Ceres Partners CIO Brandon Zick on How Private Equity Invests in Farmland

Barry speaks with Brandon Zick, Chief Investment Officer at Ceres Partners. They discuss how his private equity company invests in farmland, and  food, agriculture and water. They also discussed his path into finance from growing up on a farm, to studying finance and Japanese in college.

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Episode Transcript

Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news. This is Masters in
Business with Barry Ritholts on Bloomberg Radio.

Speaker 2 (00:16):
On the latest Masters in Business podcast, I sit down
with Brandon Zick. He is the chief investment officer at
Sarah's Farmland Funds, a two billion dollar firm that specifically
invests in farms. I know Brandon for a long time,
and I've watched this asset class grow. I thought this

(00:37):
was really a fascinating conversation. You just have no idea
how complex and interesting farmland investing can be. I thought
this was fascinating, and I think you will also with
no further ado my conversation with Sarah's Farms. Brandon Zick,
thanks for having me.

Speaker 1 (00:55):
Berry.

Speaker 2 (00:55):
Well, you and I know each other for a long time,
and this is long overdue to have this conversation. And
the Wisdom Tree acquisition was the perfect excuse. Well, we'll
get to that in a moment. I want to start
with your background, which is kind of fascinating. You grew
up on a dairy and crop farm in northeastern Pennsylvania.

(01:16):
How did that farming upbringing shape your attitudes and thoughts
about land, agriculture, value and risk?

Speaker 3 (01:28):
Yeah, that's it's a great question because growing up on
a really active family farm, you learn a lot of things,
and one of them was I definitely did not want
to be a farmer for the rest of my life.

Speaker 4 (01:39):
We did real work.

Speaker 3 (01:40):
I was the oldest of six and so and I
had great parents who you know, instilled great values with us.
But one of those values was the value of hard work.
And we spent a lot of time before and after
school every day actually running this dairy with our parents.

Speaker 2 (01:53):
So you're you're up at five five thirty milking cows
before school.

Speaker 3 (01:58):
Yeah, before school. Yeah, for us, it'd be about four
point thirty. And with three brothers, usually there's three jobs
on a dairy, milking cow's, working with equipment, and then
managing manure. And even though I was the oldest brother,
I was really good at the third. So that's what
I was focused on.

Speaker 2 (02:14):
Well, shoveling manure prepped you for your jobs on Well,
that's right, the obvious, Joe. So let's talk about what
led you to Wall Street. You go to Notre Dame,
you get a BBA in finance and a concentration in Japanese,
which is sort of surprising. What was that career plan
originally other than not a farmer.

Speaker 3 (02:34):
Yeah, when I went to Notre Dame, I just wanted
to do something different, and I didn't really know what
I wanted to do. But I actually had a friend
in my dorm that I said, what are you majoring in?
And he said, well, my dad works at Mari Lynch.
I think finance. And I said, well, that sounds interesting,
and so that's how I started thinking about that. And
taking Japanese as a freshman at Notre Dame was really

(02:55):
more about just doing something different than the Latin and French.
I took at my judge war at Ice School and
scrant in Pennsylvania, and they talked to me into doing
a study abroad in Japan, and I really fell in
love with the country and the culture. And if I
had been looking in you forward, instead of reverse, I
probably would have taken Chinese or something else that I
was looking backwards, and you know, continued on with the

(03:18):
Japanese and then was lucky enough throughout my career to
be able to spend some time there, not full time,
but at least to travel to Japan. And if we
ever get to the point that we have Japanese investors.
That'd be really exciting too.

Speaker 2 (03:31):
So first gig right out of school is you become
you join the finance analyst program at Lehman Brothers. Was
that here? Was that close?

Speaker 3 (03:41):
Yeah?

Speaker 4 (03:41):
That was here in New York. Yeah.

Speaker 3 (03:42):
We started training in one World Trade at July of
two thousand and one, and we were eventually in three
World Financial Center. And I spent three years at Lehman
Brothers and learned a lot of different things, but some
of it was I don't know what I want to do,
and I had a friend that had moved to Morgan's
and that's how I made my way shortly thereafter over

(04:03):
there and spent six years at Morgan Stanley in various roles,
but I knew I always wanted to be on the
buy side. And everyone dreams of being in private equity
and how do you get there?

Speaker 4 (04:14):
And it's a difficult path.

Speaker 3 (04:16):
And when you think about what are the things that
you could be good at or that you have interest in,
That's how I kind of looped back around to this
agriculture piece because I had a lot of valuation experience
at Morgan Stanley and we worked on a number of
transactions and I thought, well, how do I apply this
to agriculture, And they're just it's not like in every

(04:37):
other asset class where there's thirty or forty places and
everyone has a fund and you just choose where you
want to go. There's actually very few people that invest
in agriculture exclusively, and so it was kind of stacking
that background of valuation and transaction experience and maybe a
rekindled interest in agriculture and farmland, not on the actual
labor side, but on the investment side. How do you

(04:59):
do this outside of just the big boys like John
Deere or Kseih or at the time on Santo or
these big egg companies.

Speaker 4 (05:07):
How do you do it?

Speaker 3 (05:08):
So that's kind of how I made that path all
the way back around.

Speaker 2 (05:11):
So you prefer spreadsheets to pitch forks and shovels.

Speaker 4 (05:14):
A little bit.

Speaker 3 (05:15):
Yeah, Although there are plenty of days in my career
now that you get tired of being in the office
new side, I'd much rather drive around and look at
some of our properties and check in on some of
our farm tenants.

Speaker 2 (05:26):
Well, we're going to talk about the farms and the
tenants and what that investment process is like. But I
just want to stay with Morgan Stanley for a moment.
You're there for six years. You start out really is
a grunt and strategic planning, due diligence, valuation analysis, deal
negotiation execution. But eventually you become a VP in the

(05:46):
investment management division. Is that way you really hone your
chops on acquisitions and strategy.

Speaker 3 (05:53):
Yeah, it was an interesting time to be there within
investment management. Morgan Stanley had a mandate to really grow
that business, actually on the alternative side. So the plan
had been to put together a pretty sizable balance sheet
by minority stakes and asset managers, maybe take some asset
managers like front Point over completely. And then the Great
Financial Crisis happened and we went from a team that

(06:17):
was really given the opportunity to use a balance sheet
to we were told we need to create a balance sheet.
So things that we had bought now needed to be sold.
And that was really the impetus for the transaction that
sold Van Campen and a handful of other Morgan Stanley
equity businesses to Investo. So on that deal, I was
actually working more on the sell side of that deal.

(06:38):
And when you're selling things, you realize this probably isn't
a long term career strategy.

Speaker 4 (06:43):
Eventually you run out of things to sell, I.

Speaker 2 (06:45):
Once the seper balance sheet runs down. So you started
at Leman, but you got out of there before the
financial crisis. You lived through the financial crisis. At Morgan Stanley.
The CEO at the time was John Mac Is that right?

Speaker 4 (07:00):
Oh?

Speaker 3 (07:00):
When I started, it was Phil Purcell. John Mack came
shortly thereafter, and then or came back shortly thereafter, and
then during my time there within investment management, James Gorman
to take over.

Speaker 2 (07:13):
I had Mac on the program a couple of years
ago after he wrote his autobiography, and really, of all
the major brokerage farms, there were a handful of companies
that came through the financial crisis balance sheet and reputation intact.
Max seems to be the guy that guided Mogan Stanley through,

(07:34):
cut that very reasonable deal with Mitsubishi for some much
needed capital and came out the other side. And Morgan
Stanley is now absolutely one of the biggest broken shops,
full service broken shops on the street.

Speaker 4 (07:49):
Yeah.

Speaker 3 (07:49):
I mean they've you know, not without peril for everyone
at that time, but certainly you know, they were able
to navigate, navigate through and away that very few were
able to do it as successful as Morgan Stanley was.

Speaker 2 (08:01):
And at Morgan Stanley, is that why you got your
chartered Alternative Investment Analyst credit?

Speaker 4 (08:08):
Yep, I did that.

Speaker 3 (08:09):
I didn't have the time to do the CFA also
during that time, but yeah, it was something that was
slightly different. And you know, I always had interesting commodities
and other types of alternatives, not just hedge funds or
private equity, so there was it was just a.

Speaker 4 (08:23):
Way to learn a little more. And I added to
the resume.

Speaker 2 (08:27):
How much did the financial crisis precipitate your saying, Hey,
I have skills and I have insights, I'm going back
to farmland but from a different perspective.

Speaker 3 (08:37):
Yeah, well, it definitely started the conversation. And being here
in New York, I knew there were very few options
for probably investing in agriculture, at least at that time.
Even today we don't recommend it, but there are people
in the big city on the coasts that invest in farmland.
And I had a very close friend from Notre Dame
that at the time was running private equity at Notre

(08:57):
Dame's endowment, and I had contacted him and said I'm
interviewing with a few of these firms that invest in farmland,
so groups like John Hancock and UBS that had existing
funds or separate account businesses that would invest in US
or global farmland. And I asked him, have you guys
underwritten them, have you invested with them, have you talked
to them? And he was very frank and he said, generally,

(09:19):
we don't think you get paid for the risk involved
with investing in land and the duration that you need
to hold it.

Speaker 4 (09:26):
But he said, let me introduce you to it.

Speaker 3 (09:28):
There's another Notre Dame guy that he started something really small.
He's got very few assets, but he's investing in farmland.
And that's how I met our founder, Perry Beef, through
my friend Tim Dozol, who's now the CIO of Notre
Dames and Dowman actually runs the whole shop. So he's
had a very successful career and one of the best decisions,
at least from my standpoint, that he made was putting

(09:48):
Perry and I in touch.

Speaker 2 (09:50):
It's amazing how these random introductions through various networking groups
and alumni groups really can lead to some interesting outcomes.
When you joined Sarahs in twenty ten thirty million dollars.
I mean that's a that's a small single brokerage account.

(10:10):
What were you thinking joining a firm that tiny?

Speaker 3 (10:15):
You know, that sounds a lot like what my wife
was asking me at the time too. Why are we
doing this and what are we doing? And it was
interesting there were Perry had thirty million in assets, I
think it was seventeen million in equity and we didn't
charge on the debt. So he said, I can afford
to pay you something. It won't be much, but it'll
be something. And I talked to my wife, Aaron, and said,

(10:35):
I think this would be a great opportunity, and she
kind of echoed some of the things that people I
worked with at Morgan Stanley when I.

Speaker 4 (10:42):
Said, well what do you do if this? Yeah, what
do you do if this fails?

Speaker 3 (10:45):
And of course no one knew anything about what we
were going to do, but they said, well what if
it fails? I said, well, if it fails, there's two
things that give me confidence. One is I'll know it
there's only you know, it's a very small shop. It's
not like some trader in Singapore is going to blow
us up overnight. I'll know it's not working, either the
investments are bad or we're not raising money. And the
second was there's going to be a great skill set

(11:07):
developed here that even if it doesn't work, the worst
thing I can do is just move back to New York.
And now I've got a differentiated thing on my resume.
So you know, we started there. We moved in December
of twenty ten to South Bend, Indiana. It's not a
great weather trade really, even in New York December is
not great, but South Bend it's much worse.

Speaker 2 (11:26):
That's like zero and a lot of snow.

Speaker 4 (11:28):
It's cool.

Speaker 3 (11:29):
Yeah, there was a lot of snow as the moving
truck was moving in. But it's been great and we
started to really build that momentum. And you know, just
being in on the ground floor of a company with
a founder who has a vision is you know, you
can't ask for anything more.

Speaker 2 (11:48):
So farmland is a real asset. It's different from traditional
real estate assets. You think of offices, multifamily, warehouse, there's
so many different single family homes. What is it about
farmland that makes it such a unique investment opportunity?

Speaker 3 (12:07):
Yeah, I mean there's a few things that go into
it that just make this market different, and I don't
personally think you have to have grown up on a
farm to know anything about farmland or agriculture. But it
is a very you know, it's a very people person
business because these are the types of properties that we
believe you have to rent directly. We don't use just

(12:27):
property managers to go out and do it. But in
farmland there hasn't really been an institutional roll up. So
in office, in manufacturing and distribution centers and cold storage,
everything's been rolled up over time into big institutions. And
probably the most similar to farmland when you think of
what is the underlying asset would be timber, and back
forty years ago Jeremy Grantham and others started a huge

(12:51):
kind of move of taking the end users of timber
and handing their assets that they're going to use as
part of the end product two investors. But in farmland,
the end users don't own the land. So the groups
like John Deere and Monsanto and Mosaic and EIGHTM they
might either sell into agriculture or buy products out of it.

(13:12):
But the land, while it is the true means of production,
it's usually owned by others, not these big corporations. So
particularly in the Midwest. You'd say that active family farmers
like that farm I grew up on, own about forty
percent of the real estate. Institutional investors today own about
three percent, and that includes the largest investors like the

(13:32):
Mormon Church, the Bill and Melinda Gates Foundation, groups like
Cyrus that might own between a couple hundred million to
three or four billion in assets. But you just don't
have these big other groups that own land. It's a
very disperse ownership group made up of estates, trusts, non
farming heirs that have owned this for generations and two

(13:55):
or three generations previously they were actively farming the ground.
They went to college and did other things. But there's
zero pretty much zero vacancy in US farmland.

Speaker 2 (14:04):
Zero vacancy. That's amazing.

Speaker 3 (14:07):
Every farm that can be farmed is farmed every year.
And you lose farmland every year in the US because
of things like development and conservation and in parts of
California maybe lack of water aridity that they take farms
out of production to transfer water to other properties. So
you have this group of this total pile of farmland

(14:27):
in the US that gets smaller every year. You have
farmers that understand this is a scale game. They want
to grow. So it's an interesting dynamic for investors to
come into the space because it's not as if if
you decided tomorrow Berry that you wanted to farm one
hundred thousand acres. You could buy all the equipment, the seed,
the fertilizer, the chemicals, and you could find the labor

(14:49):
to do all of that. But what you wouldn't find
is one hundred thousand available acres to go farm.

Speaker 2 (14:54):
It's that small amount of acreage comes up each year.

Speaker 3 (14:58):
Yeah, it's very well, it's just not up. There's not
a jump ball every year for it. It's all occupied
and even most farmers. And I'll use the Midwest as
an example because growing up in the Northeast, farmland was
much different. There wasn't quite as a robust a rental
market in the Midwest, which is one of the reasons
we've focused on that is there's a very robust rental market,

(15:19):
and we want to rent land. So we want not
just one or two large farmers who will provide us
with a rent indication or a rent bid. We want
the opportunity to have ten or twenty different farmers and
these are all we work with across the board one
hundred and seventy different farm tenants today, and all of
those farm tenants rent our land, they own land, and

(15:41):
they rent a lot of land from other people. So
that actually becomes kind of a long term proprietary deal
sourcing network for new acquisitions. So we feel like we
are doing the institutional roll up. If we decided we're
only going to do deals of twenty five or fifty
million in size, there's not a lot of deals to
do every year, and certainly in the Midwest.

Speaker 2 (16:01):
Mostly smaller family farms, regional farms that occasionally come up
when the next generation sides, we don't want to farm
this the way mom and dad and grandpa did. We're
going in the big city.

Speaker 3 (16:15):
Right, And even a lot of what they've already made
that decision, in some cases a generation to go, but
they still own the land. It's been more of not
a financial asset, but more like a family asset. And
what you tend to see and taxes drive a lot
of behavior in every industry. In agriculture, it's pretty meaningful
because if you have this one very large real estate asset,

(16:37):
people usually wait to get that step up in basis
and then they're saying, well, now is the time we're
going to sell, regardless of market conditions. We don't want
to pay the tax going back three, four or five
generations to a cost basis of nothing. So there are
kind of unique time periods of maybe twenty twelve and
of twenty twelve was an example where there were some
new tax things coming up, a higher long term capital

(17:01):
gains tax, the Obamacare investment tax, and there was at
least a discussion around that, a state tax exemption being
reduced from I think at the time it was at
four and a half or five and a half million
per spouse down to a million. So that drove some
real behavior at the end of twenty twelve from people saying,
we want to sell this before the taxes go up.
Usually folks just wait until they get that step up

(17:23):
in basis and then they're going to sell it.

Speaker 2 (17:25):
And today a family or what is it, fifty to
twelve used to be twelve million exemption for states, I
think it's up to close to fifteen.

Speaker 3 (17:34):
Yeah, per spouse, per spouse significantly larger. So any discussion
around a reduction in that, which obviously things get being
permanent and I'll use air quotes around permanent because everything changes.
But yeah, that when you have this one significantly large
asset that the tax taxation on that will dictate how

(17:54):
they move it sometimes.

Speaker 2 (17:55):
Huh, really fascinating. Coming up, we continue our conversation with Brandon,
chief investment officer of Sarah's Farms, discussing how he helped
grow the fund from thirty million dollars up to two billion.
I'm Barry Ridults. You're listening to Masters in Business on
Bloomberg Radio. I'm Barry Dults. You're listening to Masters in

(18:30):
Business on Bloomberg Radio. My extra special guest this week
is Brandon Zick. He's chief investment officer of Sarah's Farms.
They are a specialty fund investing in farms and farmland.
So let's talk a little bit. We were discussing earlier
how farmland generates revenue, and we're going to go into

(18:51):
great detail with that, but I want to explain to
investors what farmland gives them exposure to what are you
getting when you buy a chunk or a bunch of
different farms.

Speaker 3 (19:04):
Yeah, so farmland, and I'll focus more on Midwest row crops,
but row crops generally are annual crops because there are
a few different buckets.

Speaker 2 (19:13):
And when you say row crops, I think corn, wheat, barley.

Speaker 3 (19:17):
Yeah, vegetables, annual crops the crops that are planted every
year you rotate, as opposed to permanent crops, and really
it's a complete distinction.

Speaker 4 (19:25):
Permanent crops would be things like wine.

Speaker 3 (19:27):
Grapes, pecans, almonds, pistachios, blueberries, things like that, where your
exposure is not just to dirt, which is what row
crops really is. Like our asset is dirt, and there's
optionality around what you can plant there. Your exposure in
permanent crops is more specific to a specific crop and
in some cases also a very specific variety. So if

(19:50):
you had red delicious apples and they're out of favor
and people want honeycrisp apples, then while you own apples,
you don't own the prime asset. And so we've focused
on most exclusively on row crops and wrote and we've
done that for a few reasons. One is we think
it's much less risk, but it also hits on the
investment objectives of farmland we think more cleanly. So some

(20:12):
of that is current income, a positive correlation with inflation,
diversification and a portfolio non correlation, and then also an
appreciating capital asset. So our asset is primarily dirt, so
there's a little bit depreciation you can take around things
like if there's buildings or grain storage bins or irrigation equipment,

(20:35):
but primarily our asset is just dirt and it's appreciating
over time. And the reason for that is a few things.
The Chicago Fed has data going back almost seventy years
that'll say that farmland has averaged about six percent price
appreciation during those seventy years on an annualized basis.

Speaker 2 (20:53):
Is that real net of inflation or before flave.

Speaker 4 (20:56):
That's total, that's gross.

Speaker 3 (20:58):
So if you look at what compose it, what makes
up that, it's really just inflation plus gains and productivity.
So every time there's new technology, whether it's seed genetics
or fertilizer technology or equipment technology, anything that can create
more yield on a farm, in theory, that return should
fall to the landowner, or at least a portion of

(21:20):
it should fall to the landowner, not just to the operator.
So if you're an active manager, we feel like you'll
capture some of that. If you're a passive owner of
land that doesn't understand, well, what is the land actually producing?
What should I be generating in rent? How do I
capitalize that into a land value? Maybe you don't, but
if you look back over time, that capital appreciation has

(21:40):
been about six percent and it's really just though maybe
there's been a little bit of cap rate compression, but
it's more around gain some productivity and then just CPI inflation.

Speaker 2 (21:50):
Let's talk about inflation. I was reading last week that
beef prices are at record highs. For many types of investors,
especially fixed income, inflation is really a big challenge to
navigate around it. Sounds like with farm land, inflation isn't
necessarily a bad thing. How do you think about rising prices,

(22:12):
especially in the supermarket, and what that means to the
properties you owt?

Speaker 3 (22:17):
Yeah, So within agriculture, inflation comes two ways. So if
you're an operator, if you're a farmer, inflation's real because you're.

Speaker 2 (22:24):
Pan morph seed, fertilizer, chemicals.

Speaker 3 (22:27):
Equipment, wages, wages, everything that gets baked into growing that crop,
Inflation plays a part in it. As the landowner, the
actual dirt has a very positive correlation with inflation over time,
So I'm not going to say we love inflationary environments,
but this is an investment that's built for inflationary environments.

Speaker 4 (22:45):
And the way that we.

Speaker 3 (22:46):
Think about how global central banks treat, you know, the
way they do business. We think we're in an inflationary
environment for the long term, so we think this is
an asset that works well with that.

Speaker 2 (22:58):
This is a good hedge against rising prices.

Speaker 4 (23:00):
That's right.

Speaker 3 (23:01):
And we've you know, back when rates were extremely low,
a lot of our investors used farmland or used cyrus
as an inflation subs or a fixed income substitute, something
that's positively correlated with inflation. Even with rates being higher,
I view farmland more as a tips like thing, and
we haven't seen much appreciation that.

Speaker 2 (23:21):
What is the yield on farmland as investor? And where
does that yield come from? Is it rent? Is it
sale of property? Is it other elements?

Speaker 3 (23:31):
Yeah, so the gross rental yield on our portfolios range
between four and five percent a year. Now, when you
think about if you look at the index, so there's
non investable indices that are out there, or if you
look at the Chicago Fed or some of the large
land grant universities, they'll put out a lot of data
around what cap rate to do farms trade at, because

(23:53):
while there's no Indiana farmland go on Bloomberg yet, there
there are a lot of public transactions that happen and
will attend two to three hundred public auctions a year,
and there'll be an attorney's offices vfws. These are on
a random Tuesday night at six o'clock, someone's selling one
hundred and twenty acres of farmland and we track where

(24:15):
does this sell versus our reserve price? We know what
rent we could earn on that property. So what implied
caprate is land selling at. Generally speaking, in the Midwest,
in the Chicago Fed seventh District, land trades at one
and a half to two and a half percent, and
your buyer is typically a neighboring farmer, so that's their
strategic investment they're making, and that farmer may take the

(24:38):
landowner rental return and they're operating return and compress them
together to justify whatever price they're paying. But we try
to target that four and a half to five and
a half percent when we purchase a farm, and that'll come.
It'll all come exclusively in terms of rent. That's what
we're underwriting. But then the total return will be that
mix of rental income and then a preciation over time

(25:01):
and appreciation can be that beta that I referred to
that you know Chicago Fed data that says six percent
a year on average. But then there's alpha that we
can add and a lot of that is because the
people that are selling farms are usually not active farmers.
I mentioned these are estates trust, non farming airs, and
there's some low hanging fruit in terms of capex that

(25:22):
a farm land investor can do to decrease the risk
of a crop growing and also increase the yield. So really,
you know, a common thing that we do is add irrigation,
and that irrigation will help us increase the yield, decrease
the risk for the tenant, and increases our rent. But
also we can capitalize that increased rent into a higher

(25:42):
land value over time. So if we can find those
opportunities to do the capex, that's our bread and butter.

Speaker 2 (25:48):
I'm going to say something that sounds a little ridiculous,
but you're a gram DoD valuation investor into farmland. Is that?
Am I getting this right?

Speaker 4 (25:58):
Yeah?

Speaker 3 (25:59):
I mean there's no black box here to what we're doing.
It's really a blocking and tackling strategy. And we encourage
all of our investors when they when they're contemplating this,
or even on an annual or bi annual basis, come
out and look at these properties and see what we're doing.
And we have folks that have, you know, trade, they've
been trading their entire career, and they'll come to a

(26:19):
farm auction and say, well, you were underwriting the same
rent on two properties across the street from each other.

Speaker 4 (26:25):
One sold for X, one sold for two X. How
does that happen?

Speaker 3 (26:29):
And it's just who wanted which one and how In
some in some cases or instances, the way in which
the farm is being sold is inefficient. The rental market's
completely inefficient. So there are times that we've bought properties,
in some cases from other institutional investors and we've doubled
the rent on day one, not because we wanted to
charge an uneconomic rent, but because the farmer was willing

(26:52):
to pay that rent for that land, and the active
management that the previous owner was using was either not
very good or not that act. So that's where we
think we do a really good job of just identifying
where can we add alpha? And then again, it's not
a black box. This is really just ticking and tying
and blocking into.

Speaker 2 (27:12):
So let's talk about that alpha. You talked about rental
income and appreciation and sale of land. But I recall
a conversation we had years ago up in Maine where
you described all these additional ways that professional farmland management
generates improved economics. And some of the notes I took

(27:35):
mineral rights, solar and wind farm easements, additional land use.
How do you take farmland that for centuries has just
been producing crops and find ways to improve the economics?

Speaker 3 (27:49):
Yeah, and you know, investing in the US is a
key part of this, because the landowner has a lot
of rights that in other parts of the world you
just don't have. So mineral rights here in the US
that the surface owner generally.

Speaker 2 (28:01):
Owns them all the way down right.

Speaker 3 (28:02):
Yeah, and in some cases those rights have been severed
one hundred years ago. And in certain parts of the
Midwest and out west you don't own mineral rights.

Speaker 4 (28:11):
We like to own them. It's kind of funny.

Speaker 3 (28:14):
The family farm I grew up on in northeastern Pennsylvania,
growing up, no one knew what Marcella's shale was, but
everyone in Susquehanna County has made more money pumping gas
than they ever did milking cows. And it was really
seeing that in the early two thousands that as we
buy land, you think, well, how do you maximize the value?
These are real assets. They have to be actively managed,

(28:35):
something as simple as harvesting timber that's really low hanging fruit,
doing select cuts, renting farms out for recreation, or hunting. Frankly,
if you don't rent it out, someone will hunt that
property anyway without insurance and without paying you anything.

Speaker 4 (28:49):
So you might as well.

Speaker 3 (28:50):
Get insurance and get paid for it. So Perry had
Perry veth our founder. He had been doing that long
before in parts of Indiana and Illinois, generating mineral rights.
But the way that he structured our Vehicle was really
beneficial to some of these long term value options because
I think when he was starting serious in two thousand
and seven, most of the people that he worked with

(29:11):
at the time and friends of his in private equitieset
just set up a typical draw down fund and get
it invested.

Speaker 2 (29:17):
As opposed to perpetual.

Speaker 3 (29:18):
Yeah, at the end of eight or ten years just
sell them all off. He decided that an evergreen fund
really fit the asset class better because most of the
farm tenants were working with they want to farm this
property for ten, twenty thirty years, and that's kind of
the way they're thinking in terms of how they grow
their business, and being able to own the property for
that long makes a lot of sense if you have

(29:39):
less ease that want to rent that way. And if
you think of who are the ultimate over time, who
are going to be the ultimate investors in this asset class,
It's going to be folks that have very long dated
either goals or liabilities. So in Endowment's foundations, trust infrastructure funds,
insurance companies. So having this long dated asset where you're
not forced to churn or forced to have these transaction

(30:01):
cost is really important. And what we found later on
too was some of the optionality around farm So wind
has been around for a long time and that's kind
of a mildly incremental increase in revenue on why you.

Speaker 2 (30:14):
Can put a wind farm up on a farm, but still.

Speaker 3 (30:17):
You continue to farm it. Yeah, on a seven hundred
acre farm. We have one in western Indiana has seven
wind turbines, they might take up twenty acres total between
the turbine and the roads. The rest of it we
continue to rent, so that rent from those wind turbans,
it's incremental. It might increase twenty or thirty basis points
over your farm rent, so we'll take it, but it's

(30:38):
not going to change your life. When we started doing
things like solar so solar, instead of seeing twenty or
thirty basis points, you're seeing on an option period maybe
a three to five x.

Speaker 4 (30:50):
The income reach.

Speaker 3 (30:51):
Really, so if you think back to we're buying land
at a four and a half to five and a
half percent income over the course of five years during
an option period, if it were to go to and
now we're generating fifteen to twenty twenty five percent annualized income.
So we like that, but in that case, it's taking
the whole footprint of the land. And if when we
buy a farm, we're just underwriting it as an agricultural property,

(31:13):
farm rents capex, what type of return do we think
we can earn over time, and we're targeting kind of
that eight to ten percent net through a cycle on farmland.
But then once we own the property and as you
aggregate properties over time. Maybe we started with a couple
hundred acres ten or twelve years ago, but now in
a township, we now own two thousand acres and it's

(31:33):
just been all of these incremental bolton acquisitions. Now that
has probably more interest from some of the developers on
the solar side or for other things too that can
be even much higher revenue or value, But we always
fall back on if it's just a farm, that's what
we underwrote, and we're happy with that, and we'll continue
to aggregate those properties over time. We have over five

(31:55):
hundred today. There are years where we'll do thirty or
forty closing or transactions to invest eighty or one hundred million.
Most institutional investors would never do that, but we've really
decided that that's where you can add a lot of
alpha on the acquisition side by doing these boltons at
a discount to what that Like you said, it's a

(32:15):
very finance worthy strategy. It's just being applied to an
asset class that usually don't see it.

Speaker 2 (32:21):
You mentioned leases. When I think of a lease, I
think of either an apartment lease for a year or two,
or my office lease here in New York for ten years.
How long does the average farmer lease their land for
or lease your land for if they want to farm
a crop.

Speaker 3 (32:42):
Yeah, so we try to target three to five year leases,
and I'd say three is the overwhelming majority. Given that
our farms are mostly growing row crops. You can see
three years on the Board of Trade. You have transparency
to wear our prices. So farmers if they want to hedge,
if they want to think about selling apart to their
crop into the future, they can do that and we

(33:03):
can all agree, okay, over the next three years, this
is what that rental income will be. But when you
think about other like across a farmer's portfolio, I mentioned
they own land and they intend to own that forever,
you know, that's how they think about it. And they
rent our land and those are usually three year leases,
but then they rent a lot of land from other people.

(33:23):
Those other people, even if a farmer's been operating that
land for thirty years, it's usually thirty one year leases.
So making decisions because the land owner, I'm not going
to say they're not sophisticated, but they're unwilling to do
a multi year lease because they want to have the
optionality to sell the property free and clear of a
lease if they decide they want to sell it. So

(33:44):
usually when farmers look to us, they're saying, well, we
want to add a new combine or a tractor, or
make these overhead or hiring or infrastructure decisions. They actually
view a three year lease as a long term lease.
In the farmland space, we have some leases that'll go
eight or ten years if they're growing more specialty crops.
So we have about twenty percent of our portfolio that

(34:05):
generates higher revenue because they're growing things like potatoes for
potato chips, processing tomatoes. The kind of highest quality mint
you can grow in the world is in the Midwest,
so we grow that on our properties, and that requires
a more diverse rotation and a longer planning for the farmer.
So we'll allow a longer lease in those instances. And

(34:27):
we allow that because they're paying us a stronger rent.

Speaker 2 (34:29):
Huh. Really kind of fascinating. I want to talk about scale.
You mentioned boltons and a lot of things. I'm kind
of fascinated by the scale. And the question I wanted
to ask is, are each farm that comes up for sale,
do they have the same or different value for different acquires,

(34:52):
Like I'm going to assume if you're the adjacent farm,
that next form might be more valuable. You spend a
lot of money on combine and tractors. Hey, if you
can use it on five hundred acres instead of three hundred,
your cost par acres should go down. Of course, what's
the impact on scaling up? And what's a big farm?
Is one hundred acres big? Is a thousand acres big?

Speaker 4 (35:15):
Yeah? I mean it's all relative.

Speaker 3 (35:16):
But to your point about are there different values for
different buyers. Absolutely, even if two buyers both intend to
farm it, there are absolutely differences in how someone will
value it. In some cases on the same land, that
comes down to what crop do you intend to grow?
So I had talked briefly about specialty crops, but if

(35:37):
you're if there's a farm in northern Indiana with irrigation,
that comes up. If the tenant we're looking at wants
to grow corn and soybeans, they're going to be able
to pay us one rent. If the tenant we're talking
to would grow popcorn and processing tomatoes or potatoes, they
can pay us almost double this rent on the same land.
So when we look at farmers we're trying to identify

(35:58):
which farmer can generate the high revenue, has a strong
balance sheet, operates with the least amount of risk so
that our rent will be paid every year in the spring.
But there's it's really important when you look at land
to determine what's the highest and best use, even just
on the agriculture side. So when you think of every
farmer would love to have thousand acre blocks of land

(36:19):
in the Midwest, that's hard because the history of ownership
was the.

Speaker 4 (36:23):
Homestead Act, so it's forty acre blocks.

Speaker 3 (36:25):
So within our portfolio, we have forty acre farms, and
we don't love doing those transactions, but if we can
bolt them onto an existing property with an existing lease
and the same farmer, that's kind of a no brainer.
But our largest farms in southwestern Georgia. It's seven thousand
contiguous acres, so that's about ten square miles in one piece.
It's all irrigated and the history of ownership there is

(36:46):
plantations out west, the history of ownerships ranches, so these
larger tracts of land, you tend to see more institutional
investment in those areas along with permanent crops, and there's
a lot of reasons. People will tell you it's around
scale and efficiency. In some cases, I think it's just
you can write a bigger check. If I need to
deploy fifty million at once, I can do it better

(37:07):
in those areas because the farms are just bigger, where
it's a permanent crop that it's one hundred or two
hundred thousand dollars an acre, so I can deploy capital
more quickly. For us, it's harder to gain that scale,
but it really starts with that tenant network. So those
one hundred and seventy farmers we work with today, they
farm our one hundred and seventy thousand acres or one
hundred and eighty thousand acres. They own collectively about two

(37:31):
hundred and fifty thousand acres that I don't expect they
will sell, but that's kind of what they own. But
they rent over seven hundred and fifty thousand acres from
other people, and those other people are those estates, trust
non farming airs. And when those folks want to sell,
usually they don't have a public auction. Usually it's a
private transaction. The first person they call is their farm tenant.

(37:51):
And while we would love if our fund was closed.
We would love to see prices just continue to escalate
up forever, you know.

Speaker 4 (37:59):
Over the time.

Speaker 2 (38:00):
They're also on both sides.

Speaker 4 (38:01):
Yeah, we like cycles.

Speaker 3 (38:02):
So when farmers have really strong balance sheets, like in
twenty twenty one and twenty twenty two, they were probably
not passing on as many of those purchase options to us.
But now we've we're in our third year of lower
commodity prices. Farmers have to be careful about how much
working capital they're going to liquidate to go buy a
long term masse. And if it's a very strategic farm

(38:24):
to them, they're going to try to buy it very
close to home. But if it's something they're willing to
travel for and they're currently farming, and as much as
they'd like to grow their acres to that point about
efficiency you mentioned, they don't want to lose acres. So
if a farmer farms five thousand acres, if one of
their landlords who owns five hundred cells and they don't,
they're either not able to buy it or someone that

(38:45):
we're partnering with them on. If they're not able to
buy it, then they just lose those acres and they
immediately become over capitalized, every other acre becomes more expensive
to farm, and so they think about it in terms
of protecting acres and growth. When you say, well, why
would they partner with someone like us? So when we
look at farms that would make sense to add to

(39:07):
the portfolio, in some cases we'd pay a little more
because it's a strategic farm that's close by, but we
say no. Probably twenty nine times out of thirty, we're
at a public auction. The hit rate is low, and
while we'd like that to be higher. That's the investment discipline.
We will lose sometimes by forty or fifty percent above
our reserve price.

Speaker 2 (39:26):
Back to Graham Dot absolutely you mentioned ranch ranching. We've
been mostly talking about farming. When I think of ranches,
I think of cattle farms, horse farms, sheep. What do
these ranchers do? How much of the assets you own
are ranches versus farms? Whereas there're a mix, Some do
a little bit of both.

Speaker 4 (39:45):
Some can do both.

Speaker 3 (39:46):
Not our farm, so our portfolio is exclusively farming, not
ranching acres. You tend to see those ranching acres, you know,
if you think of what's the highest and best use
if you could grow amongst row crops, even corn the
highest revenue, then soybeans then we I mean cotton would
be up there as well. But as you look kind

(40:07):
of down the value cycle, ranching would be very low
because you're you're just not generating much rent. So it's
more marginal land that's used for that or larger tracks
of land. Typically, Like one of the big farmland owners
is the Mormon Church. They're also one of the five
largest cattle feeders in the country, so they own a
lot of ranch land, so they're actually raising.

Speaker 2 (40:27):
Cattle and then sending it to their own cattle.

Speaker 3 (40:29):
Yeah, and they'll graze the cattle and then eventually, you know,
take that all the way to market. That's the type
of vertical integration you'll see in some areas and row
crops you just don't see that. We like to identify
tenants we're working with that if they have a dairy,
so they need the land to feed the cows, they
need the land for their nutrient management program. Those tenants
are willing to pay more for farms if it's a

(40:51):
strategic farm that's close by because they can't travel.

Speaker 4 (40:54):
All over the place.

Speaker 3 (40:55):
But a lot of our tenants they might have a
home base that kind of looks like the center of
this table, and the radius that they'll travel. Being willing
to farm, they'll rent in these other areas if they
can find enough acres to have scale, because ultimately, every
time a son or daughter wants to come back to
the farm to help increase that family business, you can't

(41:15):
just slice the pie more ways. You have to grow
the pie. And I mentioned earlier the amount of total
acres in the US is going down every year. And
in the Midwest you don't have problems of aridity or erosion,
but you have a lot of development pressure coming in.
The cities are expanding, manufacturings expanding, So there are acres
that farmers lose for those reasons every year.

Speaker 2 (41:37):
So it seems absurd to talk about farmland and artificial intelligence.
But there are two different ways I want to go
with this. The first is these giant data centers they
pay a lot more. They are a higher spending buyer
or renter than say someone growing row crops. What's relationship

(42:00):
between farmland and AI and big infrastructure investing.

Speaker 3 (42:05):
Yeah, I mean we're seeing it firsthand now in the Midwest.
The amount of additional building that's happening around data centers
is unbelievable. And the amount of capital that's being invested
in these areas like Ohio, Indiana, Michigan, Illinois around data
center development, it's really staggering when you think about it.
So there's just outside of South Indiana two very large

(42:29):
data center projects that I think each is investing between
nine and eleven billion on these data centers. And the
real estate price, even if it's I think our average
cost per acre across our portfolio is about eight thousand dollars.
You see data center prices anywhere from one hundred to
three hundred thousand dollars in.

Speaker 4 (42:45):
A twelve at least, if not more.

Speaker 2 (42:48):
And who are these? Who are the companies that are
these big buyers? All the big names we know.

Speaker 4 (42:51):
Yeah, it's the big ones that are out there.

Speaker 2 (42:53):
I think you see a little Microsoft. Who else is.

Speaker 3 (42:57):
Groups like Amazons, Like what you're finding now is a
lot less hoteling space for data centers and they're all
single user and it seems like they're going after the
best locations, which would be large tracts of land close
to infrastructure. So you want natural gas, you need three
phase power with capacity on the line. You need fiber

(43:18):
lines or rail access to run fiber. You need water,
and while there are multiple ways for cooling water, whether
it's closed loop or open loop, is a big part
of all of it. So what you tend to find
are a lot of these old rust belt areas, but
kind of virgin farmland is the best candidate for it,
and you have these single users that are going after

(43:42):
that land. So in our portfolio, we've aggregated large properties
over time, and there seems to be a lot of
interest around that because it's just there are very few
of these places where you can do it. It's not
like even a distribution center that next to every exit
on the highway you could justify putting one there. You
need all the energy and water infrastructure and fiber infrastructure,

(44:03):
and you need capacity. So every new and there aren't
a lot of new natural gas fired power plants that
get built, but when one gets built, it seems like
a logical kind of co user of that power would
be one of them.

Speaker 2 (44:16):
I was gonna say, what about colocation where you just
run ant gas line and build your own electrical facility
adjacent to one of these power plants.

Speaker 3 (44:23):
I feel like some of that is definitely happening and
will continue. I mean, ultimately some of these data centers
will all be powered by modular nukes.

Speaker 4 (44:31):
When when you get down to it, you need is
that what we're talking potentially?

Speaker 3 (44:35):
Yeah, I mean the idea of when a data center
is going in or even a big manufacturing facility. Sometimes
you'll see colocation of solar, and while solar has a
lot of benefits, it's not going to power something like that.
That's more just I think for credits to sell into
the grid. I mean, we have three mile island potentially
coming back on, so there's a lot of different options.

(44:55):
And I think across states like New York State, they've
closed down, some nuclear facilities are consolidated.

Speaker 2 (45:02):
Well sure them never opened here. They spent billions over
twenty years. There was no escape route. Bid islands are
not great places for nuclear facilities. But you know, you
see countries like France ninety plus percent of their power
generation comes from nuclear.

Speaker 3 (45:19):
Right, And the hard thing when you think about power,
I mean I kind of laugh. I had two siblings
that both went to Cornell, so I've been to Ithaca
quite a bit. We own farms in upstate New York,
and every time I drive from our farms there down
to our family farm in northeastern Pennsylvania. You'll drive through
parts of New York State that we'll say no industrial.
You'll see signs that say no industrial, soular, no wind farms,

(45:39):
no fracking, no nuclear, but they all turn on their lights.
So we have this really perverse view out there that
you could call it nimbiism, you can call it whatever
you want, but we need more of everything.

Speaker 2 (45:53):
More power for sure.

Speaker 3 (45:54):
Yeah, if you look at a there's a few great
grafts out there that show kind of the history of
con umption for power and the same amount of coal
that's been used throughout history.

Speaker 4 (46:06):
This year will be the year that the most coal
is used.

Speaker 3 (46:08):
The most peat that's ever been burned or wood is
happening this year, the most oil produced or burned, natural gas.
The only energy source that's ever gone down really is
nuclear and that was out of the out of regulation.

Speaker 2 (46:21):
Is there's a lot of fears around it.

Speaker 3 (46:23):
And so if you look at what do we need,
there's no energy in my opinion, there's no energy transition
that whatever happens is we need more of everything.

Speaker 2 (46:30):
So that's really fascinating. I saw a chart I forget
where the biggest producer of solar energy in the United States, Walmart,
all their distribution centers, all their superstores, especially in the South.
They just say, we have dead space on the roof
loaded up with solar, and they're not only subsidizing their

(46:51):
own power consumption, they're getting credits for selling it back
to the grid.

Speaker 3 (46:55):
Yeah, I think it makes a ton of sense, especially
if you're building greenfield when you can. Actually it's tough
to retrofit things for solar. And even when we look
at farmland that goes to the idea of these little
community solar gardens, I don't think is very scalable. You
tend to see more industrial sized solar fields, and it's
you know, from the landowner standpoint, or the farmers standpoint,

(47:17):
or the the If a farmer is the owner, you
know they're interested in the highest and best use. So
what you tend to see is we have farm tenants
that they sell land for development all the time. They
you know, these farmers are very sophisticated, they're CEOs. This
has been happening for generations where someone will sell land
that's close to town for a very high price and

(47:38):
then they'll move twenty miles farther out and buy three
times the amount of land and set up shop there.
So while the idea of a farmer moving always seems,
you know, really hard to believe, this has been happening forever.
The western suburbs of Chicago have extended and extended and extended.
And farmers are you know, I consider them dumb as
a fox.

Speaker 4 (47:56):
Like they'll they'll sell for see that as a farmer, Yeah,
I know, it's it's interesting.

Speaker 3 (48:02):
They'll sell for a very high price, and when that
development doesn't happen, they'll buy it back for less and
they'll wait for the next round of development and sell
it again.

Speaker 2 (48:09):
So that's funny.

Speaker 3 (48:10):
So, you know, some of the competition we see when
we're buying farms, it's not just farmers that had profitable years.
It's farmers that have ten thirty one exchange money because
they sold land to a data center.

Speaker 2 (48:21):
Or they have like three years to reinvest before they
get hit with taxes something.

Speaker 3 (48:25):
Yeah, it's about eighteen months and they've identify properties, but
they have to go out there and reinvest it and
kind of like like to keep their cost basis. And
farmers are really good at you know, figuring their way
around these tax codes, and you know, good for them.
And I think that's a lot of the competition we
see are ten thirty one buyers because there's just big

(48:45):
dollars getting thrown around.

Speaker 2 (48:47):
They have no choice, they have to get deployed otherwise.

Speaker 4 (48:49):
Yeah, and they want to continue to buy farm land.

Speaker 3 (48:51):
And a lot of farmers, I mean it's really interesting
when you talk to them and you'd say, well, what's
your dream scenario. And one of our tenants who sold
some land to a solar company and they were selling
land for a data center. I said, well, what's your
goal and they said, well, we want to continue to farm.
We just want to do it debt free. So it's
not like they just want to buy a place in Florida.
They'll have one, but they want to continue to farm,

(49:13):
so they want to go buy more.

Speaker 2 (49:14):
Farm Really interesting. Coming up, we continue our conversation with
Brandon Zick, chief investment officer of Sarah's Farms, discussing the
state of farmland investing. Today. I'm Barry Ridults. You're listening
to Masters in Business on Bloomberg Radio. I'm Bury Ridults.

(49:44):
You're listening to Masters in Business on Bloomberg Radio. My
extra special guest this week is Brandon Zick. He's chief
investment officer of Sarah's Farms. They are a specialty fund
investing in farms and farmland. We haven't really talked about
the risk of farming. And a couple of my favorite
YouTube shows. So I'm a car guy. I like Harry's

(50:08):
Garage and his adjacent channel is Harry's Farm, and watching
him do this stuff, you realize what a difficult job
farming is, especially sometimes it's drought, sometimes it's too much rain,
it's so expensive and so much of your product is
totally out of your control. And then if you liked

(50:31):
top Gear, there's an Amazon show called Clarkson's Farm and
it makes you realize, God, this is an impossible business.
At least in the UK, farmers there having a really
hard time. So let's talk a little bit about the
risks of farming and the risk of investing in farming.
What are the possible downsides?

Speaker 4 (50:52):
Yeah, so on. Being a farmer is a very difficult business.

Speaker 3 (50:56):
I mean, there are so many different risk factors and
so many decisions points that you can make that completely
can impact your bottom line in a material way. Not
just what crop you grow and when you plant, but
when you sell it, how you sell it, who you
sell it to, how you store your grain, and all
these things can change year to year and to your point,
and this kind of goes back to there hasn't been

(51:19):
a lot of institutional roll up yet on the land side,
but the people that sell inputs to farmers, and the
inputs can be seed, fertilizer, equipment, whatever it may be.
And the buyers of their crop, the large grain buyers
out there, your bungies and adms and cargills, they all
have a lot of pricing power. Your average farmer doesn't

(51:39):
have any pricing power, so they are a price taker
on the input side. There are a price taker on
the crop side. So part of our value add for
investors is we try to identify farmers that are the
most well positioned to have whatever pricing power they can get.
So they have to have scale so that when they're
buying inputs that they can go out and negotiate the

(51:59):
best price possible. You want farmers that can store their
grain so they're not selling it all at harvest. They
want to be able to sell it into the spring
when other people don't have the crop. Yeah, so hopefully
you get that positive carry. So we try to identify
those folks. But when you're looking at investing in farmland,
what are the downsides? Well, there's certain just climate issues.

(52:21):
So if you're close to a river and it floods,
that's a problem. If you have very sandy soils and
it doesn't rain and you have drought, that's a problem.
So we like to have farms where we can do
some of that capax like adding irrigation or adding drainage,
so that you can help manage some of those risks.

Speaker 2 (52:37):
How do you manage around weeds, past bugs, and disease,
because there are a lot of dangerous diseases that literally
come in on the wind.

Speaker 3 (52:46):
Yeah, and that's I mean part of what the way
we've constructed this portfolio. I mean, Perry was really prescient
when he thought about the Great Lakes the Midwest. It
wasn't just because he was from Wisconsin or he was
traveling to the Midwest. Because in the Midwest we have
the best soil, some of the best water resources. And
what I mean by that is these recharging aquifers. The

(53:07):
Great Likes aquifers, but also it rains during the crop season.
So the cheapest form of irrigation is still just rains.
You don't have to turn anything on or do anything.
But there are parts of the South and the West
where it doesn't rain when you're growing a crop, or
it's very sporadic, so you can't really grow a crop
without irrigation. In the Midwest, it's more supplemental. So from
a risk management standpoint, it starts with good soil, good water.

(53:30):
We like good infrastructure so you can move your crops
around you Also, and I had mentioned earlier, we like
areas where it's a highly competitive market for rent because
we're renting ground. We want to have lots of farmers
out there that are all looking to grow, they're all
looking to add acres, and so that makes a very
competitive market from the rental side. Some of the stuff

(53:50):
that you know, investing in the US isn't a risk,
but there are a lot of people and a lot
of managers that invest outside of the US. Currency risk
is a big deal, Sovereign risk is a big deal.
I mean, there's been many investors that have had more
than their handslapped for buying land in South America, particularly
in Brazil, that they found out the group they bought
it from might not have been the owner. And there's

(54:11):
a lot of things that we think transparency is key.
But we we really like title insurance, we like rule
of law. So we invest in the US, We invest
in areas that are very friendly to farmers. And so
that's we don't own any land in California today. Maybe
we will at some point. I think that's a little
bit more difficult from a regulatory environment, and water is

(54:34):
something that we view as longer term. You know, water
is going to be a gating issue or a gating
factor in a lot of areas, and you're seeing not
just regulation but restriction all across the country. So we
want to be in areas where water is plentiful. It's
one thing to have a paper water, right, It's another
to have water availability.

Speaker 4 (54:51):
And that's what we focus on.

Speaker 2 (54:52):
So last question, last two questions before we get to
our favorite questions. We ask all our guests, let's look
out five or ten years. What are some of the
biggest opportunities in farmland and what are some of the
potential dislocations and risks you're considering.

Speaker 3 (55:10):
Yeah, so in terms of opportunity, I mean, we think
there's just so much capacity out there to continue to
invest in the current markets where we are today. But
within the US, we think, you know, the world's going
to continue to need food as water becomes more expensive
in other parts of the US. So California as an example,
or Arizona as an example, a lot of those crops

(55:33):
that people want to have the USA stick around, so
vegetables produce, they're going to be grown more, at least
seasonally in areas where they're cheaper to grow, and every
or so a lot of that today, a lot of
produces grown to Mexico, and that's labor's the biggest issue.

Speaker 4 (55:51):
Labor there is next to nothing.

Speaker 3 (55:53):
So if people don't care, if they're blueberries or if
they're watermelons, say USA, and then it will all come
from Mexico. If people don't care, because it's just from
a cost of production standpoint, it's so much less. But
in California, the cost of water. So let's say you
have a well that you need to pump a thousand
gallons a minute to grow celery. That might cost a

(56:16):
couple hundred thousand dollars a year. The cost of the
well itself is a million dollars to grow that same salery,
maybe less of it because you're not growing year round.
In Michigan, that well costs fifty thousand dollars and it
costs two hundred dollars a year to operate. So even
if the labor cost was same same, the cost of
productions much less. And every crop in the US, almost
every crop moves west to east toward the population center,

(56:39):
So if you're east of the Mississippi, you've cut a
huge freight cost off of the cost of production too.

Speaker 2 (56:44):
So it's best straight to the west east coast and
much cheaper than coming up from Mexico.

Speaker 3 (56:49):
Yes, and I think over time, you know, we're going
to see more and more of that high revenue production
move there, So we view that as an opportunity. A
risk is always does the cost of labor out technology
growth We've seen and part of the reason we like
row crops are because there's more technology being implemented a
much less labor.

Speaker 2 (57:08):
I'm glad you mentioned that because one of the things
that was fascinating on both those shows were the GPS
driven tractors. So if you're going to run a combine,
you're going to lay fertilizer down, you're going to harvest.
These things essentially drive themselves long before TESLA because doing
that efficiently is a giant money saver. Talk about the

(57:32):
technology that's making farmland more productive.

Speaker 3 (57:34):
Yeah, I mean technology, I would say, and agriculture is
moving as fast as anywhere, and it's really because there
are real tactical issues around labor's too expensive, the cost
of inputs has gone up. So to talk to our
farmers and that's a big part of our underwriting is
we want farmers who are using the latest technology. Whereas
in the past, if someone was planning a crop, they

(57:55):
would broadcast equally across the entire field, the fertilizer, the
seas and when you look at actually some of these farms,
the soil types and quality throughout a farm can be
highly diverse. You could have five to one hundred different
soil types. So the soil mapping that they can do
with technology to.

Speaker 2 (58:13):
Them see a satellite right via satellite.

Speaker 3 (58:15):
And they also use probes to get out there, trust
but verify you go out there and do that, and
then they can use variable rate applications of fertilizer and seeds.
So in an acre of ground of really high quality
black dirt, they might plant thirty five thousand seeds per acre,
but then in the sandy or lower quality soil, it's

(58:36):
only twenty thousand and achieve the same yield. So what
you're doing is saving money on the seed, applying fertilizer
so that it's not running off. And farmers don't want
waste either, because that's money that's just rolling away.

Speaker 2 (58:50):
And this isn't just satellite. It's satellite, it's drone. It's
a lot of high tech tools that you don't think of.
You think of picks and shovels with farms, but there's
a lot high tech here.

Speaker 3 (59:00):
Well, and something as easy as if you said, twenty
years ago you had irrigation on a property, these big
irrigation pivots, and you know there's some publicly traded companies
that manufacture all these in the US, like Valley and Lindsay.
And twenty years ago, if a farmer had twenty pivots,
they'd have to have five or six different people in
the morning get in a truck and go out and
start them up, and then throughout the day drive by

(59:22):
and make sure they're still running. Now that farmer can
control everything from his or her iPhone they can start it,
stop it, monitor they have soil moisture probes out? Are
they moisture probes out in the soil so that they
know do we need it? In some cases they are
using AI or some learning mechanisms to say, well, based
on is it going to rain, we're not going to

(59:43):
turn itself on. So farmers are subscribing to some of
this kind of smart data to go out there and
make them a better operator.

Speaker 4 (59:50):
And those are the farmers that.

Speaker 3 (59:51):
When you look at who are the people that are
going to grow, they're the ones that are using the
latest technology that'll do that.

Speaker 2 (59:57):
And our final question before our favorite, what do you
think people don't understand or aren't talking about when it
comes to farmland as an investment.

Speaker 3 (01:00:09):
Yeah, I think most people don't understand just the sophistication
of the farmers they're dealing with. When people say what's
going on in agriculture, they paint with a very broad brush.
And you wouldn't say that if you said what's going
on in accounting, Well, there's some great accountants and probably
some poor ones.

Speaker 4 (01:00:24):
Or what's going on in.

Speaker 3 (01:00:25):
Any industry, you have to look at who are the
people leading the way and that's who we try to
partner with because we think they will help us generate
the best returns. Whenever that Bloomberg Indiana Farmland Go exists,
it's going to be pretty fully priced.

Speaker 4 (01:00:39):
I think it'll be much more efficient.

Speaker 3 (01:00:41):
The inefficiency is still out there, and I think that's
what we're able to I won't say take advantage of,
but that's what we've been able to lever over time
is focusing on that inefficiency. There will be a lot
more money that comes in investing in farmland. We're seeing
crowd sourcing of farms. We're seeing more public rates that
are going to be launched, and that we'll be out there.

(01:01:02):
But I think it's a long way. When you think
of there's no cheap beta, there'll be a lot of
expensive beta out there. There are still alpha generators, and
this is NASA classic. You just have to go pick
a manager. You can't just say acid allocation helps us
and gets us there. You have to pick a manager.

Speaker 2 (01:01:16):
There's no vanguard for a passive indexing fall.

Speaker 4 (01:01:20):
Now, yeah, there's no wisdom try for that. Yeah.

Speaker 2 (01:01:22):
Now all right, so let's jump to our favorite questions
we ask all our guests, starting with tell Us about
your mentors who helped shape your career.

Speaker 3 (01:01:31):
Yeah, so I'll start with my parents, because they encouraged
all of us, on the six of us and our
family do something else.

Speaker 4 (01:01:39):
We know this is.

Speaker 2 (01:01:40):
Not not uncommon with farmers, right.

Speaker 3 (01:01:42):
Yeah, And they both grew up on dairy farms, and
we grew up on my dad's family farm. And my
parents were both very well educated. You know, I'll remember
some of my best memories as a kid. We're having
dinner watching Jeopardy with them, and it was we always shocked.

Speaker 4 (01:01:58):
How do they know all these ans ran the table exactly.

Speaker 3 (01:02:00):
We were not very successful, but you know, our parents
were really focused on education and just doing you know,
something better. You know, we'll always have the family farm.
My mom still lives there today and it's great to
go back there. But you know, they really encouraged all
of us go do something else and gave us the opportunity.
There was no pressure for any of us to come
back to the farm. They actually said, I remember my

(01:02:22):
dad telling me the year you were born in the
year you graduated high school, the price of milk was
the same. This is not a long term strategy. So
and so, so I'll start with them. But you know,
I had some great folks I've worked with throughout my career.
Someone at Morgan Stanley that I think really made a
difference for me was Arthur lev who had come from

(01:02:42):
front Point. He was the head of chief legal officer
there and he was probably the biggest proponent of me
going to Cyrus.

Speaker 4 (01:02:49):
He said, you have to do this, why would you not?

Speaker 3 (01:02:52):
And I've worked with some great people that you know,
having been at Lehman Brothers, there's a lot of people
that got vaporized that I really respect it. And you
just think, Okay, if you're going to take a chance
on something, you got to do it. And seeing kind
of what's happened over time throughout my career, a lot
has occurred. You know, it's all shaped you in a
different way. And our founder, Perry Beeth, I mean I

(01:03:15):
think about this today and five years I'll be fifty two,
and that's when he started serious when he was fifty two,
and it was completely different than being the fixed income
money manager that he was. And you know, building a
great team I think is the best thing he did.

Speaker 4 (01:03:30):
And the people that we've been able.

Speaker 3 (01:03:32):
To hire over time, you know, I want to be
their mentor because I know they'll be better than me,
and that, to me has been the most important thing.

Speaker 2 (01:03:39):
Really fascinating. Let's look about books. What are some of
your favorites.

Speaker 4 (01:03:42):
What are you reading currently?

Speaker 3 (01:03:43):
Yeah, so a book and I mentioned Water is just
such an important thing. A book that I read often.
It's called Water, The Epic Struggle for Power and Civilization,
and it really talks through It's a history book, but
it talks through the success of civilizations around their ability
to access clean water and their ability to treat dirty
water and get rid of it. And it's just a

(01:04:03):
fascinating story of kind of the growth throughout the world
population growth. But something I'm reading now that I just finished,
and it's because I'm on the board of my high school.
They just did away with cell phones and it's The
Anxious Generation, and it's really Yeah, it's an eye opening
book about social media and when people have their phones

(01:04:26):
just how it impacts their life. And so our Jesuit
High school did away with cell phones and I think
it's the greatest thing they could do.

Speaker 2 (01:04:32):
There's a lot of that going on these days. More
and more school districts are are forcing them the kids
to put schools and phones and lockers.

Speaker 3 (01:04:40):
Yeah, they should do that. I mean, we have to
get them out of our house, the iPads and stuff.
That's a bigger battle to get through. But yeah, it's
something that's just eye opening.

Speaker 2 (01:04:49):
Let's talk about streaming. What are you listening to or
watching on Netflix or Amazon Prime? Well?

Speaker 3 (01:04:55):
I have a lot of windshield time, so I listened
to a lot of podcasts, so you know, Investige the
best obviously, you know Med Faber, Jeremy Schwartz, Pirvorite Holts.
I listen to a lot of business podcasts. I also
love sports, so I listen to a lot of Ringer
podcasts too around sports and entertainment. On the streaming side,

(01:05:15):
you know, I rewatch The Wire every year. It is
just my favorite show ever, and so I do that
every year. I'm now watching Severance, which is an interesting
I'm not all the way done with the three seasons yet,
so it takes.

Speaker 2 (01:05:29):
A couple of severe turns that are like where did
that come from?

Speaker 4 (01:05:33):
Yeah? I can imagine, but.

Speaker 2 (01:05:34):
The whole concept is kind of fascinating.

Speaker 4 (01:05:36):
Yeah, exactly.

Speaker 2 (01:05:37):
Final two questions, what sort of advice would you give
to a recent college grad interest in the career in
either investing alternatives or farmland investing.

Speaker 3 (01:05:50):
Yeah, I think back to you know, building the network
is probably the most important thing you can ever do,
because there's there's so many people that are good at
Whatever you think you're good at, there's someone that's better
at it, for sure, whether it's modeling, you know, thinking
about investing, whatever it may be, someone's always better. So
to me, building that network, and you can't be full

(01:06:13):
of it, like you have to be genuine when you
when you're talking to people. But I think that's been
the best thing I've ever done, and that's the thing
I can and that's why I take a lot of time.
I mean, we get a lot of people that reach
out to us with all types of questions. And all
of the portfolio managers on our team grew up on
family farms. They all went and worked in finance. And
there's probably a lot of Wall Street people, not per capita,

(01:06:35):
but generally a lot of Wall Street people that grew
up on farms and had this great foundation of hard
work and then they figured we'll just I'll never be
able to use that again for the rest of my life.
So I think being able to build up your network
because sometimes you can pull on a thread and you
won't know where it'll go. And so that's what you know,
that idea of talking to someone at an endowment to say,

(01:06:59):
you know, kind of do a reference check for these
people I'm talking to, and they just said, well, you
should talk to this other person instead, And you just
never know what paths are going to go down to leverage.

Speaker 2 (01:07:09):
That really really interesting. Our final question, what do you
know about the world of farmland investing today that might
have been useful fifteen years ago or so when you
were first diving into the space.

Speaker 3 (01:07:22):
Yeah, I think when I think about it now, there
are very few farms we missed on that I wouldn't
love to own today. And you know, being able to
look back in the rear of your mirror and say
that would have been a great purchase.

Speaker 4 (01:07:35):
You know, that's always interesting.

Speaker 2 (01:07:37):
Is the regrets more the things you did and shouldn't
have or but the thing or the things you missed
and wish you did.

Speaker 3 (01:07:44):
No, it's the things we missed that we wish we
had done. But today we're in a position that we
use no leverage when buying properties. They're all cash purchases.
You know, you can never say your bulletproof, but we
have a great balance sheet. But over time, we were
we were still doing missionary work in terms of telling people,
this is a real asset class. So we were using
leverage to purchase properties just when we didn't have new

(01:08:05):
money coming in. So we've always been very conservative, and
in farmland, leverage is a different beast.

Speaker 4 (01:08:11):
You know, you can't buy.

Speaker 2 (01:08:12):
It not twenty x.

Speaker 3 (01:08:13):
No, you can't buy a farm with five percent down.
You need fifty or sixty percent down to buy a
f So it's.

Speaker 2 (01:08:18):
Hodest leverage and unless there's a disaster.

Speaker 4 (01:08:21):
Yeah, and it's all fixed straight mortgage debt.

Speaker 3 (01:08:24):
But we were just always very conservative, and I think
some of that conservatism now you'd say, well, maybe that
was overly conservative, but you know, we also didn't get burned.
And you don't move from thirty million to two billion
by being overly aggressive, or you don't do it all
at once, you have to do it over time, and
that's kind of how what we've focused on.

Speaker 2 (01:08:43):
Brandon, this was absolutely fascinating. We have been speaking with
Brandon Zick. He is the chief investment officer of Sarah's
funds now owned by the time you're seeing this by
Wisdom Tree Asset Management. If you enjoy this conversation, well,
be sure and check out any of the five hundred
and sixty nine episodes we've done previously over the past

(01:09:06):
eleven years. You can find those at Bloomberg, iTunes, Spotify,
and here at YouTube. Be sure and check out my
new book How Not to Invest The ideas, numbers, and
behaviors that destroy wealth and how to avoid them How
Not to Invest at your favorite bookseller. I would be remissified,

(01:09:26):
and I thank the Crack staff that puts these conversations
together each week. Alexis Noriega is my video producer. Anna
Luke is my audio producer. Sean Russo is my researcher.
Sage Bauman is ahead of podcasts here at Bloomberg. I'm
Barry Ridholtz. You've been listening to Masters in Business on
Bloomberg Radio.