Peter Badger  0:00  

So my richer friends in Silicon Valley said listen, have you looked at farmland and I was like Why? And that’s what we’ll think about it. Single Family you get multifamily you now get there’s efficiency you got one roof for 2050 or 100. Apartments. mobile home parks even better, because you’ve got a concrete patents utilities, there is no air conditioning write down. That said, My farming standpoint, you plant a coconut tree, wait five years for to produce coconuts, and it prints coconuts for 60 to 80 years straight. There’s no tenant moving out, you know, you have other risks, which we’ll talk about in a little while. The farming side of you know the risks but but generally, as an asset class is designed where it’s you have to wait up front for the permanent crops, which I recommend to grow. But once they start producing the produce, you’ve got 20 4060 years depending on the crop, and you not only have income during your lifetime, but it is passed down to your future generation.

Unknown Speaker  1:02  

Welcome you CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts.

J Darrin Gross  1:21  

Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. 

Today, my guest is Peter Badger. Peter is an entrepreneur investor, who has been successfully investing in ag development projects since 2016. And he recently joined Farmfolio’s executive team as the chief strategy officer. And just a minute we’re going to speak with Peter about the value of owning farmland. 

But first a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can help us or you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment, we’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that, I want to welcome my guest, Peter, welcome to CRE PN Radio.

Peter Badger  2:47  

Thanks, Darrin happy to be here.

J Darrin Gross  2:50  

Well, I’m looking forward to our conversation today. Before we get started, if you could take just a minute and share with the listeners a little bit about your background.

Peter Badger  2:59  

Yeah, briefly, I mean, we’re all a part of our journey in life. So I was a tech guy on wall street for 18 years, worked for the major investment banks, you know, Morgan Stanley, Merrill Lynch, Credit Suisse, Barclays, and then dovetail that into a career in Silicon Valley. Did my own tech company and the enterprise software space went through an eight year crazy startup journey you know, series A Series B and finally got acquired by Citrix systems. So I think that’s really my corporate career and basically spent that time since 2014. Investing full time mostly in multifamily real estate, hospitality and now heavily into farming.

J Darrin Gross  3:42  

Got it? Got it. Well, I’m definitely curious about the farmland you know, it’s an asset class that I’ve covered vacant land and I’ve covered like parcels that people you know, buy that are, you know, kind of stray that nobody claims or wants or whatever, and they end up selling them that kind of thing, but not specifically farmland. And kind of my curiosity, my background, I grew up in Kansas both my grandparents were farmers. And one of my favorite things to do as a child was to do laps in the field with my grandpa on the fender of his Massey Ferguson you know, on the field there kind of thing.  And I’ve since you know, my parents of our my grandparents passed away and my parents inherited you know, parts of that and so I’ve seen kind of the the farmland from as a landlord side, but I’m kind of curious to hear a little bit more on on, you know, how the inner workings are and what, what drew you to farmland?

Peter Badger  4:48  

Yeah, so I think it’s worth talking about asset classes in general, because I’m kind of a business model jockey as an internal account. What’s the best business model for low friction, high scale and therefore high income, and I jumped into real estate, you know, we’ve all owned a single family rental in our past, you know, that’s where people generally start. I sold the company in 2014. I was okay, I don’t want to put it in the stock market, because I lost my shirt in both 2000 and one.com bust and 2008 financial crisis. So as I kind of went to all my CXO peers and Silicon Valley on this, and what do you do with your money once you earned a decent amount? And they said, honestly, most people make their money from private and public company stock. And then they put it into hard assets like real estate. And that’s the general picture I got. So of course, I went on this crazy real estate journey. I bought 24 single family homes over 18 months. To the friction of the business model, I realized that, you know, they’re across Pennsylvania, Texas, Florida, six property managers, all turnkey rentals, managing you know, I was in California, they’re at a stage. And it was all perfect for 18 months. And then month 19 tenants started leaving, trashing the apartments on the way out someone’s stolen a conditioning unit. And basically, I realized in the single family home model is trying to manage, you know, with third party property managers at a state. There is a lack of efficiency and scale in that model. So I had 24 roofs 24 air conditioning units. Now in generally a tenant moves out and you lose your income for six weeks, while you’re trying to rehab it, get it back to rentability and then get a tenant in. So I then shifted to multifamily. Obviously a single roof 20 3040 apartments, went through and done a couple of buildings. Again, property manager, the party stole their money once we’re in a lawsuit with the second one. Hit by Irma, you know what a 12 unit in Tampa, Florida. Insurance companies no offense are a bit tricky. So of course when Irma hit, the storm came in. The storm receded. The water came back in the next day and they claimed it wasn’t the storm that caused the damage. lawsuit with the insurance company still never got resolved. We ended up at like 30 cents on the dollar the request for the rehabs to happen. classic story, but I kept going through these asset classes bought a mobile home park in Illinois, got a Mexico condo on the beach, try and do a bit of Airbnb, hospitality, hotel and Puerto Rico kept going through all this stuff. And as I’m on this journey, some my richer friends in Silicon Valley said listen, have you looked at farmland? And I was like Why? And they said well think about it. Single Family you get multifamily you now get as efficiency you got one roof for 2050 or 100. Apartments. mobile home parks even better, because you’ve got a concrete pumps utilities, there is no air conditioning write down. That said my farming standpoint, you plant a coconut tree, wait five years for to produce coconuts, and it prints coconuts for 60 to 80 years straight. There’s no tenant moving out, you know, you have other risks, which we’ll talk about in a little while, the farming side of you know the risks but but generally, as an asset class is designed where it’s you have to wait up front for the permanent crops, which I recommend to grow. But once they start producing the produce, you’ve got 20 4060 years to pay on the crop. And you’re not only have income during your lifetime, but it has passed down to your future generation. And so I actually child to a very senior Wealth Management person in San Francisco about three or four years ago and he actually told me that the high net worth individuals, especially in Silicon Valley, own between 14 and 20% of their portfolio, or their assets is actually in agricultural land or farmland generally. And I think we’ve seen that bear out in the statistics, you know, Darren, I mean, there’s been all these articles about gays you know, biggest farm landowner in America type stuff so you know, in reality it is true farmland is a bellwether asset class and honestly, it’s not correlated also so you kind of think about the intergenerational legacy wealth building angle but it also is not correlated to housing markets to the stock market to anything else people got to eat food if you get the right crop and the right location being sold to the right wholesale retail customer that doesn’t stop when the economy tanks.

J Darrin Gross  9:44  

No, I get it from in especially examples you’re you’re siteing in like coconuts are made me think of, you know, being up here in the Northwest. I mean, a lot of a lot of people on Timberland, similar kind of thing you mean that the wait times kind of a long time But the payoffs you know, you can harvest timber, you know, set, you know, on a cycle and continue to replant that and like said for generations have kind of a cash machine there. I’m curious, are you are you investing in farmland? In the domestic there? You know, in the US? Are you looking outside the US? Some of the, again, my mindset just again, where I’m oriented for my youth is more of like row crops and in, you know, kind of low level kind of land with with dirt and tillage and all that kind of thing. Is that, or is that part of your thing? Or is it more of just a global farmland view?

Peter Badger  10:49  

So we are global. But more importantly, you got to start somewhere, there’s this whole classic thing. I know people, for instance, in the single family home space, you either decide to have properties in different markets to diversify, or you have all your properties in one market or very, you know, sub sector of the market that you know, and you watch it very closely, there’s these two theories, we actually have ended up concentrating most of their farm on development in Latin America. And the reason for this is a multitude of reasons. Number one is the cost. If you look at us farmland today, not only is the land double or triple Latin America, but the labor is six to 10x, more expensive. And so I think one of the keys to farming investing for me personally, is that we have our assets in the US, you know, real estate, mostly multifamily apartment buildings. That’s a cash flow and appreciation. But for diversification, we do farmland overseas, not only because it’s a better product, which we’ll cover in a second, but more importantly, gives you a diversification outside of the US, which you just can’t get the returns in US farm and will be my argument Today, I’d like someone to show me a farm that is making, you know, double digit returns from a US perspective.

J Darrin Gross  12:13  

Yeah, no, exactly. That’s been kind of my, my understanding and kind of viewpoint as I kind of watch, you know, my mom, on the return she gets, I mean, you know, the, the typical or least that the example I’ve seen, is there some sort of relationship between the landlord and the tenant, the tenant being the operator, the farmer, and that that cost structure, there’s, there’s got to be enough in it for the, you know, the operator to make a profit, and then to pay the, to pay the landlord. And I’ve seen different models, whether it’d be just a straight cash rent, or like some sort of percentage of the, of the crops, but, you know, you mentioned the expenses, I mean, you know, just the, the cost of implements the cost of, you know, seed and fertilizer and, and all of these things, it’s a very, you know, low margin kind of a profit kind of thing at the end of the day. But in the other side of that, I’m kind of curious, your thoughts and again, this is kind of more American model. You know, you’ve got a lot of the government programs and stuff and enter into this and, and, you know, insurance net, when you’re looking outside of the US, and like said, Latin America, what are you? What are the the incomes? And what are the expenses? I mean, you mentioned labor, certainly is a lower, lower costs are and obviously the acquisition point, being lower, but can you kind of,

Peter Badger  13:49  

Yeah, let’s give an example. I mean, labor is an easy one to knock off in a single sentence, you know, a, you know, farm worker in Colombia. It’s about a buck 14 an hour. In California, it’s $14 minimum wage flat rate. You know, so it’s, it’s, it’s multiples, you know, when you’ve got a 10x plus on labor or low and that’s why you understand why it’s difficult to make profit in the US farmland. Yeah, I’ll never say never, we still look condemning for farms, and opportunities globally, actually. But But I think the sweet spot we’ve worked out Darren is from an arbitrage standpoint, is to find the best produce and crops in lower cost locations, then export them from that location back to North American Europe, for the highest premium price in the supermarkets. And that’s the key to this thing. Then there’s enough margin in there for the farming side, for the packhouse for the shipping, and then the sales and distribution in the final mile market. And that’s the key to this thing there. There are many costs throughout the entire end to end supply chain. The fact that we’re doing it in an incredible climate, great produce, you know, agriculture is amazing and Latin America, they’ve just had very few avenues to export certain crops back to the major markets in North America and Europe. And that’s what we played as farm folio.

J Darrin Gross  15:25  

So I get the the kind of the cost model I’m kind of curious more about the the so you’re owning the crop, you’re not just owning the land? Because right I mean, you you Oh, yeah,

Peter Badger  15:39  

That’s right. So maybe, let’s let’s step back a second on a given my farmland journey, because I’ve been doing this for seven years. So it’s a small amount of time, but it’s full time. I’ve seen everything globally from, you know, walnut farms in Eastern Europe and, you know, near Tbilisi, Georgia, through to the US. vineyard, I’ve seen everything. And basically, here’s how you’ll normally see this farm and offerings. You’ll meet somebody who’s a glossy marketing brochure, and they’re gonna say, Hey, listen, we found some cheap land, name that country, you know, overseas, we’re going to basically clear it, we’re going to plant irrigation pipes, create a nursery, find some seeds, plant a crop, wait 3456 years, depending on the crop. And then we’re going to sell that, after we put into a pack house wash, sorted, packed and sent, and we sell to, you know, retailers in the supermarket. That’s the story, they’ll tell you. I’ve invested in three of those starting in 2014. I lost money in every one of them. And the reason was, is because of several number one, they’re either great farming people, they have no idea how to do the commercial distribution plus sales, because it’s a very hard business to be in all the great commercial sales and distribution people have contacts where they can sell the produce, but they can’t farm. And so you got to find basically, the multidisciplinary team that know the full end to end because if you don’t, and they just farm and then sell to the middleman, middle people nowadays, then you’re going to lose all the profits as people down the chain, take that cut. And so what we did at farm photos, we actually reverse engineered the whole farm land ownership construct. And so what we did is we built a packed house. And we then started to receive all the fruit in this case from local Colombian farmers in Colombia, the country and we said Listen, if you deliver your lines in this case, TT limes to our pack house door, will give you double the price you normally get setting a local Colombian market. And what we did in our pack houses, we wash them, we pack them with permanent shipping container, sent them overseas, they actually mostly come to the Rotterdam for Europe distribution via truck and to Philadelphia for the East Coast. And we then will sell them to Walmart, Costco, trader, Joe’s Albertsons, the major retailers, and some wholesale channels as well. And so we did that as the business model and started actually getting all these fixed price fruit contracts and major retailers. Now what we’ve done is we’ve gone back and bought those farms that produce the best crop because think about it right now in the model most of our lives come from the Colombian farmers we sell their produce in North America and Europe and we give them the cash flow now we’re going back and buying those funds or breaking them up into what we call locks or land ownership titles Sunday people like you or me down and then we’re just moving the cash flow from the Colombian farmer to us as an as a lot owner and that is the perfect way to avoid all of that farm development risk.

J Darrin Gross  18:59  

So let me ask it again the I love the fact that you’ve gone in and you know inserted yourself into more of the chain there because like you said there’s there’s all sorts of middle people that can you know affect the the profitability of a product based on the markup so they get the gernot getting if you’re the producer when when you did that, and then you go back and you you buy the the the farmer net? Are you are you then hiring people that that we’re working on, I mean, because now it sounds like you’re you’re responsible from the from the ground, to the product to the to get it to the to the packing house to the distribution. And in speaking of distribution, I’d love to hear a little bit about Have you had any issues with any of the supply chain, you know, Port issues that we’re seeing on the news all the time with with COVID in E in that just any Is there any issues with with your your product being perishable. You know, I’d love to hear all that. But they,

Peter Badger  20:07  

Let’s pick it apart of it. All right, yeah, start with Yes, we become the administrator of the farm because one of the other things I’ve seen happening a lot is farm and offerings is they’ll often break up the land sell you a hectare of like, I don’t know, mango avocado trees. And they’ll tell you, hey, listen, we’re gonna like grow your fruit or manage it for you. We’ll pick the fruit, we’ll put it in crates, we’ll tag it, and you’ll get the money for that harvest. It’s an asinine concept in reality, because farms need to be operated at scale. And so you need to be profitable. Yeah, yeah, yeah, they take a fall from a Colombian farmer. In this case, you need to keep managing it at scale. And so what we actually did was we, we created something called the farm Owners Association fly, which is like a homeowner’s association, in us real estate. And so actually, as an owner of that, titled farmland, so obviously, it’s key that you own the title, because you control how long you get the income from that land. But then you’re part of the FOIA. And so we as farm folio, administer the FOIA on behalf of all the landowners, just like a Hoa board would manage, you know, an association. So we take care of the common areas, you know, in this case, it wouldn’t be a clubhouse or a pool an HOA, it’d be the erosion, the farm and the areas where you stack the crates, the Hacienda where the farming management team live, we also will employ a third party farm manager, just like a property manager to same role, we find the best farm management teams in that region to manage those farms on your behalf. We also negotiate the valley Verde, in this case, packhouse contract to make sure you’re getting the premium price for the projects coming from the farm. And so as an administrator, you know, you can fire us, you know, it’s, we know this business, you know, cold. And so our goal is, you know, you have a three year lock in after three years, and we’ve not performed, feel free to basically as an FHA group, voters out, find someone to manage the fund, or it can go your own way. But obviously, our goal is that if we can keep performing at the high level we do perform today and keep setting your fruit is that you’ll keep us around for, you know, decades to essentially deliver your income for that farm. So that’s the kind of the model that’s worked best for us, because we therefore control the whole supply chain from end to end. Because this is the key to this thing to avoid the middlemen taking nickel and dime every way down the chain. And so I call it like the apple of farming. Because Apple control the hardware, the software, you know, all the way through to the retail stores and the online store, where they’re saying we actually administer the farms, we hire the bar manager, we’ve actually run the pack houses. And we have a very strong sales and distribution team in the US and Europe who are responsible for actually getting those fixed price through contracts from the big major retailers.

J Darrin Gross  23:18  

Can I got two questions that come to mind that that are her kind of, you know, I’m the president with with farmers are not omnipresent, but but certainly would be in your situation. So one of the big issues with farming, historically is just whether you’ve got, you know, whether it be in your case, whether the, you know, temperatures, I can’t imagine there being a freeze. But you know, in Portland, Oregon last year, we had 115 degree temperatures, I wouldn’t have thought that to be the case, either. So whether and the other thing is now that you’re not operating domestically, you’re you’re, you know, outside of the US borders, governmental issues. I know like in some countries, land ownership, laws, etc. are different. In and I’d love to hear your little bit of how, what issues there are and how you address those, both the weather and the government.

Peter Badger  24:20  

Yeah, I’m going to show you some data, because I get really critical, alright. My preamble is that I’m a tech guy. I’m a data and process guy. I will never now I used to, I will never enter into any kind of ownership or investment opportunity without doing detailed due diligence around data. I’ve got my own process for different asset classes. And I see people make a mistake. I mean, you’re on a commercial real estate space right now. number of people I’ve actually met and I was like this earlier, you know, you trust somebody and a marketing brochure on doing the detail. Do diligence yourself. That’s where people lose money over and over again. So in the case of commercial real estate, multifamily apartment buildings value add, I go through, and I work out at the macro, you know, MSA Metropolitan Statistical Area, there’s 400 in the US, for instance, and you look at job growth, you look at population growth, you’re looking at, hopefully lowering crime rates. You’re looking look at home and condo values going up, you can look at all this data on the macro market. And then once you then understand the macro market, great, is it growing? Are crime rates declining? Yes, it’s a good place to invest on a macro level, then you go down to the neighborhood or zip code and even block by block can do exactly the same process. You know, is this area growing from a population standpoint, Are there going to be people who are going to rent your buildings are the crime rates coming down was the 20 year data showing crime rates in that zip code, and in that particular neighborhood, because real estate is hyperlocal, block by block, so I can go on for hours about real estate data. I carried that across the farmland, because I lost money in those first three deals. And that’s because I didn’t know what I was doing. And so let’s kind of talk about the climate data. Let’s kind of, I’m going to share my screen, see if this works on the YouTube actually. And let me just show you this. So hopefully, you should see that. So data is available everywhere. It’s an embarrassment. If you don’t believe you can’t find data on everything at this stage of life. Yes, there’ll be some stuff, you can’t get an overseas client, our countries because it will be in a different language, but then hire someone on up work through the research for you who speak Spanish or you know, whatever language you need to find it. And so kind of let’s talk about whether in this case, when you look at a world map for precipitation, you can see here, the blue is the higher and it’s all about longitude, latitude, isn’t it? So here’s Latin America. And it just so happens that the best place in the world to farm in this hemisphere is the country of Colombia. This blue one here, because it has the highest rainfall. So okay, let’s talk about it. It’s like it’s a combination, you need sunshine. And you need rainfall. Well, why are we in Columbia? Why is farm folio got a massive beachhead? Why are we producing and by the way, Walmart did a grading of all their farm produce in the lime space in the past 12 months. And we were number one, we had the best quality, best brick, I mean, they do certain measurements, the best green, no sparkling I mean, we have some of the best produce in the world. And it’s because of these factors is the soil altitude, sunshine plus rainfall. And so I’ll give an example. Most of our farms and refined out is in near on mania. And is some data. So just like, you know, time and date.com. Well, how much sunshine is that? And how much precipitation is that? Look at this. We have constant sunshine all the way around. And we have rain all year round. There is not a dry season in this region. These farms also it’s very mountainous. And this farm we’re offering right now la frontera is 1100 meters in altitude. And so what you actually have is the best of all worlds, it’s sunny in the mornings, and mid to late afternoon, the clouds sweep over and dump rain on the crop. And this is why we have the best produce in the world. And this is why Walmart grading is number one across all their crop line deliveries.

J Darrin Gross  29:04  

The temperature ban there’s pretty pretty tight from a low coldest month 73 degrees average hottest month 74 degree average. I mean that’s a It’s incredible.

Peter Badger  29:14  

The data doesn’t lie. Yeah, right. Let’s take an example. All right, what is the biggest farming region in the US Where’s 40% of the produce the wheat needs in this country coming from?

J Darrin Gross  29:29  

I would assume California or Florida

Peter Badger  29:31  

Yeah, California San Joaquin Valley. Okay, let’s go across and check it out. Is the song licking Valley Yeah, I won’t go into detail but you can go down this whole tract of land here. It’s huge. And just pick any location on this map and bring up the weather. So I would like you to know that this is Fresno, middle of the valley and look at the rainfall in this case They have annual precipitation of four inches of rain per year. pretty dry. In our farms and our mania we have 118 inches. Now, tell me why you wouldn’t invest in agriculture in California right now. That’s why water rights matter. I have people come to me all the time, like yeah, farm photo and say, Hey, we’re allowed to buy some, you know, some of your farm? What’s the water rights situation? And I laugh because we’d have to worry about it. We actually don’t have to irrigate these because we have water all 12 months of the year, whereas actually water rights are incredibly bureaucratic, regulated, and messed up in places like California and across the states, but reasons you understand.

J Darrin Gross  30:48  

Yeah, no. And that basically created an artificial market. I mean, he, you know, he wasn’t farmable before had the, or I mean, very little production compared to having all the dams in that. Yeah, and provide the irrigation so.

Peter Badger  31:04  

So anyway, have a process have data, make sure you do due diligence, you know, so, like I did if you’re gonna buy a walnut farm in Tbilisi, Georgia, find someone locally who speaks the language, which I also don’t and have them pull the data out for those regions understand this basic stuff, your climate data around soil, weather, altitude, and water is the same as rents, population growth, job growth, crime rates, declining, etc. We have a parallel in every asset class, whether in self storage, mobile, home parks, this data is all available. Don’t be a fool. And trust a glossy marketing brochure.

J Darrin Gross  31:49  

That’s pretty succinct right there. And like you said, data, those are the facts. You can’t can’t run from that.

Peter Badger  31:57  

Right? And then you start down just to point out another thing. So also a lot of the what people do is they hoodwink you with some fancy glossy brochure. Yeah, you should know where your property is overseas, you should be able to identify it. And either you should go and visit it or you should have a very trusted third party to do on your behalf if you can’t make it down there. And just say, you know, in our farms so I’m based our headquarters farm folios in Jupiter, Florida. Let’s take you to one of our farms on Google Maps. la frontera in this case, gonna spin you over there, down to South America. And here’s a farm This is called lat fronteira there’s 103 lots and you know, you can see your land and you can see the configuration of your land

J Darrin Gross  32:47  

those are you guys bought the whole farming and personal that creates rosters?

Peter Badger  32:52  

Yes, what we do is we again, we have packhouse data, this is the beautiful thing. We have the most advanced packhouse in Latin America 4080 lambs and things ample. The lambs come through the machine, and I’ll actually send you the link so you can put the video on it. It’s incredible. This thing a Mexican machine, cru built this thing. So they come through, they get washed twice, you know, waxed, come through, and then as a little video camera, and the machine both ways plus takes photos, four or five photos per second of each line, and it comes out the end and it spits it out based upon diameter, color quality. And basically all the highest quality lines are spat out into one side of the machine for export. And the ones which don’t quite make it in terms of quality of spat out inside the machine to be some lovely Colombian market low price. And so as you start to see tons and tons and tons of fruit Trevor has taken for a podcast machine. We’ve started to see the data on which were the best farms. And therefore we went back to those farms met the owners started to negotiate and bulldoze farms in his case, this is called la frontera. They are a multi generational Colombian farming family. This is their business. They’ve got like a dozen farms, we’ve only purchased one of them. And basically, you know, they have 80% of their fruit is high quality enough to be export across the Walmart, Trader Joe’s etc. And so I can’t remember the question you asked, but it’s all about the data. Yes, we bought this farms at the highest export quality fruit, Walmart of buying the fruit today. You can find it in Walmart down the eastern seaboard. Virginia, North Carolina on down and yeah, this farm is broken up into 103 parcels or lots, and you can buy a lot for $32,000. And on a 10 year range you can make between 12 and 20% based upon the project being sold now.

J Darrin Gross  34:55  

You said what was it 12 and 22%? 

Peter Badger  34:58  

Yeah, because our farms are We’re very different. We have different ages of trees, different locations, but generally depends on the tree age as to when the income comes. So in this case, we have 22,542, Didi lime trees, some are planted or four years old at the top of the farm. The fruit is right now harvesting going to Walmart, and through our packhouse, we’re going to Rotterdam, some of the lower portions of just newly planted. So I like to call this a is like a multifamily value add project, you know, you’ve already got the high end rehab departments being rented out at the top dollar, you’ve now got a bunch of years to go to rehab, in this case, the young trees. So we know the climate works, the sunshine works, the water works, we know that the quality is there in terms of the farm management and the team, therefore just making waiting for all 22,542 trees to come up to their premium years. year six and seven are tricky, which they actually harvest between 140 and 160 kilograms of 80 lambs per tree per year. And so you can get in early. And over the next 3456 years, you’ll see the appreciation or the noi net operating income, you know, this farm really supercharge itself to get you into those high double digit returns. And that’s what we do from a foreign ownership standpoint.

J Darrin Gross  36:23  

So on the age of the trees, I guess this is a question I hadn’t thought to ask. I mean, most often I think of trees as something that they grow and grow and grow fruit trees, no, you’ve got to be a little bit more money just a little bit more labor intensive to keep them pruned properly. So they continue to produce fruit and stuff. But But is there a point where you rip them out? And you have to put new presen? Yeah, so what is the life expectancy? pose in

Peter Badger  36:52  

Mortality is the term. All right. So trees are like human beings. You know, as they get older, their production declines, they don’t just die one day. You know, there’s no pre existing condition type stuff happening. But so what you can expect in the case of a, so it all depends on the hybrid as well. Sure, so a coconut tree hybrids go from 40 to 80 years. In the case of TT line, in the case of the tree we’re planting, they have maximum production of 20 to 24 years for Mr to reduce their production. And so in terms of this ownership opportunity, you can expect in year 17, to get to that mass production of 140 to 160 kgs per tree per year, and then wait 17 to 20 years now we’ll start as a farm, as we’re harvesting. So the production decline in certain parts of the farm certain trees, that’s when you go through a replanting program, they don’t all die at once, they don’t all decline at once, they’ll go through a certain phase of declining. And so in, say 20 years now, you’ll take you know, a quarter of the farm one year quarter farm next year and over a four year period, you’ll have some income, but it’ll be dropping obviously, as we replaced those trees and bring those next crop back up to full productivity over a seven year period. That’s the way you should think about mortality for these products in TT line.

J Darrin Gross  38:19  

We’re in just as a capital improvement project, replanting. Can you give me some sort of sense of cost? I mean, if I got 30 few 1000 does that is that? First of all, how large of a plot is that? There’s a 30. What do you have these divided into?

Peter Badger  38:35  

Yes, this is probably 65, 68 hectares, I think it is you got some tree, some areas that can’t be planted. So what you do is you basically the original owner, took their land, they started planting everywhere they could, at reservoir occasion, the middle of summer, you know, haciendas inner rows to make sure you can harvest and pick the produce. But overall, they’ll plant it. By year three, you’re seeing whether there’s mortality in certain areas of the farm. In the case of this farm, there’s a 3% mortality rate across the whole farm by year three. And so when you think about that, why did the 3% of the trees die? Well, that’s maybe a bit too Rocky, you know, the roots didn’t take over the steepness. Maybe there’s just on the edge of the farm where, you know, it’s it’s shaded from whatever reasons farming is variable, yeah. And so then you have a choice, you then start to replant those or not, and see if they take a second time, but generally, you know, you’ve got your general number of trees at that point. So in the case of this farm, we know the flavor of it at this point. And now it’s a question of letting that just you know, grow and grow and grow and grow. Occasionally, you’ll still get mortality, trees dying throughout the years, and you just replaced them, you know, two to $3 per seat, maybe 10 to 15 bucks with the labor total to replant a tree. very much a very Low cost to keep that at its full?

J Darrin Gross  40:03  

Did you said seeds or you’re starting these from a seedling then does that tell you are you

Peter Badger  40:08  

Yes, you need to buy the seeds from somebody and create a nursery or need to find a nursery who has already got the seeds and got them into saplings.

J Darrin Gross  40:17  

Okay, so you’re not, you’re not just like planting a seed and in waiting for it to grow, you’ve got to, you’re starting with just a juvenile tree or some sort of low planting or sampling or whatever the

Peter Badger  40:27  

So in the case of our capability, we are at such scale right now that we have our own nurseries, okay, in these regions.

J Darrin Gross  40:37  

So you really are from I mean, from seed to consumer, almost as ever, at least to retailer. That’s, that’s pretty impressive.

Peter Badger  40:45  

Absolutely. That’s probably the apple of farming. Yeah. And the pros, by the way, is that, from my perspective, I was looking for a consistent and reliable farmland ownership investment in myself, I only joined a company in May this year, like, you know, three or four months back, I was investing in every project list since 2015. And

J Darrin Gross  41:06  

it’s impressive, just the the model, I mean, again, taking control of the middle. You know, if you look at it, it’s very similar to if you look at some of the corporate farming models in the US, I mean, I think a lot of like, your livestock production, whether it be Tyson chicken, or, or, you know, I don’t know what the Hon, you know, the farm or whatever, but I mean, they basically it’s the plant, then they have all the the farmers to bring the, the, you know, the the product to the plant. And something I learned even in the COVID was that like with the pigs, I mean, all the machines were a certain size, and that if the pigs were at a certain day, a certain age, that’s when they had to be slaughtered. Otherwise, they didn’t fit in the machinery. So I mean, it’s, it does make sense again, on the scale side of things, what you’re what you’ve accomplished here, and what you guys are doing with the product and his genius and the fact that now the once you had the the place where people were bringing the product, you were able to identify the best producing farms and go by that as opposed to, like you say, not having the data and, and can read the brochure and ended up with rocky soil or something didn’t, didn’t break. That’s, that’s great.

Peter Badger  42:14  

And let’s take another, you know, era of due diligence, like normally for real estate property manager. So in this case, how do you get the best fire management teams, the packhouse, told which farms had the best fruit. As we started to analyze which farm management teams were actually managing these farms, we found this company called JRD. And this region at least. And it’s this guy called Jorge campusano. And he’s been in a multi generational, you know, citrus farming family, you know, and he’s got this amazing team, and he actually contracts out to rich people, and creates lime and citrus farms on their behalf, and manages on behalf so he is now our main partner in this region, because it does such a fantastic job. So again, we had to extrapolate back from the pack house data, quarter the fruit to work out who the best farming families were. And Jorge and his team, were the winners. So again, follow the data. So anyway,

J Darrin Gross  43:14  

Let me ask you so investor buys a whatever, 60 hectors or whatever it is that you’ve got the the in that comes with the trees already planted?

Peter Badger  43:24  

Yeah, in the case of this farm, there’s 20,542 trees planted from the age of basically four months to close to up to four years now.

J Darrin Gross  43:36  

What? I’m sorry, good,

Peter Badger  43:37  

No, so so as a member of the FMLA there are 103 lots in this farm. Because it’s variable, because we’re managing at scale and growing and efficiency, you actually for your land ownership have won 100 and third of the income minus one 130 of the expenses

J Darrin Gross  43:59  

and that was the whole farm it’s just okay, I would say that that would make a lot more sense than having one one parcel

Peter Badger  44:09  

Think about it, farming is variable, you know, you may have 227 trees, your neighbor might have like 204 right, but the key is that it doesn’t work unless you’re farming as a collective group and

J Darrin Gross  44:21  

Blended right there. So as far as the the I mean, are there really any kind of capital calls I mean, as far as having to you know, replenish the trees, or is that just basically built into the model as a reserved were knowing that you’re, you’ve got an ongoing expense to after replace these trees? And that’s, that’s already factored in those rates of return.

Peter Badger  44:42  

Yeah, so the simple answer is we don’t see by the law itself or multiple lost people buy three 510 depends on what number of the monthly passive income they’re looking for. We then will take depending on the month, the year, we buy the farm We will then take some prepaid for managed expenses. Because if we buy the farm on April, the first, we’re going to operate it through to January when you get your first payment, and we pay every six months, that net income amount, total income from the packhouse manage the expenses for the actual farming itself. So in the case that you’ll pay for the lot, plus pre pay those first nine months or four, manage the expenses, and then you just cycle forward on a six month basis. It is all built into the model over the decades, such that the, you know, the profit from the fruit sales should cover the three to four year replanting schedule 20 years from now. And really, the goal is that you just receive a net income check every six months from your title filename.

J Darrin Gross  45:49  

Got it? couple of questions here. So in in more of a different asset class where their structures and in datamine lending is a big thing. Leverage is a big thing in order to produce a positive return. Is there financing? Or is it basically just a cash? Cash? I mean, I would think that this is more about you’re just investing into the fund. And then maybe maybe you guys at scale are doing some, some financing. But I would think the investor is not in full. Yeah.

Peter Badger  46:25  

The answer is no, it can’t be financed right now. But we’re looking at some lenders, we’re in discussions right now to try and offer that as a product. Because, you know, I get that people want to buy a single family home, you know, loan to value of 75%. And, yeah, right now it’s a cash only transaction. We do. This is a real estate transaction, by the way. So number one, you’d have to be accredited, you can be non accredited. Our goal is to basically democratize farmland ownership, it frustrates me that the American government decides they can say what you should invest in or not. So you’re buying real estate, therefore, it’s not a regulated, sec kind of structure. By titles, the land. Cash now, we are looking at the ability to leverage multiple lots. We have some lenders were in latest discussions whether we may bring that to the fore, hopefully q1 next year, if the conversations go where we want them to be, because ultimately, price of the farm is low enough right now $32,000 that would be the same as a deposit on like a three bed two bath, single family home in Jacksonville, Florida, you know, right? If you are leveraging 75% loan to value. So our goal is to get people in now so they can see how it works. See the checks coming? But eventually, yes, we would like to bring leverage in those who can buy three or four lots for that 30 to $40,000. price point.

J Darrin Gross  47:58  

The other question is a again, with anything with the structure, at least in the US your tax benefit is the depreciation. I’m assuming there’s not a lot of depreciation. I mean, is there? I mean, obviously, I guess there there is, but it’s Is there any talk about that? Is there any depreciation built into your

Peter Badger  48:18  

There is no depreciation from this part? No. But I think in reality, depreciation is a bit of a bonus on top, the returns way outweigh the advantage of depreciation for the average person.

J Darrin Gross  48:32  

Right? No, no, I just doing a kind of a side by side as a class comparison kind of thing. So now that’s that’s, that’s impressive. So the one thing that I mentioned, and I’m just kind of curious if you can speak a little bit about government issues, is there any kind of governmental concerns I mean, Colombia is different counties are different country there’s, I know that different different countries are more. I don’t want to say secure or just stable.

Peter Badger  49:04  

I’ve spent six years investing overseas, I was basically a digital nomad, my partner and I were kind of traveling a lot, mostly, you know, Europe, Eastern Europe, Latin America, Central America. And yes, you need to be very clear which countries have strong foreign property ownership rights. And so in the case of Colombia, they have very strong laws, and you have the same rights as a little Colombian to own that land. And so yeah, the key is to make sure the country has clear titled land and that they allow foreign investors to own that in the way that they would normally for local Colombian who owns their own land. Academy agency, no. Problem matrix.

J Darrin Gross  49:53  

No, absolutely. Absolutely. Let’s see here. I’m trying to think now. If you have Can I do this here? I’ve got the you’re driving now?

Peter Badger  50:05  

Yeah.

J Darrin Gross  50:08  

I’ve lost my Here we go. Okay. So just wanted to run down my see if there was anything else that I was looking at her questions I was thinking of it because it’s a neat model. And I just think you guys so the way you’ve I mean again started with data you clearly made made a good case for passing pharma. But if we could hear it, I’d like to shift gears here for a second. As I’ve mentioned, by day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with the risk. And there’s basically there’s there’s three strategies that we look at. The first is we look to see if we can avoid the risk. If we can’t avoid it, we’ll look to see if there’s a way to minimize the risk. And if we can’t avoid or minimize, we look to see if we can transfer the risk. And that’s what an insurance policy as you’re transferring the risk to the insurance company. I like to ask my guests if they can look at their own situation could be their clients, investors, tenants, the market government, however, however you want to, you know, frame them the question, but if you can take a look at the situation and determine what the biggest risk is that that you face your clients face, or however you want to get however you want to frame this. And again, for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Peter Badger, what is the BIGGEST RISK?

Peter Badger  51:51  

The BIGGEST RISK is the macro risk that you, as an owner or investor, do not follow a very data driven due diligence process before you buy. And so I can sit here with my risk matrix and my process, and I go through it. And that’s the irony of this, you need to have a risk process, a due diligence process to follow Darren and most people don’t, if I had $1, for every time somebody took a recommendation from a friend, or went to the internet, downloaded a nice glossy marketing brochure and trusted somebody. I there’s a there’s a famous quote from Ronald Reagan, when he met Mikhail Gorbachev. And I don’t know the Russian saying, but it was basically trust, but verify. And that’s what you have to do. So the biggest risk for me is that you don’t verify you don’t have a process, you don’t have a due diligence matrix with all these areas to look at, you don’t follow the data to make sure that what people are telling you is actually true or not, that they have the track record that they have considered all these aspects in that asset class that you’re considering owning.

J Darrin Gross  53:10  

That’s definitely some some words of wisdom, their due diligence. Il’ll eat alive if you don’t, so,

Peter Badger  53:19  

So maybe to summarize down, the BIGGEST RISK is laziness.

J Darrin Gross  53:24  

Now, now there’s, there’s certainly a case for that. And if you’re not, if you’re not inquisitive, enough and curious enough, you know, the reality is, it’s probably not a good direction for you to go, you know, if you if you’re not, you know, willing to understand, you know, in some people, it myself included sounds like, you know, you have had the experience a little bit is that the experience is a is a tremendous treat a teacher, but there’s no reason in this day and age when you can, you know, sit at your computer and Google, you know, all of the things you were just showing, you know, rainfall and temperature and all that kind of thing, you the information is available. You have to be curious enough and willing to go look for it. So, I agree, completely agree. So, Peter, Where can the listeners go if they’d like to learn more or connect with you?

Peter Badger  54:26  

Yep. So please head over on to Farmfolio dot net.  We actually have all of our farms listed as they come available. You’ll see a video get a tour. You can reach out to me personally, I am Peter. P te R, let’s say Peter, in American accent sometimes. Peter@farmfolio.net. And yeah, I mean, we’re here to democratize farmland ownership. If you’re interested in the asset class, come to us we can send some articles to educate you. We can send you some data sources to help you do your own due diligence and More importantly, we can introduce you to some amazing farmland ownership opportunities which are passive in nature, consistent income, strong appreciation as they grow to their full fruit production. And more importantly, they are not cyclical or correlated with the public stock markets or real estate. This is a true way to diversify. And I would love you all to have a farm folio alongside your portfolio.

J Darrin Gross  55:28  

Awesome. Well, Peter, I can’t say thanks enough for taking the time to talk. I’ve enjoyed it and learned a lot. I look forward to doing it again soon.

Peter Badger  55:39  

Thank you. Thanks, Darrin. And thanks for doing what you do. Thanks for educating your membership. So we really appreciate it.

J Darrin Gross  55:45  

All right. For our listeners, if you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

Unknown Speaker  56:04  

You’re listening to CRE PN Radio for influential commercial real estate professionals. For more information on this or any of our guests like us on Facebook CRE PN Radio