Episode 7: Investing in US Farmland with Carter from AcreTrader

Ben: [00:00:00] Welcome to the alt asset allocation podcast, exploring alternative investment opportunities available to the everyday investor. Here’s your host Ben Lake off. Hello and welcome to the old asset allocation podcast. Today’s interview is with Carter Malloy who’s the founder and CEO of acre trader acre trader was created with a simple mission to provide investors direct access to the highly attractive asset class of farmland.

In this episode, we talk about why farmland, why now risks to farmland in general, thinking, thinking about lab grown meat or aeroponics, as well as an in depth interview on the types of properties, acre trader has available to investors on their platforms. I really enjoyed this conversation about farmland investing in general.

This has been something on my radar for a long time in. Acre trader appears to be a sort of platform that allows you to invest in these highly attractive investment offerings in a bite size manner. And we talk about the potential asymmetric risk reward opportunities that perhaps exist in U S farm land.

Don’t forget to like, or subscribe to the podcast anywhere you digest podcasts. This really, really helps either way. Please enjoy this conversation with Carter Malloy. Good morning. Rolling. I’m here with Carta, Malloy who, the founder and CEO of acre trader, which is farmland investment platform. Carter, really excited to have you on the show today.

Carter: [00:01:30] Thanks for having me, man, looking

Ben: [00:01:32] forward to it. So I’d like to start off today, just with a little bit of your background, where are you from? What do you do?

Carter: [00:01:39] So I live here in Arkansas, which is where I grew up in a farming family. I went to school a little over 20 years ago, did my undergrad in physics and then spent a dozen years in, equity investing.

so most, most recently a part of an equity investment firm in San Francisco, doing long short. equity investing and, and, you know, I think the underlying principle of, of a large part of my career in investing was always looking for asymmetric, asymmetric, risk reward, characteristics of any individual investment and doing a lot of work there, to, to make those decisions.

And. in the background I’d been buying and selling farmland to my, my dad’s a farmer. And so it was always, always been around the asset. And, I think I probably didn’t appreciate it as an asset until I was much older, you know, much more of a place to be, than something that actually could produce real financial returns, in, in how to a string of, you know, good, good luck and good stuff.

Just as investing and buying and selling land and had a neighbor in San Francisco, it was like, Hey, I want to. I want to invest with you and thought, well, surely, you know, it’s a $3 trillion asset. We’ll, we’ll go online and, you know, find some way to invest in it. And I was pretty shocked. At, at the fact that there wasn’t really a great way for people to get direct exposure to, to land.

And that’s really was the Genesis of acre trader.

Ben: [00:02:55] Nice. And how long ago was that?

Carter: [00:02:58] Oh, three years ago, probably when that conversation happened and, you know, two and a half years ago give or take started, really penciling it and thinking through it and, built it for a long time with, with a group of technologists and then officially launched it just a little over a year ago.

Ben: [00:03:12] Well, congrats for sure is, it’s a new world, right? Like, and especially, it seems very time, It’s very relevant now. I mean, the equity markets are insane. We’re recording this at the end of July. So having these, this potential asymmetric risk return profile outside of the publicly traded markets, it’s very interesting.

So I want you to talk to me a little bit more about farmlands, right? It sounds like your background’s in farmland, but why, why is farmland as an asset class? Something that would be invested. Interesting for investors,

Carter: [00:03:46] I think too, to oversimplify it and we get, we can certainly dig in, but if you look very big picture, it’s really about supply and demand.

So we only have, we have a finite amount of land right there. They’re not making any more land. And, and in the U S a that the amount of farmland we have shrinks every minute by three acres. So every single minute we lose three acres of farmland, usually due to development. On the other side of that, we have more and more mouths to feed every day as more people are born.

And, and so, you know, again, simplistically that’s, that’s a large driver of appreciation. Of improvement and value of land. if we step back and think about how you, you know, as a financial asset, how do you make money from owning farmland? It’s really two ways. One is the appreciation of the underlying land.

And two is the cash income that the farmer pays you. So we, we are not out, driving tractors and, and harvesting fields. it is a very simple tenant landlord relationship where we own the land and rent that out to a tenant farmer. And he takes on the business operational risks. it has really great years.

It’s about years in between and, No, but, but for us, it’s, it’s much more about stability of that cash income generated every year. And the cash component is better than, than bonds. I’d say, you know, it’s certainly better than what treasuries are paying you today. It’s, it’s not overly exciting. This is a pretty boring asset.

but those side of that is, it’s also very. Straightforward to, to manage and operate. You know, it’s not like a, a commercial building we’re out, fixing toilets and broken pipes in the middle of the night. so there’s a cash income. And then the appreciation income has tended to be the, a larger driver of financial returns over history.

And those two things together have. driven for the last, almost 30 years about, 11 and a half or a little more percent annual return to those investors on a, on a compounded basis. that’s unlevered and that’s, what’s really incredible, right. Is that’s, that’s not using debt to amplify your returns and, and because you don’t use that debt, you, you don’t see the, the large price swings that you see in, in say equity markets or, or, you know, most major asset classes.

So that’s really, what’s fascinating. Community is. farmland is an, is an absolute, H has been an absolute turn generator, a one that competes with some of the best asset classes in the world. but it’s done so with far less volatility and price swings than a lot of other asset classes. So, you know, gold, as an example is seen as a premier inflation hedge.

And, and it has, and in times of uncertainty like this, but the reality is, is there are years where gold loses 30% or more in value in a single year. No, we have not seen anything remotely like that in the world of farmland.

Ben: [00:06:26] I think I read somewhere that there were like three down years in farmland in the past 50 years or something.

I mean, it’s very consistent. Hey, 11 and a half percent. Sounds great to me. So. This 11 and a half percent, a portion is driven by the land value increasing, and a portion is driven by the cash rent from the farmer. And it sounds like the way that you’re doing it is you’re not exposed to any of these, you know, if there’s a drought and the crops, plummet, but there’s a bit of.

Risk there that the farmer won’t be able to pay the rent. Right. Is this something, what are the key risks for you when you’re looking at investing in farmland?

Carter: [00:07:11] Yeah. So I’m going to stick to speaking to row crops for the time being, and then I want to expand the conversation to permanent crops seems like trees that grow fruit and nuts.

Cause that’s, it’s an added layer of complexity. so, for, for the purposes of that question, you know, the. The tenant pays us rent, usually in advance. so they, they pay rent often a cash rent in March before the even plant. And so as a result, you see default re default, and vacancy rates both incredibly low in, in farmland.

And there, there’s not a lot of great official data around it. but I can tell you qualitatively. We’ve never had a tenant default. you know, last year we had one tenant retire and we’re able to find a replacement tenant within five days, give or take it’s, you know, not say there’s no, there’s not risks.

I certainly want to dive into those. but, but as a whole in, in dealing with the tenants, it seems to be relatively. A lower risk than, than a lot of, you know, things like running every month in a retail center, for example, where your tenant can just be late and then you gotta kick them out. And then you’re left with a big hole, very different profile than that.

I see that. There are material risks and underwriting in an acquiring just as there is with any real estate or any, any hard asset for that matter. you know, doing real diligence on the soils, on the water, on the financial profile, that piece of land are, are really important. And that’s something where, we, we are incredibly proud of the team.

We have, the experience on that team and the, the acquisitions we’ve done today.

Ben: [00:08:40] Yeah, that makes sense. Perhaps it might be beneficial to back up a little bit. Cause you mentioned a few things like row crops investing in farmland. Maybe if you could just zoom out and what exactly is farmland, because it sounds like a real estate investment, very similar.

You have a tenant paying, paying rent, so maybe the different types of farmland and what this means.

Carter: [00:09:01] Farmland to us means land. You grow things on right there, there is pasture land where you grow grass to feed cows. That’s not really something we do. There’s Timberland where you grow trees for a paper and wood, things like that.

so you know, there’s ranches, there’s, there’s, swamps all kinds of land, but, but farmland in the way that we identify and, and look at, it was really productive land. Land with good soil and good water that could grow crops. we split that world into two, which is row crops and permanent crops.

And, and, and it’s a little bit of an over simplification, but for a row crop, that’s. A piece of land where you rent it out to a farmer that comes in each year and plant something new corn, soybeans, rice, sorghum, peanuts, melons, things like that. Permanent crops, are, are a little different in their financial profile in that, you, you not only own the land, but you own the trees as well.

Right. So the trees have real value and the value can actually does depreciate over time because they have a useful life, but with permanent crops. So we’re talking about things like apples and walnuts and pecans. where, where you do own the trees as well. the appreciation factor seems to be a little lower than it does for row crops.

because while, while the land is going up in value your trees over, you know, whether it’s a 20 or 50 or 80 or lifespan, they do a decrease in value over time. However, those trees produce something and, and that’s something, usually has a higher cashflow component. Than than row crops. So on a row crops where your gross cash yields today, they’re probably like two and a half to four, four and a half percent, with permanent crops that can be as high as six to 9%.

then again, you have the appreciation component for each on top. For your total return, that ends up being fairly similar between the two assets. but with, with permanent crops, basically you get more cash now.

Ben: [00:11:00] Gotcha. And with acre trader you focus on. Which ones

Carter: [00:11:05] both. so we, as a, as a general statement, permanent crops tend to be on the West coast and row crops tend to be in the middle.

we, we do have, plenty of nut trees, in the middle as well. So it’s a, it’s an over simplification, but, as an example, almonds eight, almost 80% of the entire world’s Allman supply comes from California. From from one place as well. And it’s, it’s, it’s, it’s a crop we’re fascinated by and pretty bullish on a long term.

And, and one that we’re actually, launching another deal on, hopefully next week.

Ben: [00:11:37] Nice. Well, with the rise of this ketogenic diet, you know, people got to get their almond milk. So I get it. You touched briefly on return profiles, less correlated to a number of publicly traded assets compared to it a little bit to gold.

How does, investing in farmland compared to a real estate port?

Carter: [00:11:58] Yeah, I think, in terms of correlation, I want to touch that first. You, you brought up a great word, correlation being, how one thing influences the other. Right. and, and so there are correlations all among the markets of various, investments and assets moving in tandem with each other or, or near tandem.

it’s a really fascinating thing about farmland is it has. No meaningful correlation to any major asset that we can see. and, and so it’s sort of its own thing that does its own acts on its own. to compare that to your, to your other part of your question, to compare it with, with real estate, the return profile is fairly similar.

for the last give or take 30 years, which I use that time frame as it’s sort of the maximum, we have really good data for measuring farmland investment performance. but over that time period, the return profiles are very similar. the, the change in that return profile is what’s, what’s different, right?

So if you, you own commercial real estate today. You’re often in a really bad place, if you own commercial real estate or residential real estate in Oh eight Oh nine. It was a really, really tough time. and, and not only was it tough because the asset prices were moving and because vacancy rates were going up, defaults are going on.

So you weren’t getting your cash, but yeah, more often than not, it’s also a levered asset. Right. So you’ve got debt on that. And if you think about. A typical capital stack. let’s let’s use, an office building as an example. Now those will often be financed 75% debt and 25% equity or cash with the investors.

Put it and. For that office building, if you see a 25% correction price, which is not unheard of, then you’re wiped out. I mean, assuming, you know, if you can, if you can make the payment great. but if you see a 25% correction in price, the bank calls you, you’ve, you’ve lost all your money. And, and that’s, that’s scary, you know, and, and so when we talk, talk about the two assets and how they look different, the return profile, you know, look.

Look, pretty different. Sorry. The return profiles look same, the same or similar. the, the volatility and movements in price look very different. But when you zoom in and look at individual assets, it’s even more radical, because, some commercial real estate has bad years. in good and great years, I should say, right?

It’s it’s not that it’s a bad asset class. I personally own corporate real estate. We’re not, we’re not preaching against it. but there are also some years in some assets and commercial where you lose it all. And, and, we’re certainly experiencing a lot of that. You know, we’ll see a lot of how that shakes out here the next six months.

but it’s, it definitely feels

Ben: [00:14:37] scary. Definitely. And I think a lot of that. Presumably is due to the longer holding times and just more consistent. I mean, you don’t have these retailers that are coming and going. It’s more of somebody’s feeding mouths. So the demand is pretty constant or like you said, increasing.

but perhaps I think you touched on a few good points about liquidity. I mean, I read some places that. Farm land traditionally is passed on from generation to generation. So sometimes these, this land just won’t sell for an entire generation. So it sounds like liquidity is very constrained within the farm land investing space.

Is that accurate?

Carter: [00:15:23] It is on a relative basis. It trades hands far less often that a, CA commercial building would. but that’s not to say there isn’t liquidity on a percent of the total asset base. There there’s less turnover. but if you, if you think about U S pharma and $3 trillion of value, roughly, globally it’s nine, but in the U S.

While it’s again, relatively as a percent of the total asset, less of it turns over, we still see something like 50 or a hundred billion dollars, a farmland that’s bought and sold every year. so, so there is, there is real trading out there of, of land and, and real establishment of values and comparable sales, things like that.

Ben: [00:16:01] Okay. Now I want you to talk to me a little bit about. The type of investors that are currently investing in farmland, the type that should be invested in farmland, I mean, 11 and a half percent, super consistent. So returns, it seems like this would be something that a lot of people would be bullish on.

And I know like Jim Rogers and a few others have been pounding the table for years about investing in farmland, but is this something they’re starting to be more institutional interest and then obviously platforms like acre trader. Democratizing investment, making it easier for somebody like me to invest.

Maybe just talk about, investor profiles, interested in investing something like acid, farmland. Yeah,

Carter: [00:16:46] absolutely. So I’ll, I’ll touch on institutional and then I’ll come back to, our, our platform and sort of profiles that we see. So from an institutional standpoint, today there’s about 30 billion of private equity money in pharma.

And that, that we can see, that’s up from about 3 billion, 10 years ago. So pretty, stratospheric growth, right? A lot of on a, on a growth basis. It’s a lot of asset gathering on the line.

Ben: [00:17:10] Absolutely. That is a percentage of total though. I

Carter: [00:17:12] mean, that’s exactly where I was going. Great. Great question. No, no, no, man.

That’s awesome. so that’s still only 1% of the asset, right? So. In terms of, capital formation and professionalization of the asset class, we’re still wildly immature. to me that’s really exciting cause, it suggests, and it certainly is the reality that there is real information asymmetry. In farmland investing.

and, and that can be a huge advantage, you know, just as there was, in public markets investing 50 years ago, let’s say, you know, and, yeah, in most markets early on, when there’s a information asymmetry, you really see, some investing outperforming, on a relative basis. And that’s certainly our hope as well.

for, for our website, I’m going to dovetail over to the investor profiles that we see, but on the website, you know, when we discuss returns, we just simply use more or less, today’s cash return plus, an average appreciation. So we don’t engage in the, you know, in, in, a lot of like Mark to market type of, work, to, to make it look better than it’s going to be.

you know, our, our hope is to outperform what we always see on our website. but, but again, we’d just rather be, be conservative in our underwriting and approach. the, the types of investors that come to our website and you highlighted something that’s interesting. Is there, there are, there are investors and there are traders, right?

And we are after the former, you know, the people we would like to work with, ideally, P, you know, and the reality is if you are good at trading, you could make incredible amounts of money in equity markets in gold, in commercial real estate. And some people are in there. They’re wildly successful at that.

And I applaud those efforts. that’s not what we’re after. You know, I think the data would show that over your lifetime, trading is not as effective as compounding. And, and that compounding of wealth is, or compounding of capital is what we’re really after, is, is, slow and steady, wins the race, right?

It’s the best way to put that. And, and we do see that a lot with, with our investor profiles. the people we work with are their investors on our platform. They tend to be repeat investors. They come on multiple times and invest in multiple deals with us. a lot of those will. Just hit the minimum every time, you know, if it’s 10 or 20 or $30,000, they’ll put that into each deal.

some are more like family office type type investors. That’ll certainly be putting in much more and tend to be a little more selective and, and which assets they invest in. but, but as a whole, that’s who we would like to align ourselves with is investors not traders.

Ben: [00:19:48] And that makes sense.

Carter: [00:19:49] so

Ben: [00:19:51] you touched on a very interesting point, so.

investments in farmland went from 3 billion to 30 billion, which is 1%. So it was 0.1% was held by institutional investors. That number is insanely small. Why do you think institutional interest was so low, say 10 years ago? And what, what sort of institutional impact are going into this now? Okay. Do you obviously you see this trend?

Continuing because it’s just from a low base, but where do you, where do you see this going? what kind of institutional investors are interested in this,

Carter: [00:20:32] you know, for, for institutional investors, when you think about the, the LPs, the limited partners that put money into these funds, they, they tend to be very longterm, its endowments, you know, universities and pension plans and, churches and hospitals and schools, things like that.

you know, They really, you know, probably more than anyone, some portfolio diversification and, and generating outsize returns over time, and, and, and attractive risk adjusted returns. Right? There’s the sharp ratio is what everybody in the industry tends to chase, which is. You’re your CFA on, you know, you, you know, way more about this than I do.

I always said I was smart enough to know I’m too dumb to pass CFA tests.

Ben: [00:21:12] It’s too dumb to realize that I shouldn’t have started. I should

Carter: [00:21:15] have just stopped taking them. but that, you know, the, the institutional investors that. that are, they’re putting money into these private equity funds, tend to like that longterm diversity of farmland.

I think quite frankly, just the, the data and the awareness of it has only been growing here in the last decade off of what you mentioned was an incredibly low base. and so. We, we think that will continue. And we think that we’ll continue to support farmland prices. you know, what we don’t want is a bunch of speculation going not.

And, you know, maybe there’s a few pockets and, and yeah, Iowa is an example where that may be happening, but that as a whole, I don’t, don’t see much of that out there, which is, which is healthy. but you know, I think given the returns that have been generated thus far, I would expect to continue to continue to see.

Our second gathering it. Yeah. Within farmland.

Ben: [00:22:04] What interesting trends do you see within farming? So I would think of it the last 10, 20 years technology, you know, new seeds, higher crop yield, new technologies, farming techniques, lower, human involvement in farming. All of these things I think would be bullish for farming in general.

You know, the farmers themselves can make better profits so they can pay you higher rents. what kind of higher level trends do you see within farming?

Carter: [00:22:35] It’s a great question. we, we are seeing a, you know, an explosion of, of ad tech. offerings and products out there. And frankly, it’s, it’s almost, it’s overwhelming for the farmers at this point because they’re getting so many pitches for so many different tools and there’s a lot of really cool stuff going on.

you know, I think at the core, you mentioned earlier is, is see genetics. And, and continuing to, you know, it’s a, it’s a hotly debated topic, but, but, you know, whether you’re doing that in a laboratory or breeding plants, as we’ve been doing for thousands and thousands of years, to make them more drone resistant, you know, need less water, need less fertilizer, be more kind to the soil.

those advancements in genetics are, are, are really helpful. to feed the world, frankly, and help help us grow food, and to help the farmers operations, beyond, you know, that that is sort of the core blocking and tackling has been going on for again, thousands and thousands of years and, and, you know, has really taken off in the last 50 years.

we’re, we’re seeing some really cool things, in the world of AI. you know, it’s still very early days, but, but, you know, just my own personal view is if we think out 10 or 20 years, what has the potential to have the most outsize impact? it’s the application of machine learning on a farm? you know, give you an example of that.

my, my brother actually runs a company, that’s focused on, Basically visualization and an understanding of your, your fields. So the way that, that would typically work well, historically I, your, your seed salesman, is also your agronomist, right? So said, definitely your doctor is your pharmacist.

that’s a really dangerous thing because you know, when your doctor is the one that write new prescriptions and making money yeah. Those prescriptions, he has a tendency to he, or she has a tendency to over prescribe. And so, so, a, an agronomist would come out and look at, look at, Being overly generalist about this.

There’s some amazing seed companies and people out there. Right? So I don’t mean to insult by saying this, but it is often the case where like Ronald was, comes out, takes a look at your field. It’s 200 acres and says, Oh no, I sampled it in fourth place. Does it across the 200 acres, you need to apply X amount of nitrogen, to optimize your crop yield.

When in fact, across that 200 acres, your, your soil type, how your water, lays or flows across the land, et cetera, et cetera. There are so many variables to take into account, that every acre, every meter for that matter, may have a different growing profile. And the one just next to it. And so now with, a lot of the application technologies and improvements and, and, on farm implements, to be able to actually manage your farm on a, on a per acre basis or smaller, applying.

data science really, to, to your fields and understanding this, this incredibly complex array of, variables that impact your, your growing conditions, this company in particular Arvilla intelligence, I’m speaking of, it’s just incredible what they’re able to do and go out there and say, Hey, actually, you know, you could put half as much nitrogen over on that part of the farm, and do better.

You know, and by the way, like have less runoff, and, and have, you know, obviously save money, but, but do a better thing for the environment as well. And so I’m really, really excited about where that type of technology is headed over the next decade or two. I

Ben: [00:25:57] mean incredible. The amount of things we can do with proper data now, and these, this, this machine learning and all of these things, but ultimately we’re going to look back and everything we’re doing now is such a blunt instrument, right?

Like we need more nitrogen across the entire field. That’s hundreds of acres. Of course. It’s exactly the same across the entire thing. It’s going to be the same thing with medicine. I like, he may not. I got my. Temperature check like three times a year. And that’s how I determined my healthiness. Like it’s just crazy.

Yeah. But you know, these things will become more and more apparent and technology is enabling us to get better with all of these. So that’s really, yeah. Really fun.

Carter: [00:26:40] And, and your, your point of three times a year taking your temperature is a really important one, which is we are only as good as the data we collect.

Right? There’s no algorithm that can solve a problem. If you’re going to three data points, it’s very, only very rudimentary problems I should say. So

Ben: [00:26:55] that’s, it will solve it in the way that you don’t want it to be solved because it’s certainly not enough data.

Carter: [00:27:00] Right. And that’s a really great point with, with farmland technology as.

Using machine learning as an application. but, but data gathering is, is vital. You know, if not even more important. And we are seeing a real growth in that with companies like granular, for example, that are helping you to gather on farm data. and then there’s, there’s a myriad of companies doing drone imagery and satellite imagery and that visual data as well can, can be really informative, to help improve farming practices.

Ben: [00:27:30] Nice. Yeah, my, I come from a long line of farmers. I’m obviously not, but, grandparents, great grandparents, all were farmers. So the number of new technologies coming out would just make their head’s spinning. I’m. Sure. Yeah. So talking about those techno technological, breakthroughs within farming. I mean, I keep going back to risks because I think that’s under fully understanding the risks of any investment are very, very important, but I just think technology’s improving and evolving this.

Pretty old, simple asset class in many different ways. You can see a lot of these demand and supply drive. These asset prices, obviously demand is going up with a food, more humans, population growth. That’s obvious supplies constrained because they’re not making any more land. But I wonder if you pick apart those two variables, a little bit more supply.

This is assuming that. You know, new land doesn’t come online because of technology suddenly in an unfathomable place. Like, I don’t know, say Ethiopia. Sure. And I have no idea I’m just picking on them, but presumably the land is less farmable and lower cost. So suddenly, you know, if you can drive the operating costs down with technology.

Then food becomes suddenly cheaper to produce their export back to the U S so this becomes, you know, supply has actually increased in this case then I think of the other side of demand. So this is assuming that we can you eating the way that we eat now, and there’s not some matrix ask. Synthetic goo that has all of the nutritional content that we need to eat, but it’s produced in the lab at bulk and this might be way too far.

Right. But are these. Some risks that you think through, or these are just, you know, 20 plus years out. So I’m going to hold this thing for 10 years. And within that 10 year period, I don’t expect it to change too drastically.

Carter: [00:29:41] It’s a, it’s a great, it’s a really great question. So on the supply side first, you know, the, the reality is, is that, the unfortunate reality I should say is that, that.

Incremental capacity growing capacity. doesn’t sit in a, in a desert somewhere. It sits underneath reinforced. And, and so, unfortunately that’s, that’s where we’re seeing more arable land to be picked up, or in places, you know, like, like, in Southeast Asia where there’s wholesale, cut downs, a forest to grow a Palm oil.

you know, it’s, it’s the unfortunate name nature of where we are today is that there is such demand that we’re making these, horribly blind near term decisions, to, to drive down price or to hold back inflationary pricing, I should say. And, You know, even with that, the arable land per capita, you know, it still has some, some overall pressure and there’s plenty of data sort of global data on that, that shows that that’s that trend, that the pressure that problem will persist for, for a long time.

so, so on the supply side, I’m worried about where that, that supply land comes from. but in pure investment terms on holding land, I am, I’m less concerned about that incremental supply, pressuring us as investors on, on the demand side. you, you know, the goo, if you will, the matrix skew, well, that’s pretty far out, you know, I think, I’ll give you a great example where, Protein demand in Asia is soaring, right?

There’s there’s a growing middle class. And so they’re, they’re eating more and more meat that meat requires a material, input of grain to grow. And, and so that is that’s helping drive, incremental demand for right beyond just more people. More people are eating, more rich foods that require that much more, inputs, as you think about.

pressures to the other side of that. There are things, coming along that there, you know, exciting developments of technology and meatless technology, you know, where, where we’re using, you know, soy proteins and chickpeas to make burgers that taste pretty, pretty dang good. and, and that’s over the, over the long term, could actually replace it right or protein.

Again, we will have more if you eat in 20 years than we do today. And at the end of the day, that burger is still made of things. We grow on a farm. and, and so, you know, I think it comes down to how you model the curve of, of demand. cause there’s, there’s a lot of influences the variables that drive that up or down, but the reality is, is that, that thing still points up into the right.

And in terms of, excess demand, there’s a UN stat of, I’m going to botch it by 2030, we’ve got 20, Dang and how the top of my head, but, you know, there’s a 50% increase in food necessary over coming decades, or so I

Ben: [00:32:35] think I read 70,

Carter: [00:32:37] like

Ben: [00:32:37] it’s insane.

Carter: [00:32:38] That’s it? It’s by 2050 it’s 70%. Thank you know, the stats better.

Thank you.

Ben: [00:32:44] That’s exactly. I did a little research here. Sorry.

Carter: [00:32:46] That’s fine. No, no, man. It’s great. but, but probably being like. Do do we really care if it’s 30 or if it’s 100, right. Either way, you’re talking about a material increase in demand for the product that we create.

Ben: [00:32:59] Yeah. But the, the, the common composition, these impossible burgers or, or, the lab grown meat.

Yes. It’s inputs are grown on a farm, but the amount of crops necessary to make that eight ounce. Hamburger versus making eight, eight ounce lab grown burger are very different. So I would think the, the amount of land needed would change drastically, whether it’s a plant based or meat-based burger, but you’re right.

They’re delicious either way. Right.

Carter: [00:33:32] Yeah. And, and I, you know, again, we’re, we’re exploring the, you know, I think ultimately that boils down to me. How bullish are you on. Increase of demand of food, as opposed to, you know, will we need food or not? Right. Cause it’s, it’s, it’s very, it’s certainly not binary.

Like we, we need food, we will need to eat. we will continue to need to grow it.

Ben: [00:33:51] Right. And I mean, there’s a million different risks, right? Is what, what percentage likelihood and timeframe for that risk to play out? there’s a lot of them that was really helpful going through more on farmland. So we’ve talked a bit about acre trader, perhaps if you could just give a much higher level, like what makes acre trader unique?

You have a couple of competitors out there in the space. Why should an investor choose a good trader over, over these other competitors?

Carter: [00:34:19] Sure. We want investors to look at everything out there, right beyond, beyond competitors. There’s there’s private equity funds, there’s REITs. and you know, I think that it’s great that investors do real due diligence and, and speak with financial advisors and, you know, make, make sure they’re making a choice.

It’s comfortable with them. The way I would describe our team is, We’re rednecks. It’s probably the best way to put it. You know, we, we are like actually farmers, we’ve got hundreds of millions of dollars of farmland management expertise on our team. We’ve got an incredibly intense, underwriting and due diligence that we do on these farms before we put them on the platform.

Now we select it’s less than one in a hundred farms. We look at that, we decide, Hey, this is actually something that we’re excited to invest in. And, and, and it’s maybe way less than one in a hundred. I can’t tell you, you know, we have a, a very formalized, funnel or pipeline manner system we’ve built.

This has three stages in it and that’s that third stage or phase three of diligence, even when we a farm to that, which is like, all right, let’s get in and do again, get out there and see it and do some real, physical type of diligence, and, you know, calling them all the tenants, the local area and doing channel checks that that type of work.

we still kill the majority or extreme majority of those farms that we were excited. Yeah. About while, while I can’t speak to the broader landscape, what I can speak to is what I’m most proud of. It. Acre traders are people and, and the work that we all do, we all. Get in very early in the morning, we leave late at night that we live, eat farmland.

and, and that’s, yeah, that that’s really our big sticking point. And this is that if you see something on our website, you, you can be comfortable that we’ve done, you know, an overwhelming amount of work there and we’ve turned away. A huge amount of farms that on the surface probably look very similar.

but, but in reality, we’re, we’re not

Ben: [00:36:03] awesome. Actually. That sounds like a very important part. And you touch briefly on the due diligence process. What is the overall, I mean, where are you getting this deal flow from? Kind of walk me through from the. From the moment you identify this as a opportunity to the last moment that, you know, it’s been vetted, thrown on your platform.

What does this look like?

Carter: [00:36:30] So, you know, a lot, we’ll talk about sourcing first and we’ll sort of, you know, go a little more into diligence, but, for, for sourcing network matters. Right? So we, we certainly, each of us have a pretty extensive network in the world of farmland. And that helps. but beyond that, you know, we have.

we have a very formalized process of, of supply management, if you will. and, and so our and sourcing for that matter. So in sourcing, we’re working with hundreds and hundreds of, of brokers. we work with farmland funds with bankers, with advisors, with pharma managers, and then we do a lot of direct marketing.

So we actually go out and, and serve ads to farmers and farm land owners, to try to find off market supply. and we, we, you know, have a. people on the phone all day, every day, speaking with those leads and looking at those pieces of farm land pretty unique, or I would say singularly unique, in our approach to that.

And what that does is affords us the ability to turn on the flippers more aggressively to get rid of the things that are easier. No, to, so we, we really boil it down to three things. We’d look out on a farm. And I think I mentioned earlier, which is water. Soil and financial profile and they’re there in total, like a 96 point checklist.

It’s a, there’s a lot of sub bullet points to those three. but that’s, that’s really what we boil it down to. And many of those things can be automated. Right? So as an example, we’ve, we’ve got, data scrapers, you know, crawling the internet every day, looking for anything that may pop up. it’s well, over a hundred thousand farms we have in that, and then building, automated tools to.

Not even allow us to look at the ones that don’t fit our criteria and then the ones that do then moving them through this three phase diligence I was speaking to earlier.

Ben: [00:38:16] Awesome. Yeah. water, soil, and financial potential or what was the last one?

Carter: [00:38:21] Yeah, financial profile. So, so really that that’s, you know, valuation cap rate, area rent structures, comparable sales.

and, a long list of items that sort of feed into that catch all of, of, is this actually a good investment, you know, beyond is it, is it F you know, the first two are fundamentally, is this going land, which is really important because there’s give you an example. the panhandle of Texas has some amazing looking cotton farms with really great cap rates and they’re, they seem really cheap.

and. And, so they, they, from the financial profile side, they click off well, on the soil side, you got great soils. then you go in and do well tests, in a, in a specific area. And you, you begin to realize that how quickly, the underlying aquifer there is, is depleting. Oh, man, this is a great farm for the next 10 years or 20 years.

And this may be a desert. and, and that is obviously not, not again. I don’t mean to cast a blanket statement for the entire panhandle, but, but there’s a lot of, traps out there and value traps out there that can be really dangerous for investors. This is a

Ben: [00:39:30] real risk, right? I mean, water’s going to be a bigger and bigger struggle.

And even, you know, you said something about almond farms in California, California has a huge water issue, you know, so I’m sure the cap rates on some of these places look fantastic because they’re not going to have. Well they’ll have access, but the price of water to get out to that farm will go up exponentially, which impacts the financial profile of this farm.

Carter: [00:39:57] So

Ben: [00:39:59] yeah, it’s, it’s almost like a. Real estate investing. You know, you look at this broad brush and you say, Oh, this cap rate is great. I should, I should invest here. And then you realize, you know, there’s, there’s shootings in the neighborhood every day. And like evictions are served out left and right. You know, that, there’s a reason why there’s such a high cap rate when everywhere else is, you know, next to nothing.

Carter: [00:40:20] Well, well said, and, and. I’m going to go a little bit of a tangent, but it’s actually why we don’t use the word crowdfunding a lot to describe our business while we use a lot of the same rules and regulations. I am, I’m very afraid some of the deals that I’ve seen getting done in that space and exactly to your point, you know, saw, seen a few pop up in my hometown where I grew up and on paper, they look awesome.

I got some great, beautiful photos of the place and, you know, from. Excel investing on the, on Excel spreadsheet. It looks amazing. but you know, you’re like, man, that is in a really bad part of town or, Oh my gosh, they’re building a hundred million dollar development on the other side of the interstate.

with two hotels going in this hotel is not going to work. You know, that, that type of concern, that it’s just really tough to get a w without like on the ground understanding and local or hyper-local diligence.

Ben: [00:41:13] But as you said on Excel, I mean, it looks great on paper, right? So you touched on a good point about boots on the ground, knowing the region that you’re investing in, but it seems like you’re, you you’ve touched on a number of different regions within the U S at acre trader.

Do you focus on a specific region? You touched on the type of type of farm land. So it sounds like you’re niching down a little bit, but it sounds like it would be very difficult or very, very time intensive too,

Carter: [00:41:47] to

Ben: [00:41:49] search a nationwide. And you guys are not global, right. It’s strictly within the U S and then talk about the regions that you focus on.

Carter: [00:41:59] So that’s correct. We’re strictly us. We like our title laws here a lot. And so that’s, that’s where we are probably for, for the foreseeable future. we are focused primarily in the Mississippi river Delta in the Midwest and on the West coast. so that’s, that’s the three regions in, in general, with, with some exceptions here and there.

but it’s, it’s a really good point. And the answer is like you’re you’re right. It takes a, it takes a lot of work to get to know these individual places and we’ve we have, You know, we have tons and tons of our own data. Right. So if you think about. No, five of us making calls to farmers every day and speaking to local farm managers and people on the ground and people in a water office in a certain water district in California.

we actually, we, we professionalize those notes and, and have built this thing. We call it the farm knowledge database, that’s proprietary. so that every time we look at a particular region, not only do we have maps and, and every report, you know, so we go see a County and we’ll be all right, well, here’s the.

The five different macro and micro reports that maybe the local university put out, on, on land value trends are on the aquifer. but, but then beyond that, just all of this qualitative data we pick up and quantitative as well. over, over the years, we continuously, put that into a searchable database so that we’re able to zoom out on a hyperlocal basis and scale it out internally.

beyond that it then still requires a very real. Manual due diligence. and, and that’s. Frankly, like a dozen years of equity investing. Yeah. That’s the thing I always focused on was, Hey, we like the sector. We like the stock now pick up the phone and just cold call 50 people. Right. And, and talk to people and actually understand what’s what’s going on there.

would that particular sector or business, or in this case, geography and tenant. and so that. approach that line of thinking is very pervasive within our organization. And, and that’s something that we really pride ourselves on is picking up the phone. And I know it sounds kind of silly, but, but it’s, it’s absolutely shocking, you know, the, the amount of spreadsheet farming that goes on as opposed to, you know, actual like, Hey, you know, explained to me this new type of, silt, loam and soil that we haven’t seen this profile before.

getting down to the soil science in that particular case, or, or the salinity of his water seems to have some issues. Let’s talk about the, the history of that and call the U S G S talk to the geological survey about, about what’s happening in that aquifer.

Ben: [00:44:24] Well, it’s certainly not sexy, but especially for something like this, that there’s not a lot of information.

There’s not a lot of, you know, with stocks it’s very different than they’re publicly traded. There’s tons of people looking at everything that’s pretty transparent. But with farmland, I would imagine it’s also important to actually roll up your sleeves, do that dirty work. and it will show in the, the returns, hopefully with acre trader, I mean, walk me through.

How many, how many investments pop up on your platform? What the minimum is your for accredited investors only. Do you have any plans to roll this out to non-accredited and then perhaps, you know, what are your fees? How do you make money as a company, as acre trader?

Carter: [00:45:10] So you’re, you’re correct. Right now we are accredited investors.

Only. We may change that in the future. I think we would like to know that quite frankly, though. The idea was never, let’s democratize this asset only for accredited investors. Right. And so, but, but the, the rules and regulations yeah. And expenses, associated with that, make it difficult. And, and for us a core tenant is low fees.

we know, I mean, that’s a, that’s just the way the world is going a and B we know if we offer for low fee structures, then, you know, we will, Have more volume and that’s, that’s really the goal for us. You know, if we think out on a five year timeframe, it’s, it’s improved transparency, liquidity within this asset class.

so we charge the investors, the PR management company, 75 or a hundred basis points a year here. So 0.7, five or 1% of the asset value. So that’s certainly a lot lower than what you’d find in and like a private equity type of structure or restructure. and, and beyond that, we don’t, we do not charge a carried interest.

So, so really just a baseline asset management fee. And then we have a wholly owned real estate brokerage, that takes place. And that takes part in the real estate transaction, that, that fees usually gonna happen anyway. And so for us, it seems to be a great way to, to step in and have, have some attractive economics, while also keeping the fees low for the investors.

Ben: [00:46:27] That makes sense. Well, I mean, in a world of lower projected returns going forward, then the fees get fees and taxes get Oh, so important within that return, that total return. Right. So how many deals right now? Do you have coming up new investible deals on your

Carter: [00:46:45] platform? Yeah, we, we aim for a cadence of one a week, that, that tends to be a lumpier than we would hope.

just, you know, there’s, there’s always contracting, issues and, and lease issues, whatever it may be, you know, that, that last mile, getting papered sometimes hold things back. But as a general idea, that’s, that’s what we look for. That makes

Ben: [00:47:06] sense. And then I know neither of us are tax experts, but how has this.

Typically tax for an individual investing in via a platform like acre trader. Hmm.

Carter: [00:47:19] So you’re, you’re investing in an LLC. And so it’s toxic, same way as any other, LLC investment would be, which is, the, the it’s passive income every year. But you, you counted as ordinary income. again, I’m not a tax accountant, insert disclaimers here at the bottom.

but, but as a general statement, that I believe that that’s looked at as is ordinary income, and then the upon sale it’d be a capital gain.

Ben: [00:47:45] So each individual investment is structured as a separate LLC through the trainer. So that was a little bit more of my next question. You’re a young company you’ve been around for over a year.

Right. so there’s always a thought. Of of platform counterparty risk with something. Yeah, I like this. So if I make an investment in a farm through acre trader, just facilitating this deal, and I’m actually investing in an LLC that holds this farm, but the worry would be that at the end, a portion of the game comes from the capital gains at the end.

So if acre trader goes away, Who’s responsible for selling the farm at the end of this holding period, how would something like that work? And I’m not implying that your goal go out of business again, I’ve been very impressed with anchor trader and what you guys are doing. I’m just always trying to think through the worst case scenario and these things.

Carter: [00:48:41] I’m happy you asked the question. and, and yeah, we’re not planning on going. We got a business, we just raised a large round of funding and got it, got an incredible team and growth trajectory in front of us. So, that, that is definitely not in the cards for us, but in that scenario, we, we have, I personally spent way too much time with, with attorneys in the last few years.

And, so a lot of that was our, our standardized operating and, and. Operating agreement and investment agreement that surround each of these LLCs. and, and those are purposely built, with an investor favorable bend in them, around this idea of bankruptcy remoteness or, or, you know, call it what you want.

If Hagar trader gets hit by a bus, we have instructions for those LLCs to continue operating, and, and continue, to seek the same outcome they would otherwise, and be administered and managed, et cetera. Is it

Ben: [00:49:30] a, is it a SPAC special purpose acquisition?

Carter: [00:49:34] Yeah. Each of the LLCs are, we would probably call it SPV a special purpose vehicle.

so, so similar idea, but it’s really simple. It’s an LLC that holds the title to the land usually. and that’s about it. You come in and let’s say it’s a, you know, just for easy numbers, it’s a million dollar piece of land and you invest $20,000. You own 2% of that. LLC

Ben: [00:49:55] does Aker trader as a company, invest into the deals on your platform as well

Carter: [00:50:00] The, the company does not, we, you know, our, our balance sheet would really deploy towards, towards team and growth and technology, as individuals, some of us do some of the management team invests with our investors in the company, invest in deals on the site. So it’s absolutely

Ben: [00:50:17] nice. And it’s sounds like you just closed a funding round.

Are you able to disclose any details around that and congrats by the way?

Carter: [00:50:25] Thank you. Yeah, we closed it early March. So it was literally a Friday afternoon while we were packing up all of our things and boxes to move home and a mad dash on the office to get wires crossed and dock sign and all that kind of fun stuff.

so, so yeah. We got some, some really great ambassadors and great partners in our business. I, I, you know, I, a lot of VC funds, pride themselves on, Hey, we’re different. And we do this for our companies. I would say in our case, we were incredibly lucky to have true, operational stakeholders at our company.

and so, yeah, in total around, I mean, we, we raised it a five and a half million dollars, something like that. which, which for us is, you know, It goes a really, really long way. and so we’re, we’re, we’re just seeing, we’re really excited about, about the coming years in front of us. Awesome.

Ben: [00:51:12] As you should be, and you got the round closed right before kind of Corona got a little crazy here.

So impeccable timing,

Carter: [00:51:22] wait. Yeah. look, I’d, I’d rather be lucky than smart every time,

Ben: [00:51:25] I suppose. Absolutely. And so my dad says playing golf mostly better, better be lucky than good. Which also works. What excites you most about acre trader going for it? Well,

Carter: [00:51:37] a lot in it, I don’t mean to be, coy or cattle ear in my answer.

I think. What excites you the most today is the people, you know, it’s just, we have this office full of incredibly hardworking, bright people that are building really cool things, and, and doing really cool things every day. And so that’s, if I boil it all down, that’s what I’m most. Jazzed about every morning when I wake up, it’s like, I can’t wait to see the guys and girls who work with.

I know it sounds ridiculous, but I actually really liked these people a lot. and you know, if I think about impact as a, as a company, what I’m most excited about is, is growing awareness of this asset class and, helping to grow Americans awareness of where their food comes from. And having them play a part in that ecosystem.

and, and, you know, ultimately that the helping farmers, you know, is what it really boils down to is if we can help improve liquidity, improve transparency, and improve investment in the asset, then we’ll be bringing real money to local communities and, and have a real impact in the world of farming, which is, often, you know, not very often discussed, but, but quite literally, one of the most important things that happens in the world.

Awesome.

Ben: [00:52:51] Yeah. And, and what major improvements, within acre trader do you most look forward to, in the platform, the offerings, et cetera.

Carter: [00:53:01] That’s, that’s a good question. Like I’m kind of a tech geek, so I really enjoy some of the technology that our team has been building. and, and so. You know, on a, on a micro level, you know, of things, if you will, that that’s probably it.

And then, you know, the, 10,000 plus registered users, we have, I mean, I, I, try to try to speak to people every day that are investors on the platform and, and, or considering being an investor on the platform. And that’s really exciting for me. I still still love those calls and love the criticism.

We hear the tough questions we get, cause that’s certainly makes us better. So we welcome that.

Ben: [00:53:39] I have about 10,000 users in the platform. What is the typical mix of bigger players versus individuals investing in your deals and, and who is the ideal investor that you want to reach with acre trader

Carter: [00:53:53] in terms of mix on a people basis, it’s much more individual investors, way, way heavier, in terms of.

Dollars. it tends to get closer, between sort of professional capital and non what is our ideal investor is an educated one. Right. ideally, and when we really have these people have come on the website and read every article we have and, you know, talk to us on the phone multiple times and done their own research.

And, you know, it’s actually pretty awesome to me. We’ve, we’ve got a friend Grayson Colvin who wrote a book on farmland investing and, you know, we tell people about it all the time and when I get that call and the person’s like, alright, so I read this book. It’s like, Oh, my God, you actually, you actually sat down.

I read an entire book about dirt, like investing in this boring asset. that that’s awesome. Right. And, and for us, that, that is the ideal investor is someone who knows exactly what they’re getting into. They understand the risks, the rewards, and, how to ask the hard questions of

Ben: [00:54:48] us. Well doing things like this, I mean, this helps, right.

You’re getting out a lot more yeah. Or information about it. And I will applaud you guys. You have a lot of good resources on your website. that really helps think through why farmland and why now, which are the important things in the risks, obviously. Well, great. How can my listeners find out more follow you, follow acre, trader, learn more about what it is you’re doing

Carter: [00:55:15] sure we’re, we’re out there.

So, you know, Google acre trader we’ve got LinkedIn and Twitter and Facebook pages and, you know, a great following on each of those platforms. But, what we really like is people to come on acre trader.com and, come, come read through it and send us a chat or an email info at acre trader. give us a call.

we, we, we, we really enjoyed the conversation I think is what it comes down to. That’s all we do is talk about farmland. Awesome.

Ben: [00:55:40] Anything else you want to leave? My listeners know,

Carter: [00:55:42] no, man. I, I, you know, really appreciate the questions today. It’s been an awesome conversation. I’ve enjoyed it quite a bit, and I think we’ve hit the high points of why we as a company are excited about farmland investing and, and, hope your listeners share that sentiment.

Ben: [00:55:57] Awesome. Well, really appreciate it, Carter. Thanks for coming on today.

Carter: [00:56:01] Thank you.

Ben: [00:56:03] There you have it. Thank you for listening. I really appreciate your support. Show notes, transcript links, and more can be found on our website at altassetallocation.com. If you’d be so kind, please share this with anyone you think might be interested or get some value from this conversation.

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