretty quickly.

So while the trade war is something we don’t like, we understand there are bigger things at play here than just soybean farmers or hog producers or almond growers, but we seem to be taking the brunt of it right now. The great thing about having row crops is you can rotate. So last year farmers rotated out of corn into soybeans. Because in the spring, the price signal they were getting from the board of trade, if they looked at yield and price, was soybeans will be more profitable.

And a number of farmers made a lot of money last year. Because while they, at the end of the year, they had much lower prices, they tend to sell throughout the year and hedge some of their crop. So we had a lot of farmers that said last year was actually a very good year for them.

This year, again, if you can grow a corn crop, you can price at really attractive rates. So for farmers that have corn in the ground, they’re excited about where prices are. So I think if there’s a trade deal that happens with China, we’ll see a lot of positive momentum. So while that keeps us up at night now, wondering when it will be figured out, we’ve been buying farms over the last four and five years based on these lower prices. So it’s not gonna hurt us. But over time, we think when it does get worked out, that’s gonna be a great tailwind.

Overall in agriculture now there are a lot of exciting things happening. A lot of it is on the fringe, whether it’s greenhouse growing, new beyond beef, and all these other things that are out there. It’s a long way before any of that stuff really moves to full-scale adoption. So for us, we like looking at what are the bigger trends that are gonna help us become more profitable on the farm and help our tenants so that new technology, things that have been adopted over the last few years that pay big dividends now, are precision planting and variable rate fertiliser application, where you can grow more crop with less input, less overall resource usage.

And we think, on the irrigation side, given where we’re located, Eastern Corn Belt, we like water as a long-term investment thesis. And while there are certain areas, and California is one, where you can monetise those water rights and do a lot of, whether it’s trading or simply resource allocation and lease it out for a year. In the Midwest, you can’t do that. But we think there’s a lot of value that comes from just having natural rainfall, having recharging aquifers.

And as we think about the next…our owning these farms for the next 20 to 30 years, we think that water is going to be very valuable. But right now just having that resource cost us nothing. At acquisition it cost us nothing. And we do everything we need to do from a regulatory standpoint to verify usage and lock in whatever rights that are there.

And as we think longer-term, you had asked opportunities outside of the U.S., we have looked in parts of Ontario. So Canada, if you believe in climate change and heat units moving up north every year, Canada is an interesting place. There’s a number of places you can’t invest there as an institution. But Ontario is an area that’s of a lot of interest. Because we’re in Michigan, we’re in New York. Really the only change when you go into Ontario is you have to go…you need a passport now to do that. But there’s a lot of the same soil and water characteristics. So that’s an area, if we’re gonna end up somewhere outside of the U.S., that’s probably the most likely scenario.

Meb: And everyone is so friendly. It’s funny. As you’re talking about catalyst and global sort of trends, we have some corn in the ground now. But in my very myopic view, I’m like, “Well, maybe the U.S. consumer is moving away from the centre of the aisle of the supermarket. So maybe there’s less demand for corn and wheat.”

But it’s such a global phenomenon, one. And then, two, of course what I worry about, this is a great example for everything investing, we ended up having to, my field, we had, like, a banner year on our wheat, and a combine caught fire and burned the whole field down.

Brandon: Yeah, those things happen.

Meb: Thankfully, no one was hurt, but I was like, “Are you kidding me?” This is what happened. I’m worried about everyone going keto, and the combine catches fire. So there’s a good lesson in there somewhere. Thankfully, we had insurance, but it’s funny. Last question as we wind down, and this is you personally, but it could be applied to the firm, too, first thing that comes to mind, what’s been your most, over your career, including pre-Ceres, what’s been your most memorable investment, good, bad, or in between?

Brandon: As my career started in 2001 in New York, it was exciting being in New York City, having grown up on a farm and going to school in the Midwest. But really the passion I’ve had for investing has really come from coming to Ceres. And some of the investments we’ve made in land, it seems kind of silly, and my wife actually makes fun of me, that when we’re driving on I-80 or I-90, that I’m staring out the window looking at farms as if we’re driving down Rodeo Drive or something.

And one of the farms we purchased at the end of 2012 is a property just outside of South Bend, Indiana. It’s a big 1,300-acre farm. Almost every investor that comes to visit us we take to this farm, because it’s as good as it gets in terms of growing corn in the Midwest. We bought it from a family that was sixth or seventh generation farmers. The gentleman who sold it to us, he was looking…he had three children. One was still farming. And his wife actually said, “I think we need to do something to treat everyone fairly, and the only way to do that is to sell this property.”

And he had a lot of concerns about, “Well, what’s gonna happen to the property? Who’s gonna own it? What are they gonna do with it?” And we met with them in person. And in some cases, after meeting with us, he knew they’re gonna do the right thing by this farm. We’re gonna make the improvements that he hadn’t made. And we’ve continued to add on to that property that now we have almost 2,000 contiguous acres of highly-improved, well-drained farm. We’ve got irrigation on some of it where they grow specialty crops. We have grain storage. And from that location, you can actually see a big ethanol plant where a lot of the corn that’s grown there goes to.

And it’s kind of a perfect example of how this strategy can work. It doesn’t mean you can do it all the time, because we have to be able to continue to do it. But that type of property where we bought it at a great price, we have fantastic farm tenant on it, we continue to scale up over time, and the seller is actually happy with how things have progressed and transformed over time. That to me is one of the best investments we’ve made. And it’s one that I think is indicative of just kind of the overall strategy we have.

Meb: You should just build out a little baseball park and just tell everyone, “Look, this is the field of Dreams Park. This is where it’s filmed.”

Brandon: Yeah, exactly.

Meb: But, you know, I think it’s good…it reminds me so much when you’re talking about where Warren Buffett is, if you know you’re selling your company to Warren Buffett, you know you’re not probably top-ticking the price, but you are probably getting a fiduciary good steward, your legacy or your land. It’s a very similar example. I was laughing as you mentioned Rodeo Drive. Because I said, a good idea for you be go up there and knock on the doors of the 10 homes in LA that are listed for over $100 million.

That’s where we are in the cycle in LA real estate. Those guys need to diversify… As soon as they sell those houses, they need diversify into Midwest real estate, including there’s one home, it’s off the market, but reportedly listed for $500 million.

Brandon: What’s the cap rate on that?

Meb: Negative.

Brandon: Can’t be very good.

Meb: Oh, my god, I can’t even imagine. Anyway, Brandon, it has been a lot of fun. Where can people find more info? They want to follow what you guys are up to, if they’re interested in investing, where do they go?

Brandon: Sure. So you can go to our website, which is cerespartners.com. Ceres is cerespartners.com. And you can get information there. We are private fund. They’re open to accredited investors only.

Meb: What’s the minimum?

Brandon: $250,000.

Meb: Perfect. Brandon, thanks so much for joining us today.

Brandon: Yeah, thanks for having, Meb.

Meb: Listeners, we’ll pose show note links to the website, some of the resources. We got some good background resources on farmland investing that we’ll post as well at mebfaber.com/podcast. You can always leave us a review. Shoot us a feedback@themebfabershow.com. Subscribe to us on any of the podcast apps, RadioPublic, Stitcher, Breaker, the new Apple Podcast app. Thanks for listening, friends, and good investing.

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