A Guide to Sustainable Farmland Investing – Healing People and the Planet
We at Iroquois Valley Farms are pleased to announce a new corporate entity as we begin our 11th season of operations. In 2007 when we started the company, our idea was simple – growing healthy foods on organic soils would be good business. We are now setting the table for the next decade. Incorporating everything we have learned, we recently reorganized into a new public benefit corporation, Iroquois Valley Farmland REIT, PBC to further scale our commitment to connect investors and family farmers in the field of sustainable agriculture. Currently, we are raising funds for new farm leases and mortgages that are national in geographic focus. We already have investments in 13 states (including contracted investments) and a pipeline to significantly expand the company.
There are two private offerings currently available to accredited investors: our REIT equity shares and our short-term fixed income option “Soil Restoration Notes”. We expect a non-accredited offering prior to yearend. This is still a new asset class for most investment portfolios. It is important therefore to get started on the right foot. We realized early on that we needed to educate our investors and advisors on the basic economics of our business. As such in 2011 when we started to scale the company, we created a “Guide to Sustainable Farmland Investing”. This guide still has broad relevance even in today’s impact investing markets. Here’s an updated version of that guide:
1. A Real Asset. Farmland is a non-depreciable real asset with an income upside. Most investors are likely under-allocated to this combination food/farming/health sector or not invested at all. We focus on the highest and best use, organic and specialty food production.
2. Don’t Buy Blind. We offer an existing portfolio of farmland with experienced farm families – not a promise to purchase into a blind pool. Our farmland investments (over 40 in total) are already under lease or mortgage agreements on economic terms and accruing revenue. Benefit from our successful ten-year history of operations.
3. Natural Appreciation. Where can one invest in an asset that naturally increases in productivity and value over time? Organic farmers say that it takes 10 years or more to return the soil to its natural fertile state. Properly managed organic farms become more productive every year. Our original investors (ten year history) have seen double-digit annual growth in share price.
4. Growth and Income. In addition to the natural appreciation of the real asset, investors also receive upside income exposure to the tenant’s farming business. Our most common lease structure limits the downside rental rate while allocating a portion of farm revenue in good years to the company. Our mortgage business provides important income and enhances credit quality. Our farmland investment portfolio (about 70% owned and leased acres is coupled with 30% mortgage assets) could be characterized as both growth and income.
5. Stock for the Next Generation. We are a next generation investment with over 70 percent of our leased land under contract to Millennials. We are also providing mortgage financing to young farmers. We started our Young Farmer Land Access Program in 2012 to focus on the next generation of farmers. To date, we have funded $18 million under this program.
6. Carbon Benefits for the Climate. Our focus on living, organic soils, and diverse crop rotations using hayfields, cover crops, woodlands and pastures, help to sequester more carbon back in the soil where it came from. While not paid directly for this yet, carbon farming is an increasingly important public benefit provided gratis by our farmers.
7. Diversify Your Egg Basket. Everyone knows this agricultural adage. On a regular basis we are buying farms in multiple counties and states, with diverse business plans, different farm families, varied markets and distinct soil types. We average into the highs and lows by ongoing purchases and mortgage appraisals. How risky is your investment basket?
8. Farmland is Illiquid? Sustainable farming is a long-term investment by the farmer and investor. However, by building a private company (now a REIT) with broadly held equity ownership, we are building liquidity year by year through an expanded investor base. With over 300 equity holders and note issuances, we are currently planning for a non-accredited offering later this year that will impact thousands of new clients. Shareholders accrue redemption rights after a seven-year vesting. We envision a public offering in a few years.
9. Generational Stability. Our most common tenant legacy is four generations — that is almost 100 years of family homesteading in one county. They usually have parents and grandparents still farming. We are sustaining family farmers with generations of experience and securing the healthy soils that will feed our children.
10. Grass Roots Capital. The Jobs Act of 2012 increased the mandatory conversion to a public company from 500 investors to 2,000. We are a young company with a growing investor base, now in 35 states and DC. We are geared to have thousands of investors and engage the public to enter an asset class historically closed to them. We consider it a socially just endeavor.
11. 10-Year History of Balancing Risks and Rewards. Our farm tenants minimize operating losses with crop diversity, crop insurance and long-term lease tenures. The company offsets land price volatility with functional and geographic diversity, ongoing acquisitions and growing productivity. Leverage is managed to maintain a positive cash flow. Our 10-year track record is available for public view (see our Key Financial and Operating Statistics Report).
12. Support Healthy Food Production.
Was Rachel Carson wrong? Are pesticides OK for your children and grandchildren? The health costs of a broken food system are just starting to be tallied.
“What we do to the land,
we do to ourselves.”
– Wendell Berry
13. Changing Farmer Demographics. According to the National Young Farmers Coalition, 80 percent of farmer-owned land and 90 percent of farmer-leased land is held by farmers who are 55 years or older. We are impacting a new generation of young farmers that are growing more local and organic foods. This trend has strong legs.
14. The Advantage of the Middle. We built this company by focusing on the mid-size family farmer. We can expand to smaller or larger farms if we wish, but the mid-size farmer is our bread and butter client. The mid-size farmer has scale to support a family, but is small enough to do so with sustainable farming operations.
15. Use an IRA. About 25 percent of our investment capital is self-directed IRA or qualified retirement funds. The company was started with IRA rollover funds and this continues to be a good long-term investor fit.
16. No Sales or Management Fees. We operate as a company, not a fund. There is no 3rd party management company charging special fees. Our corporate staff is compensated by salary, bonus and/or incentive stock options. There are no front-end fees, back end carried interests or profit shares to partners. We have not paid brokers or bankers to sell our equity or notes. Financial advisors can assess client fees knowing that there is no double tier fee structure.
17. Buy and Hold. Here’s an asset that one can hold indefinitely. Lower your portfolio management stress! Farmland isn’t going anywhere and our farmers, mostly young, want it for the rest of their life. Replacing the vast monoculture provides an almost endless upside for new business.
18. Path Less Traveled. Less than one-percent of farmland in the U.S. is certified organic. Many farmers would increase acres under organic management if those farmers had secure long-term land access options. Iroquois Valley Farms provides both leases and mortgages to organic farmers. It is not too late to invest in the changeover to a more healthy agriculture.
19. Public Benefit Corp. Iroquois Valley Farmland REIT, the parent company, is a PBC. The stated benefit is enabling healthy food production, soil restoration and water quality improvement through the establishment of secure and sustainable farmland access tenures. In other words, we impact the public health.
20. Low Minimum. We make it easy to get started and limit initial exposures. Our average farm purchase exceeds $700,000. But our minimum equity investment is 50 shares (currently valued at $30,750). Our minimum fixed income investment is $25,000.
Article by David E. Miller, Co-Founder and CEO, Iroquois Valley Farms
Rooted by heritage in Iroquois County, Illinois, Mr. Miller returned to his native farming community in 2005 after a 30-year career in banking and real estate financial management. Purchasing a small 10-acre family farmstead, he re-connected with local relatives farming organically. In 2007, he started Iroquois Valley Farms LLC by connecting a small group of family and friends to a 142-acre farm.
Prior to seeding sustainable farmland ventures, Mr. Miller held executive positions at Bank of America, Santa Fe Southern Pacific and First Chicago Corporation. His extensive experience in structuring alternative real estate investments led to the formation of Iroquois Valley Farms, the first private company in the United States to integrate farmland and organic food production, utilizing mostly mid-size family farmers.
An MBA graduate of Columbia University’s School of Business and 1975 graduate of Loyola University of Chicago, Mr. Miller views education as the primary key to changing the nature and health of our current food production system. In this regard, Mr. Miller is a member of the Advisory Board of the Institute for Environmental Studies at Loyola and was recently honored by the University (Damen Award) for distinguished services in the field of environmental sustainability. He resides nearby in Winnetka, Illinois along with his wife and three children.