GI262: Investing in Farm Land with Chris Rawley

GI262: Investing in Farm Land with Chris Rawley

Chris Rawley is a retired Navy Reserve Captain who has a 30-year military career. In 2016, he founded Harvest Returns, a firm that offers passive investors the ability to invest in farming and agriculture.

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Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Chris Rawley. He is a retired Navy Reserve Captain who has a 30-year military career. In 2016, he founded Harvest Returns, a firm that offers passive investors the ability to invest in farming and agriculture. So thank you so much for coming on the show today, Chris.

Chris:
I’m very happy to be with you. Thanks, Charles.

Charles:
So you’ve a pretty in-depth background both personally and professionally. And if you don’t mind going into that before starting harvest returns and what led up to that?

Chris:
Yeah, I’ll kind of talk about you know, my on, again, off again, experience with, with real estate and real estate investing. Starting with my very first job when I was a, a kid, my father was one of the very first developers of self storage in, in North Texas in the early seventies. And so I spent a lot of time cleaning out units and painting units and weed eating and things like that. And, you know, hearing about break-ins and all the fun things that come along with owning that asset class. And, and so that, that kind of got me a little touch of real estate. And then after college, I, I joined the Navy served for several years on active duties. Destroyer worked in a Pentagon. And then I my first job outside the Navy was, I worked for what’s now JLL, but then was Jones Lang LaSalle.

Chris:
Worked in commercial property management. Not a, not a very exciting place to be right now if you own a big office building. But it was great development experience. And after that I kind of caught the real estate bug and I started investing in single family homes and, and duplexes and small office and things like that. And e eventually I became sort of, i, board is not the right word, but I was looking for new, something new and challenges related to real estate. And so I started thinking a lot about farming and agriculture. And this is about the mid 2000 teens and decided I wanted to invest in a farm or a ranch. ’cause I, I had sort of moved out to the country and, and drove past these every days and wondered how people made money with them. Turns out I didn’t, I didn’t have a farming background, didn’t have a ranging background, didn’t know anything about it whatsoever. I was just kind of intrigued by it. So, did some research on how to invest, and there weren’t a lot of good ways. So I, I skipped several steps and just decided to start up this platform to allow people to invest in farms and ranches and in agricultural related businesses. We did that in 2016, and we’ve been doing it ever since. And, and we’ve invested about $40 million in quite a few different farms and ranches and projects. And, and that’s that’s what we do now.

Charles:
Can you explain a little bit about how harvest returns is structured? So really, what is your role in the project and how are you connecting investors with opportunities?

Chris:
Yeah, so, so the way a typical project works for us or deal works is we have a pool of investors farmers that wanna raise capital for their ranch, either debt or equity to, to go and, and buy a new piece of land farming equipment, cattle operating expenses, whatever it is. They, they approach us. We look at the merits of the deal, decide if it’s, if it’s something that might be interesting to our investors. And then we basically promote that to our, our pool of investors. We have a, we have a process, we use an SPV, we put together a special purpose vehicle like an LLC. All the investors come into that. And then we invest directly in that farmer ranch. If it’s equity or we, we give them a loan. So it, it, we’re, we’re kind of in the middle of the process. We do the due diligence, but then it’s, it’s ultimately up to our investors to decide if they want to come in and, and invest in that particular farming syndication.

Charles:
Do you have money sitting in the stock market? And you’re worried about it or worse. You have money sitting at the bank, not keeping up with inflation. My name is Charles Carillo, founder and managing partner of Harborside Partners. And since 2006, I’ve been investing my money and my family’s money into income producing properties. These are real assets, real properties with real addresses that produce real cash flow. At Harborside Partners, we provide passive investors who love real estate with a turnkey investing solution. If you want to put your money to work in real estate, but can’t find deals, don’t have the time to get funding in. The last thing that productive people want to do is manage real estate. We find the deals. We fund the deals and we manage the tenants, the termites and the properties. Partner with us at investwithharborside.com. That’s investwithharborside.com. Go to investwithharborside.com. If you love real estate, you like the idea of passive income and believe that income producing properties will appreciate over time. Go to investwithharborside.com. That’s investwithharborside.com.

Charles:
So you’ve been around real estate for decades. What is one of the reasons or some of the reasons why you would inform or stress to investors that maybe are to diversify out of, maybe, I don’t wanna say traditional, but maybe your traditional real estate classes and mm-hmm. <Affirmative> into farming investments?

Chris:
Yeah, I mean that diversification is, is probably the, the key in, in, in most important aspect when you’re investing in real estate. You know, people, people choose what their category is, whether that’s multifamily or single family or office or whatever, and they, they tend to get good at it and, and do it over and over again. But sometimes they, you know, the markets change as the, as they are very much in flux right now in, in some of those sectors. So they’re looking for that next opportunity. And so for us, having investors that, that kind of understand the mechanics of real estate, but wanna put their capital to work in something that’s, that’s, you know, essentially real estate and the farming is real estate. It’s land-based. Instead of, instead of tenants, you have crops or cows or whatever, whatever the situation is, depending on type of agriculture.

Chris:
And so diversification is that first part, something that’s not correlated with the stock market. Something that is based on land or the appreciation of land, and in some cases, not all cases. That, that, the other aspect is just the demographics of that are impacting agriculture at this point. So it’s, it’s, if you think about it, it’s, it’s the one industry that touches every single person on this earth. ’cause Everybody’s going to eat. You know, real estate is similar, but you can rent, you can buy, there’s, you know, various variations, but agriculture, you, every single person has to eat and someone’s gotta grow that food. And as we’ve all seen, you know, in the past, say 36 months, the prices of food, whether you’re at the grocery store, whether you’re shopping, whether you’re or or going to a restaurant, have skyrocketed. So there’s good and bad aspects of that for the farmer, but if you’re an investor there, that can be a very good thing with some of these commodity prices up.

Chris:
And, and the demographics to continue on that theme, you know, the world population is still growing, that that growth is supposed to plateau around 2015, but the calories consumed and the number of food the amount of food calories that are gonna have to be produced is gonna exceed the rate of population growth. So where, you know, population grows about 20% globally it’s 30% or 40% is, is the amount of calories are gonna be produced because as people become wealthier, they, they consume more calories and more protein specifically, which is one of the reasons we like beef. And there’s, you know, there’s some other financial aspects, there’s cash flow there’s appreciation, just like you might see in real estate. There’s some tax benefits. You, you do see some things like farmers get a lot of credits tax credits and depreciation, just things like things like that that are make it favorable for investors, just like you might see in normal real estate type of deal. Yeah.

Charles:
What I’ve found as we’re, we’re predominantly multifamily investors and every asset class you know, has pros and cons. So let’s talk about some of the challenges with what agriculture, farming, some of the risks of it, and maybe how you guys go about it or the operators go about mitigating it and trying to lower that downside as much as possible.

Chris:
Yeah, that’s really the most important question, especially these days when you’re looking at you know, where do I allocate capital into, into, you know, various parts of real estate and geographies. So for agriculture, some of the risks are the same. There’s macroeconomic rate risk like real in real estate and changing rates and making credit tighter for certain farmers to get, you know, access to capital, just like we might see in interest payments blowing up just like we’ve seen. And, and so it’s harder to refinance. So there’s a risk there. The macroeconomic risk are very similar. There’s a commodity risk in some types of agriculture. So which would be like the market risk from real estate in, in the form of commodity risk. Prices go up and down. So wheat, soy, those sorts of things are, are very well traded. Liquid types of commodities.

Chris:
Other things such as you know, the grass fed cattle that we deal in, it’s a little bit more of a premium product, so it’s not necessarily, you don’t have all of those commodity based risk. And then of course you’re dealing with biology. So in agriculture you have droughts, too much rain, too little rain you have pests and, and insects and you have diseases. So, so that’s a risk. I, I would say the mitigation piece there, there’s a number of ways to do it, and it’s very similar to what you might see in multifamily is one, a lot of it’s based on the operator. So choose the right operator you know, look for experience, look for somebody that has a solid plan, realistic financial projections, all those sorts of things. And, and you know, sort of a proven ability to ex execute a hundred percent the same as in like, say a multifamily deal. Then there is you know, some other mitigation things like insurance you know, choosing the right market is important or the right and crop type, but location, it’s, it’s all very, very similar to real estate once you sort of understand the mechanics behind agriculture investing. Yeah,

Charles:
It really just takes, like you said, that operator that really knows what they’re doing and experienced season operator. You went on a little bit about, previously about the structure of the deals, getting into how it’s kinda legally structured. Can you walk us through maybe a typical deal that maybe you’ve seen on your pro platform or maybe one that you’ve been a part of, whatever it might be. And you know, what does a business plan look like and like maybe the capitalization? So are we borrowing money? Is it a hundred percent no debt? I mean, how does that work? Mm-Hmm.

Chris:
<Affirmative>, yeah, it’s, it, it varies. And, and like I mentioned, we do, we’ll do debt and equity. So a typical equity deal might come to us and need capital that they can put together with, with a, a loan. Just like if you’re raising an equity piece to go out and buy a, a, a apartment and then you’ve got some permanent debt attached to that. We’ve done the same thing where we’ve helped kind of raise the down payment, bring in equity investors. Those investors are, are gonna be exited via very similar methods. Cash flow is one way stabilization, refinance hopefully when rates are, are a little bit more favorable. And then you know, the third is some sort of liquidity event. They sell the farm, sell the business, and, and we, we produce the you know, the, the investor ultimate exit and we will have a waterfall structure that might be pretty similar to what you might see in real estate.

Chris:
And on the debt side it’s a little different. Somebody might come to us and and wanna, you know, they’ve got a thousand cattle and they want to have 2000 cattle and they’ve got the land to do that, or they need to expand their land or improve their land in order to accommodate those cattle. We’ve seen both those things. So we might do a two or three year note quarterly interest payments small prepayment penalty and they use that and we, we will collateralize it with a lien on the land, maybe a second lien on the land and first lien on the cattle. It just varies. I mean, we, the ranchers that we work with, they like working with us ’cause we’re a little bit more creative than them going to the bank. Rates that we’re seeing right now on, on debt or, you know, maybe 10 to 15% depending on what it is, what the, you know, what the collateral is.

Chris:
So it’s, it’s pretty decent. You know, you’re definitely we, we understand you’ve gotta get that we’re competing right now in this environment with like a 5% sort of risk-free rate with CDs or treasuries or whatever. So you gotta have a little bit more juice to attract investors. And on the equity side it might be, you know, 20 high twenties, something like that is, is what we sort of try to structure with some capital payments and then exit and, you know, exit time period for equity it could be three to seven years. Debt is is usually shorter. Yeah,

Charles:
That’s great. I had no idea that you guys also worked in debt. So that’s a very interesting Mm-Hmm. <Affirmative> you know, expanding. That’s a, that’s a great business model ’cause you’re expanding someone that’s already working and someone already has a proven method and you’re really just kind of pouring a little gas on that. Mm-Hmm, <affirmative>. So obviously this is a, you know, we were talking about this is for most investors, this was this is a little different of an asset class. I imagine there’s a lot of education that goes into educating people like we’re doing here or what you’re doing to me. And how do you usually do that with new investors? How have you found it the most efficient with you know, you have a whole platform. Imagine you have thousands of investors, thousands of people on there. How have you efficiently been able to educate potential investors in your industry and the opportunities that your firm has?

Chris:
Yeah. You know, some of that is it, well, it’s very important ’cause this is a new asset class that a lot of people have never been exposed to. So, you know, we have some educational content on the the website blogs and things like that. We’ll do an investment webinar or investor webinar for every single deal. So that gives investors the opportunity to ask questions to us and to the deal sponsor operator in real time. And then you know, there’s, there’s many opportunities for direct connections between the investors and they can go out and visit the, the farming operation during due diligence or after the investment period if they, if they’d like to. So a lot of different ways you know, it’s like anything else you learn by repeating over and over again. So we, we tend to just talk until the investors are sick of listening and then they get to make up their mind. When you’ve

Charles:
Spoken to investors that maybe have lost money or made mistakes with farming and agriculture investments, what are, what are common? What, what do you hear? Are those common ways or reasons why they’ve, that’s happened?

Chris:
Yeah, I mean it’s unfor. We, we, like anybody else that’s been in the business for a while, we’ve, we’ve unfortunately lost some money. We’ve made some money. You know, that’s the way it goes. And some of our investors have lost money and sort of the commonalities that, you know, of course there was covid, which didn’t do really any business favors. So that, that was just one of those unforeseen circumstances that caused a lot of small businesses. And, and most farmers are small businesses to have challenges, you know, because of supply chain issues, things like that. You know, I would put that in this sort of unforeseen circumstance, place, black swan event, whatever you want to call it. But then there’s others where assumptions were made that proved to be inaccurate in, in some cases those were, you know, obvious in hindsight and others they weren’t.

Chris:
And, and I think unfortunately investing is, is one of those things, especially when you’re, you’re investing, you’re not just giving your money to your, your financial planner and saying dump it in the s and p 500, the type of investors, I think that, that most real estate investors are where they wanna have some control over what they’re allocating into that comes with risk. So, so definitely understand risk and people not understanding that they can lose money. And in some situations they, if if that’s the case and they’re not comfortable with that, then they shouldn’t be investing you know, at least not large per percentage of their portfolio. You know, you could talk to professional institutional money managers and they’ll say you’ll hear anywhere between five and 40% those ranges to go into to, you know, alternative investments of which real estate and agriculture and other types of types of you know, off the beaten track non stocks markets.

Chris:
But, you know, it’s also very, has a lot of potential for profitability because like real estate agriculture is fairly illiquid in that illiquidity comes with a premium. So you can get outsized returns from that. You’re finding deals where there’s opportunity that, that the average investor doesn’t have. And, and you know, those people that are sort of turned off by the stock market because they’ve lost money in the stock market. And, you know, I think most people have, they’ve invested in any amount of time in the stock market, especially into like individual stocks where, you know, you don’t have control. You can, I can go out and buy Apple stock or Tesla or whatever, and maybe I do really well if I buy at the right timing or maybe I, I lose a lot of money really quickly just because of what the market’s doing and, and you have a lot of liquidity there, but you also have the potential to lose money. One of my first investment loss experiences was in a public company Enron, I lost a lot of money in like a very rapid period of time as, as well as many others did. And then in that case, that was fraud unfortunately as, as the courts eventually proved. But it was also under, it was investing in something I didn’t fully understand and I don’t think many people understood what, what the heck Enron was trying to do with their sort of complicated derivatives models and things. Yeah.

Charles:
In investing in what you understand, it’s a it’s a, it’s such an important thing. So simple and I mean I think every investor has made that mistake one time during their career. But what advice, I mean, other than picking the operator, ’cause obviously with, I mean with anything like this, it’s really buying the operator you’re buying. If you’re you know, you’re finding the operator that works well, whether you’re investing in a mutual fund, finding the operator that does that, whether you’re investing into some sort of private placement memorandum. What, what do you find for, other than the operator is most important for for people passively investing in in farming and agriculture?

Chris:
Yeah, understand ideal terms. So understand what the, what the payout looks like, the waterfall, if that’s the way it’s structured. Understand as we discuss those risk mitigation pieces in place, you know, what’s the, what’s the maximum I could lose? Is it a hundred percent or is there some other amount because of the way the, you know, the mitigation is in place? Know the duration, make sure you’re comfortable with the, you know, the term expected term. If your deal on equity, the expected term is usually not what one thinks it’s gonna be. It’s either shorter or longer. It’s rarely, you know, hey, I’m gonna exit in three years. Well, you know, an opportunity comes away, comes along to get an e early exit or maybe market changes or whatever, and you’re, you’re stuck holding that property or that that deal for a longer period of time. And that’s, you have to be prepared for all those. So just don’t invest unless you really understand what you’re getting into. So

Charles:
Overall, the years of starting with your, being around your dad’s business, going into public you know, the military and then working in Pentagon and everything else, kinda how has your relationship towards money changed in, in the decades that you have been present around real estate investing in, in business in general?

Chris:
Yeah, I mean it’s, it’s, it’s interesting because I think some people, as they get older, they get more risk averse. But I think for me it’s, it’s almost the opposite. I’ve, I’ve been more likely to take risk and, and, and I think that’s because I’ve just become comfortable and I understand what those risks are and you know, I know that I’m not gonna invest something that I can’t afford to lose, even though I might invest in, you know, a project that I might lose money on. I’ve invested in some early stage companies outside of, you know, our business and lost some money and made some money and have some money on paper. You just never, you know, if you, if you take that approach that, that I’m comfortable doing this and, and that this is, that, that I’m not uncomfortable making, taking your risk, then, then I think that’s the way to invest. You know, whether that’s, whether, and that applies whether you’re very conservative risk averse or you’re like the opposite, which, you know, I think most people are so somewhere in the middle where they don’t wanna lose money, but if they do lose a little bit of money, they’re not gonna be too emotionally bent. There’s all kinds of, you know, behavioral psychology on investors. It’s very, very interesting. It does. And if you look at some of that, it helps you understand your own sort of investment philosophy.

Charles:
Yeah, that makes perfect sense. So Chris, thank you so much for coming on today. How can our listeners learn more about you and harvest returns?

Chris:
Yeah, Charles, thanks. Best way is to go to our website, harvest returns.com and we’re on social media, so you can find us that way too. Facebook, LinkedIn, all those things. And search engines, whatever harvest returns you can find us. Alright,

Charles:
Well thank you so much for coming on today, Chris, and looking forward to connecting with you here in the near future.

Chris:
Sounds great.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

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About Chris Rawley

While serving as a career naval officer, Chris Rawley visited dozens of war-torn and poverty-stricken countries and began to appreciate the importance of agriculture to every single person on earth. With this newfound appreciation, he decided to invest in a farm but quickly discovered that these assets were inaccessible to the average person. The problem drove him to create Harvest Returns in 2016 to democratize investments in agriculture.

Rawley has held corporate management roles in Jones Lang LaSalle, Electronic Data Systems, and L-3 Communications and served as a defense consultant at the United States Special Operations Command for six years. He has invested in real estate and income-producing agriculture for over two decades. He is an angel investor in early-stage agriculture and food companies, including the Indian agriculture FinTech company Jai Kisan. He serves on the advisory board of the AgTech start-up AgroFides.

Rawley is a retired Navy Reserve Captain. During his 30-year military career, he served in various leadership positions in naval, expeditionary, and joint special operations units afloat and ashore. He deployed to Afghanistan, Iraq, throughout Africa, the Middle East, and the Western Pacific. Rawley has a degree from Texas A&M University, earned an MBA at George Washington University, and graduated from the U.S. Naval War College. He is the author of Unconventional Warfare 2.0 and an avid water sports enthusiast.

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