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

26:42So a really common thing that we do is add irrigation. And that irrigation will help us increase the yield, decrease the risk for the tenant, and it increases our rent. But also we can capitalize that increased rent into a higher land value over time. So if we can find those opportunities to do the CapEx, that's our bread and butter. I'm going to say something that sounds a little ridiculous, but you're a Graham Dodd valuation investor into farmland. Is that – am I getting this right? Yeah. I mean there's no black box here to what we're doing. It's really a blocking and tackling strategy. and we encourage all of our investors when they're contemplating this or even on an annual or biannual basis, come out and look at these properties and see what we're doing.

27:29And we have folks that have been trading their entire career and they'll come to a farm auction and say, well, you were underwriting the same rent on two properties across the street from each other. One sold for X, one sold for 2X. How does that happen? And it's just who wanted which one and how in some cases or instances, the way in which the farm is being sold is inefficient. The rental market's completely inefficient. So there are times that we've bought properties, in some cases from other institutional investors, and we've doubled the rent on day one, not because we wanted to charge an uneconomic rent, but because the farmer was willing to pay that rent for that land.

28:09And the active management that the previous owner was using was either not very good or not that active. So that's where we think we do a really good job of just identifying where can we add alpha. And then, again, it's not a black box. This is really just ticking and tying and blocking and tackling. So let's talk about that alpha. You talked about rental income and appreciation and sale of land. But I recall a conversation we had years ago up in Maine where you described all these additional ways that professional farmland management generates improved economics. And some of the notes I took, mineral rights, solar and wind farm, easements, additional land use.

28:57How do you take farmland that for centuries has just been producing crops and find ways to improve the economics? Yeah. And investing in the U.S. is a key part of this because the landowner has a lot of rights that in other parts of the world you just don't have. So mineral rights here in the U.S., the surface owner generally owns them. All the way down. right? Yeah. And in some cases, those rights have been severed 100 years ago. And in certain parts of the Midwest and out West, you don't own mineral rights. We like to own them. It's kind of funny, the family farm I grew up on in northeastern Pennsylvania, growing up, no one knew what Marcellus Shale was.

29:34But everyone in Susquehanna County has made more money pumping gas than they ever did milking cows. And it was really seeing that in the early 2000s that as we buy land, you think, well, how do you maximize the value? These are real assets. They have to be actively managed. Something as simple as harvesting timber, that's really low-hanging fruit, doing select cuts, renting farms out for recreation or hunting. Frankly, if you don't rent it out, someone will hunt that property anyway without insurance and without paying you anything. So you might as well get insurance and get paid for it. So Perry Vieth, our founder, He had been doing that long before in parts of Indiana and Illinois, generating mineral rights.

30:15But the way that he structured our vehicle was really beneficial to some of these long-term value options. Because I think when he was starting Cirrus in 2007, most of the people that he worked with at the time and friends of his in private equity said, just set up a typical drawdown fund and get it invested. As opposed to perpetual. Yeah, at the end of eight or ten years, just sell them all off. he decided that an evergreen fund really fit the asset class better because most of the farm tenants we're working with they want to farm this property for 10 20 30 years and that's kind of the way they're thinking in terms of how they grow their business and being able to own the property for that long makes a lot of sense if you have lessees that want to rent that way and if you think of who are the ultimate over time who are going to be the ultimate investors in this asset class, it's going to be folks that have very long dated either goals or liabilities.

31:06So endowments, foundations, trust, infrastructure funds, insurance companies. So having this long dated asset where you're not forced to churn or forced to have these transaction costs is really important. And what we found later on too was some of the optionality around farms. So wind has been around for a long time and that's kind of a mildly incremental increase in revenue on land. You can put a wind farm up on a farm, but still grow crops also. You continue to farm it. Yeah, on a 700-acre farm, we have one in western Indiana that has seven wind turbines. They might take up 20 acres total between the turbine and the roads.

31:42The rest of it, we continue to rent. So that rent from those wind turbines, it's incremental. It might increase 20 or 30 basis points over your farm rent. So we'll take it, but it's not going to change your life. when we started doing things like solar. So solar, instead of seeing 20 or 30 basis points, you're seeing on an option period, maybe a three to five X, the income return. So if you think back to we're buying land at a four and a half to five and a half percent income over the course of five years during an option period, if it were to go to solar, now we're generating 15 to 20, 25 percent annualized income.

32:20So we like that. But in that case, it's taking the whole footprint of the land. And if when we buy a farm, we're just underwriting it as an agricultural property, farm rents, capex, what type of return do we think we can earn over time? And we're targeting kind of that eight to 10 % net through a cycle on farmland. But then once we own the property, and as you aggregate properties over time, maybe we started with a couple hundred acres 10 or 12 years ago, but now in a township, we now own 2000 acres. And it's just been all of these incremental bolt-on acquisitions. Now that has probably more interest from some of the developers on the solar side or for other things, too, that can be even much higher revenue or value.

33:01But we always fall back on if it's just a farm, that's what we underwrote, and we're happy with that. And we'll continue to aggregate those properties over time. We have over 500 today. There are years where we'll do 30 or 40 closings or transactions to invest 80 or 100 million. Most institutional investors would never do that. But we've really decided that that's where you can add a lot of alpha on the acquisition side by doing these bolt-ons at a discount to what that, like you said, it's a very finance-worthy strategy. It's just being applied to an asset class that you usually don't see it.

33:36You mentioned leases. When I think of a lease, I think of either an apartment lease for a year or two or my office lease here in New York. For 10 years, how long does the average farmer lease their land for or lease your land for if they want to farm a crop? Yeah, so we try to target three - to five-year leases, and I'd say three is the overwhelming majority. Given that our farms are mostly growing row crops, you can see three years on the Board of Trade. You have transparency to where are prices. So farmers, if they want to hedge, if they want to think about selling a part of their crop into the future, they can do that.

34:17And we can all agree, OK, over the next three years, this is what that rental income will be. But when you think about other like across a farmer's portfolio, I mentioned they own land and they intend to own that forever. That's how they think about it. And they rent our land. And those are usually three year leases. But then they rent a lot of land from other people. those other people, even if a farmer's been operating that land for 30 years, it's usually 31-year leases. So making decisions, because the landowner, I'm not going to say they're not sophisticated, but they're unwilling to do a multi-year lease because they want to have the optionality to sell the property free and clear of a lease if they decide they want to sell it.

34:58So usually when farmers look to us, they're saying, well, we want to add a new combine or attract or make these overhead or hiring or infrastructure decisions, they actually view a three-year lease as a long-term lease in the farmland space. We have some leases that'll go eight or 10 years if they're growing more specialty crops. So we have about 20 % of our portfolio that generates higher revenue because they're growing things like potatoes for potato chips, processing tomatoes. The kind of highest quality mint you can grow in the world is in the Midwest. So we grow that on our properties. And that requires a more diverse rotation and a longer planning for the farmer.

35:39So we'll allow a longer lease in those instances. And we allow that because they're paying us a stronger rent. Really, really kind of fascinating. I want to talk about scale. You mentioned bolt-ons and a lot of things. I'm kind of fascinated by the scale. And the question I wanted to ask is, are each farm that comes up for sale, do they have the same or different value for different acquirers? Like I'm going to assume if you're the adjacent farm, that next farm might be more valuable. You spend a lot of money on combines and tractors. Hey, if you can use it on 500 acres instead of 300, your cost per acre should go down.

36:23Of course. What's the impact on scaling up? And what's a big farm? Is 100 acres big? Is 1 ,000 acres big? Yeah, I mean, it's all relative. But to your point about are there different values for different buyers? Absolutely. Even if two buyers both intend to farm it, there are absolutely differences in how someone will value it. In some cases, on the same land, it comes down to what crop do you intend to grow. So I had talked briefly about specialty crops, but if there's a farm in northern Indiana with irrigation that comes up, if the tenant we're looking at wants to grow corn and soybeans, they're going to be able to pay us one rent.

37:01If the tenant we're talking to would grow popcorn and processing tomatoes or potatoes, they can pay us almost double this rent on the same land. So when we look at farmers, we're trying to identify which farmer can generate the highest revenue, has a strong balance sheet, operates with the least amount of risk so that our rent will be paid every year in the spring. But it's really important when you look at land to determine what's the highest and best use, even just on the agriculture side. So when you think of every farmer would love to have 1 ,000-acre blocks of land in the Midwest, that's hard because the history of ownership was the Homestead Act.

37:38So it's 40-acre blocks. So within our portfolio, we have 40-acre farms, and we don't love doing those transactions. But if we can bolt them on to an existing property with an existing lease and the same farmer, that's kind of a no-brainer. But our largest farms in southwestern Georgia, it's 7 ,000 contiguous acres. So that's about 10 square miles in one piece. It's all irrigated, and the history of ownership there is plantations. Out west, the history of ownership was ranches, so these larger tracts of land. You tend to see more institutional investment in those areas along with permanent crops.

38:12And there's a lot of reasons people will tell you it's around scale and efficiency. In some cases, I think it's just you can write a bigger check. If I need to deploy$50 million at once, I can do it better in those areas because the farms are just bigger. Or it's a permanent crop that it's$100 ,000 or$200 ,000 an acre so I can deploy capital more quickly. For us, it's harder to gain that scale, but it really starts with that tenant network. So those 170 farmers we work with today, they farm our 170 ,000 acres or 180 ,000 acres. They own collectively about 250 ,000 acres that I don't expect they will sell, but that's kind of what they own.

38:51But they rent over 750 ,000 acres from other people. And those other people are those estates, trusts, non-farming heirs. And when those folks want to sell, usually they don't have a public auction. Usually it's a private transaction. The first person they call is their farm tenant. And while we would – if our fund was closed, we would love to see prices just continue to escalate up forever over time. But you're a buyer also. You're on both sides. Yeah, we like cycles. So when farmers have really strong balance sheets, like in 2021 and 2022, they were probably not passing on as many of those purchase options to us.

39:26But now we're in our third year of lower commodity prices. Farmers have to be careful about how much working capital they're going to liquidate to go buy a long-term asset. And if it's a very strategic farm to them, they're going to try to buy it very close to home. But if it's something they're willing to travel for, and they're currently farming, and as much as they'd like to grow their acres to that point about efficiency, you mentioned they don't want to lose acres. So if a farmer farms 5 ,000 acres, if one of their landlords who owns 500 sells and they're either not able to buy it or someone that we're partnering with them on, if they're not able to buy it, then they just lose those acres and they immediately become overcapitalized.

40:08Every other acre becomes more expensive to farm. Per acre to farm. And so they think about it in terms of protecting acres and growth when you say, well, why would they partner with someone like us? So when we look at farms that would make sense to add to the portfolio, in some cases we'd pay a little more because it's a strategic farm that's close by. But we say no probably 29 times out of 30 when we're at a public auction. The hit rate is low. And while we'd like that to be higher, that's the investment discipline. We'll lose sometimes by 40 or 50 percent above our reserve price. Back to Graham Dodd.

40:42Absolutely. You mentioned ranching. We've been mostly talking about farming. When I think of ranches, I think of cattle farms, horse farms, sheep. What do these ranchers do? How much of the assets you own are ranches versus farms? Or is there a mix? Some do a little bit of both. Some can do both. Not our farm. So our portfolio is exclusively farming, not ranching acres. You tend to see those ranching acres. If you think of what's the highest and best use, if you could grow amongst row crops, even corn is the highest revenue, then soybeans, then wheat. I mean, cotton would be up there as well. But as you look kind of down the value cycle, ranching would be very low because you're just not generating much rent.

41:28So it's more marginal land that's used for that or larger tracts of land. Typically, like one of the big farmland owners is the Mormon Church. They're also one of the five largest cattle feeders in the country. So they own a lot of ranch land. So they're actually grazing cattle and then sending it to their own cattle. Yeah, and they'll graze the cattle and then eventually take that all the way to market. That's the type of vertical integration you'll see in some areas. In row crops, you just don't see that. We like to identify tenants we're working with that if they have a dairy, so they need the land to feed the cows, they need the land for their nutrient management program, those tenants are willing to pay more for farms if it's a strategic farm that's close by because they can't travel all over the place.

42:10But a lot of our tenants, they might have a home base that kind of looks like the center of this table. And the radius that they'll travel being willing to farm, they'll rent in these other areas if they can find enough acres to have scale. Because ultimately, every time a son or daughter wants to come back to the farm to help increase that family business, you can't just slice the pie more ways. You have to grow the pie. And I mentioned earlier the amount of total acres in the U.S. is going down every year. And in the Midwest, you don't have problems of aridity or erosion, but you have a lot of development pressure coming in.

42:44The cities are expanding. Manufacturing is expanding. So there are acres that farmers lose for those reasons every year. So it seems absurd to talk about farmland and artificial intelligence, but there are two different ways I want to go with this. The first is these giant data centers. They pay a lot more. They are a higher spending buyer or renter than, say, someone growing row crops. What's the relationship between farmland and AI and big infrastructure investing? Yeah, I mean, we're seeing it firsthand now in the Midwest. The amount of additional building that's happening around data centers is unbelievable.

43:29And the amount of capital that's being invested in these areas like Ohio, Indiana, Michigan, Illinois, around data center development, it's really staggering when you think about it. So there's, just outside of South Bend, Indiana, two very large data center projects that I think each is investing between$9 and$11 billion on these data centers. And the real estate price, even if it's, I think, our average cost per acre across our portfolio is about$8 ,000. You see data center prices anywhere from$100 ,000 to$300 ,000 an acre. 10x, 12x. That's crazy. Yeah, at least, if not more. And who are the companies that are these big buyers, all the big names we know?

44:06Yeah, it's the big ones that are out there. I think you see— Google, Microsoft, who else is— Yeah, groups like Amazon, Meta. It seems like what you're finding now is a lot less hoteling space for data centers, and they're all single user. And it seems like they're going after the best locations, which would be large tracts of land close to infrastructure. So you want natural gas. You need three-phase power with capacity on the line. You need fiber lines or rail access to run fiber. Water. You need water. And while there are multiple ways for cooling, water, whether it's closed loop or open loop, is a big part of all of it.

44:43But so what you tend to find are a lot of these old rust belt areas, but kind of virgin farmland is the best candidate for it. And you have these single users that are going after that land. So in our portfolio, we've aggregated large properties over time, and there seems to be a lot of interest around that because it's just there are very few of these places where you can do it. It's not like even a distribution center that next to every exit on the highway, you could justify putting one there. You need all the energy and water infrastructure and fiber infrastructure, and you need capacity. So every new – and there aren't a lot of new natural gas-fired power plants that get built.

45:24But when one gets built, it seems like a logical kind of co-user of that power would be one of those data centers. I was going to say, what about co-location where you just run a nat gas line and build your own electrical facility adjacent to one of these power plants? I feel like some of that is definitely happening and will continue. I mean, ultimately, some of these data centers will all be powered by modular nukes. When you get down to it, you need – Thorium? Is that what we're talking about? Potentially, yeah. I mean, the idea of when a data center is going in or even a big manufacturing facility, sometimes you'll see co-location of solar.

45:57And while solar has a lot of benefits, it's not going to power something like that. That's more just, I think, for credits to sell into the grid. I mean, we have Three Mile Island potentially coming back on. So there's a lot of different options. And I think across states like New York State, they've closed down some nuclear facilities or consolidated. Well, Shurum never opened here. They spent billions over 20 years. There was no escape route. Bad islands are not great places for nuclear facilities, but you see countries like France, 90 plus percent of their power generation comes from nuclear.

46:33Right. And the hard thing, when you think about power, I mean, I kind of laugh. I had two siblings that both went to Cornell, so I've been to Ithaca quite a bit. We own farms in upstate New York. And every time I drive from our farms there down to our family farm in northeastern Pennsylvania, you'll drive through parts of New York State that will say no industrial. You'll see signs that say no industrial solar, no wind farms, no fracking, no nuclear. But they all turn on their lights. So we have this really perverse view out there that you could call it nimbyism. You can call it whatever you want, but we need more of everything.

47:08More power for sure. Yeah, if you look at a – there's a few great graphs out there that show kind of the history of consumption for power. And the same amount of coal that's been used throughout history, this year will be the year that the most coal is used. The most peat that's ever been burned or wood is happening this year. the most oil produced or burned natural gas. The only energy source that's ever gone down really is nuclear. And that was out of regulation. Fear post Three Mile Island. Yeah, there's a lot of fears around it. And so if you look at what do we need, there's no energy, in my opinion, there's no energy transition that will ever happen.

47:43We need more of everything. That's really fascinating. I saw a chart, I forgot where, biggest producer of solar energy in the United States, Walmart. All their distribution centers, all their super stores, especially in the south, they just say we have dead space on the roof loaded up with solar. And they're not only subsidizing their own power consumption, they're getting credits for selling it back to the grid. Yeah, I think it makes a ton of sense, especially if you're building greenfield when you can actually – it's tough to retrofit things for solar. And even when we look at farmland that goes to solar, the idea of these little community solar gardens I don't think is very scalable.

48:25You tend to see more industrial-sized solar fields. And it's from the landowner's standpoint or the farmer's standpoint, or if a farmer's the owner, they're interested in the highest and best use. So what you tend to see is we have farm tenants that they sell land for development all the time. These farmers are very sophisticated. their CEOs. This has been happening for generations where someone will sell land that's close to town for a very high price, and then they'll move 20 miles farther out and buy three times the amount of land and set up shop there. So while the idea of a farmer moving always seems really hard to believe, this has been happening forever.

49:05The western suburbs of Chicago have extended and extended and extended, and farmers are, you know, I consider them dumb as a fox. Like they'll sell You say that as a farmer. Yeah, I know. It's interesting. They'll sell for a very high price, and when that development doesn't happen, they'll buy it back for less, and they'll wait for the next round of development and sell it again. Oh, that's funny. So some of the competition we see when we're buying farms, it's not just farmers that had profitable years. It's farmers that have 1031 exchange money because they sold land to a data center. And they have three years to reinvest before they get hit with taxes, something like that?

49:40Yeah, it's about 18 months, and they have to identify properties. But they have to go out there and reinvest it and kind of like-like to keep their cost basis. And farmers are really good at figuring their way around these tax codes and good for them. And I think that's a lot of the competition we see are 1031 buyers because there's just big dollars getting thrown around. They have no choice. They have to get deployed otherwise you pay in the tax. Yeah, and they want to continue to buy farmland. And a lot of farmers – I mean it's really interesting when you talk to them and you'd say, well, what's your dream scenario?

50:12And one of our tenants who sold some land to a solar company and they were selling land for a data center, I said, well, what's your goal? And they said, well, we want to continue to farm. We just want to do it debt free. So it's not like they just want to buy a place in Florida. They'll have one, but they want to continue to farm. So they want to go buy more farmland. Really, really interesting. Coming up, we continue our conversation with Brandon Zick, chief investment officer of Saris Farms, discussing the state of farmland investing today. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

50:58I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Brandon Zick. He's chief investment officer of Saris Farms. They are a specialty fund investing in farms and farmland. We haven't really talked about the risk of farming and a couple of my favorite YouTube shows. So I'm a car guy. I like Harry's Garage and his adjacent channel is Harry's Farm. And watching him do this stuff, you realize what a difficult job farming is, especially sometimes there's drought, sometimes there's too much rain. It's so expensive and so much of your product is totally out of your control.

51:44And then if you liked Top Gear, there's an Amazon show called Clarkson's Farm. And it makes you realize, God, this is an impossible business, at least in the UK. Farmers there are having a really hard time. So let's talk a little bit about the risks of farming and the risk of investing in farming. What are the possible downsides? Yeah, so on that, being a farmer is a very difficult business. I mean, there are so many different risk factors and so many decision points that you can make that completely can impact your bottom line in a material way. Not just what crop you grow and when you plant, but when you sell it, how you sell it, who you sell it to, how you store your grain.

52:28And all these things can change year to year. And to your point, and this kind of goes back to there hasn't been a lot of institutional roll-up yet on the land side, but the people that sell inputs to farmers, and the inputs can be seed, fertilizer, equipment, whatever it may be, and the buyers of their crop, the large grain buyers out there, your bungies and ADMs and Cargills, they all have a lot of pricing power. Your average farmer doesn't have any pricing power. So they're a price taker on the input side. They're a price taker on the crop side. So part of our value add for investors is we try to identify farmers that are the most well positioned to have whatever pricing power they can get.

53:09So they have to have scale so that when they're buying inputs that they can go out and negotiate the best price possible. You want farmers that can store their grain so they're not selling it all at harvest. They want to be able to sell it into the spring when other people don't have the crop. Yeah. So hopefully you get that positive carry. So we try to identify those folks. But when you're looking at investing in farmland, what are the downsides? Well, there are certain just climate issues. So if you're close to a river and it floods, that's a problem. If you have very sandy soils and it doesn't rain and you have drought, that's a problem.

53:44So we like to have farms where we can do some of that capex, like adding irrigation or adding drainage so that you can help manage some of those risks. How do you manage around weeds, pests, bugs and disease? Because there are a lot of dangerous diseases that literally come in on the wind. Yeah. And that's I mean, part of what the way we've constructed this portfolio. I mean, Perry was really prescient when he thought about the Great Lakes, the Midwest. It wasn't just because he was from Wisconsin or he was traveling to the Midwest. It's because in the Midwest, we have the best soil, some of the best water resources.

54:19And what I mean by that is these recharging aquifers, the Great Lakes aquifers, but also it rains during the crop season. So the cheapest form of irrigation is still just rains. You don't have to turn anything on or do anything. But there are parts of the South and the West where it doesn't rain when you're growing a crop or it's very sporadic. So you can't really grow a crop without irrigation. In the Midwest, it's more supplemental. So from a risk management standpoint, it starts with good soil, good water. We like good infrastructure so you can move your crops around. You also, and I had mentioned earlier, we like areas where it's a highly competitive market for rent.

54:53Because we're renting ground, we want to have lots of farmers out there that are all looking to grow. They're all looking to add acres. And so that makes a very competitive market from the rental side. Some of the stuff that, you know, investing in the U.S. isn't a risk, but there are a lot of people and a lot of managers that invest outside of the U.S. Currency risk is a big deal. Sovereign risk is a big deal. I mean, there's been many investors that have had more than their hand slapped for buying land in South America, particularly in Brazil, that they found out the group they bought it from might not have been the owner.

55:26And there's a lot of things that we think transparency is key. But we really like title insurance. We like rule of law. So we invest in the U.S. We invest in areas that are very friendly to farmers. And so that's, we don't own any land in California today. Maybe we will at some point. I think that's a little bit more difficult from a regulatory environment. And water is something that we view as longer term. Water is going to be a gating issue or a gating factor in a lot of areas. And you're seeing not just regulation, but restriction all across the country. So we want to be in areas where water is plentiful.

56:02It's one thing to have a paper water right. It's another to have water availability. And that's what we focus on. So last question, last two questions before we get to our favorite questions we ask all our guests. Let's look out five or 10 years. What are some of the biggest opportunities in farmland? And what are some of the potential dislocations and risks you're considering? Yeah. So in terms of opportunity, I mean, we think there's just so much capacity out there to continue to invest in the current markets where we are today. But within the U.S., we think the world's going to continue to need food.

56:39As water becomes more expensive in other parts of the U.S., so California as an example or Arizona as an example, a lot of those crops that people want to have the USA sticker on, so vegetables, produce, they're going to be grown more at least seasonally in areas where they're cheaper to grow. Like Mexico? So a lot of that today, a lot of produce is grown in Mexico and that's labor is the biggest issue. Labor there is next to nothing. So if people don't care if they're blueberries or if they're watermelons, say USA, then it will all come from Mexico if people don't care because it's just from a cost of production standpoint, it's so much less.

57:21But in California, the cost of water, so let's say you have a well that you need to pump 1 ,000 gallons a minute to grow celery. That might cost a couple hundred thousand dollars a year. The cost of the well itself is a million dollars. To grow that same celery, maybe less of it because you're not growing year-round. In Michigan, that well costs$50 ,000, and it costs$200 a year to operate. So even if the labor cost was same, same, the cost of production is much less. and every crop in the U.S., almost every crop moves west to east toward the population center. So if you're east of the Mississippi, you've cut a huge freight cost off of the cost of production too.

57:59So Midwest straight to the east coast and much cheaper than coming up from Mexico. Yes. And I think over time, we're going to see more and more of that high revenue production move there. So we view that as an opportunity. A risk is always does the cost of labor outpace technology growth? We've seen – and part of the reason we like row crops are because there's more technology being implemented and much less labor. I'm glad you mentioned that because one of the things that was fascinating on both those shows were the GPS-driven tractors. So if you're going to run a combine, you're going to lay fertilizer down, you're going to harvest.

58:36These things essentially drive themselves long before Tesla because doing that efficiently is a giant money saver. Talk about the technology that's making farmland more productive. Yeah, I mean, technology, I would say, in agriculture is moving as fast as anywhere. And it's really because there are real tactical issues around labor is too expensive. The cost of inputs has gone up. So to talk to our farmers, and that's a big part of our underwriting, is we want farmers who are using the latest technology. Whereas in the past, if someone was planting a crop, they would broadcast equally across the entire field, the fertilizer, the seeds.

59:15And when you look at actually some of these farms, the soil types and quality throughout a farm can be highly diverse. You could have five to 100 different soil types. So the soil mapping that they can do with technology to then. Via satellite, right? Via satellite. And they also use probes to get out there. Trust but verify. You go out there and do that. And then they can use variable rate applications of fertilizer and seed. So in an acre of ground of really high quality black dirt, they might plant 35 ,000 seeds per acre. But then in the sandier, lower quality soil, it's only 20 ,000 and achieve the same yield.

59:55So what you're doing is saving money on the seed, applying fertilizer so that it's not running off. And farmers don't want waste either because that's money that's just rolling away. And this isn't just satellite. It's satellite. It's drone. It's a lot of high-tech tools that you don't think of. You think of picks and shovels with farms, but there's a lot of high-tech here. Well, and something as easy as if you said 20 years ago you had irrigation on a property, these big irrigation pivots, and there's some publicly traded companies that manufacture all these in the U.S., like Valley and Lindsay.

1:00:27And 20 years ago, if a farmer had 20 pivots, they'd have to have five or six different people in the morning get in a truck and go out and start them up and then throughout the day drive by and make sure they're still running. Now that farmer can control everything from his or her iPhone. They can start it, stop it, monitor. They have moisture probes out in the soil so that they know, do we need it? in some cases they are using AI or some learning mechanisms to say, well, based on is it going to rain, we're not going to turn itself on. So farmers are subscribing to some of this kind of smart data to go out there and make them a better operator.

1:01:05And those are the farmers that when you look at who are the people that are going to grow, they're the ones that are using the latest technology that'll do that. And our final question before our favorites, what do you think people don't understand or aren't talking about when it comes to farmland as an investment? Yeah, I think most people don't understand just the sophistication of the farmers they're dealing with. When people say, what's going on in agriculture, they paint with a very broad brush. And you wouldn't say that if you said, what's going on in accounting? Well, there's some great accountants and probably some poor ones or what's going on in any industry.

1:01:41You have to look at who are the people leading the way, and that's who we try to partner with because we think they will help us generate the best returns. Whenever that Bloomberg, Indiana farmland go exists, it's going to be pretty fully priced. I think it'll be much more efficient. The inefficiency is still out there, and I think that's what we're able to, I won't say take advantage of, but that's what we've been able to lever over time is focusing on that inefficiency. There will be a lot more money that comes into investing in farmland. We're seeing crowdsourcing of farms. We're seeing more public REITs that are going to be launched and that will be out there.

1:02:17But I think it's a long way when you think of there's no cheap beta. There'll be a lot of expensive beta out there. There are still alpha generators. And this is an asset class that you just have to go pick a manager. You can't just say asset allocation helps us and gets us there. You have to pick a manager. There's no Vanguard for passive indexing for farming. Yeah, there's no wisdom tree for that. Yeah, no. All right. So let's jump to our favorite questions we ask all our guests. starting with, tell us about your mentors who helped shape your career. Yeah, so I'll start with my parents because they encouraged all of us, the six of us in our family, do something else.

1:02:54We know this is not... Not uncommon with farmers, right? Yeah, and they both grew up on dairy farms, and we grew up on my dad's family farm, and my parents were both very well-educated. I remember some of my best memories as a kid were having dinner watching Jeopardy! with them. And it was, we were always shocked. How do they know all these answers? They ran the table. Exactly. We were not very successful. But, you know, our parents were really focused on education and just doing, you know, something better. You know, we'll always have the family farm. My mom still lives there today, and it's great to go back there.

1:03:28But, you know, they really encouraged all of us, go do something else, and gave us the opportunity. There was no pressure for any of us to come back to the farm. They actually said, I remember my dad telling me, the year you were born and the year you graduated high school, the price of milk was the same. This is not a long-term strategy. So I'll start with them, but I had some great folks I've worked with throughout my career. Someone at Morgan Stanley that I think really made a difference for me was Arthur Lev, who had come from Front Point. He was the head of chief legal officer there, and he was probably the biggest proponent of me going to Cirrus.

1:04:04He said, You have to do this. Why would you not? And I've worked with some great people that, you know, having been at Lehman Brothers, there's a lot of people that got vaporized that I really respected. And you just think, OK, if you're going to take a chance on something, you've got to do it. And seeing kind of what's happened over time throughout my career, a lot has occurred. You know, it's all shaped you in a different way. And our founder, Perry Beeth, I mean, he, I think about this today. In five years, I'll be 52, and that's when he started Cirrus, when he was 52. And it was completely different than being the fixed-income money manager that he was.

1:04:41And building a great team, I think, is the best thing he did. And the people that we've been able to hire over time, I want to be their mentor because I know they'll be better than me. And that, to me, has been the most important thing. Really fascinating. Let's talk about books. What are some of your favorites? What are you reading currently? Yeah, so a book, and I mentioned water is just such an important thing. A book that I read often, it's called Water, the Epic Struggle for Power and Civilization. And it really talks through, it's a history book, but it talks through the success of civilizations around their ability to access clean water and their ability to treat dirty water and get rid of it.

1:05:17And it's just a fascinating story of kind of the growth throughout the world, population growth. But something I'm reading now that I just finished, and it's because I'm on the board of my high school, they just did away with cell phones. And it's Anxious Generation. And it's really an eye-opening book about social media and when people have their phones, just how it impacts their life. And so our Jesuit high school did away with cell phones, and I think it's the greatest thing they could have done. There's a lot of that going on these days. More and more school districts are forcing the kids to put schools and phones in lockers.

1:05:55Yeah, they should do that. I mean, we have to get them out of our house, the iPads and stuff. That's a bigger battle to get through. But, yeah, it's something that's just eye-opening. Let's talk about streaming. What are you listening to or watching on Netflix or Amazon Prime? Well, I have a lot of windshield time. So I listen to a lot of podcasts. So, you know, Invest Like the Best, obviously, you know, Meb Faber, Jeremy Schwartz, Barry Ritholtz. I listen to a lot of business podcasts. I also love sports. So I listen to a lot of Ringer podcasts, too, around sports and entertainment. On the streaming side, you know, I rewatch The Wire every year.

1:06:33Really? It's just my favorite show ever. And so I do that every year. I'm now watching Severance, which is an interesting. I'm not all the way done with the three seasons yet. It takes a couple of severe turns that are like, where did that come from? Yeah, I can imagine. But the whole concept is kind of fascinating. Yeah, exactly. Final two questions. What sort of advice would you give to a recent college grad interested in a career in either investing alternatives or farmland investing? Yeah, I think back to building the network is probably the most important thing you can ever do because there's so many people that are good at whatever you think you're good at.

1:07:16There's someone that's better at it for sure, whether it's modeling, thinking about investing, whatever it may be. Someone's always better. So to me, building that network and you can't be full of it. You have to be genuine when you're talking to people. But I think that's been the best thing I've ever done. And that's the thing I can – and that's why I take a lot of time – I mean, we get a lot of people that reach out to us with all types of questions. And all of the portfolio managers on our team grew up on family farms. They all went and worked in finance. And there's probably a lot of Wall Street people, not per capita, but generally a lot of Wall Street people that grew up on farms and had this great foundation of hard work.

1:07:58And then they figured, well, I'll never be able to use that again for the rest of my life. So I think being able to build up your network, because sometimes you can pull on a thread and you won't know where it'll go. And so that's what, you know, that idea of talking to someone at an endowment to say, you know, kind of do a reference check for these people I'm talking to. And they just say, well, you should talk to this other person instead. And you just never know what path you're going to go down. So leverage that. Really, really interesting. Our final question, what do you know about the world of farmland investing today that might have been useful 15 years ago or so when you were first diving into this space?

1:08:37Yeah, I think when I think about it now, there are very few farms we missed on that I wouldn't love to own today. And, you know, being able to look back in the rearview mirror and say that would have been a great purchase, you know, that's always interesting. Is the regrets more the things you did and shouldn't have or the things you missed and wish you did? No, it's the things we missed that we wish we had done. But today we're in a position that we use no leverage when buying properties. They're all cash purchases. You can never say you're bulletproof, but we have a great balance sheet. But over time, we were still doing missionary work in terms of telling people this is a real asset class.

1:09:17So we were using leverage to purchase properties just when we didn't have new money coming in. And so we've always been very conservative. And in farmland, leverage is a different beast. You know, you can't buy a farm. It's not 20x. No, you can't buy a farm with 5 % down. You need 50 or 60 % down to buy a farm. So it's modest leverage. And unless there's a disaster. Yeah, and it's all fixed rate mortgage debt. But we were just always very conservative. And I think some of that conservatism now, you'd say, well, maybe that was overly conservative. But, you know, we also didn't get burned. And you don't move from$30 million to$2 billion by being overly aggressive.

1:09:53Or you don't do it all at once. You have to do it over time. And that's kind of what we focused on. Brandon, this was absolutely fascinating. We have been speaking with Brandon Zick. He is the chief investment officer of Saris Funds, now owned, by the time you're seeing this, by Wisdom Tree Asset Management. Um, if you enjoy this conversation, well, be sure and check out any of the 569 episodes we've done previously over the past 11 years. You can find those at Bloomberg, iTunes, Spotify, and here at YouTube. be sure and check out my new book, How Not to Invest, the ideas, numbers and behaviors that destroy wealth and how to avoid them, how not to invest at your favorite bookseller.

1:10:40I would be remiss if I did not thank the crack staff that puts these conversations together each week. Alexis Noriega is my video producer. Anna Luke is my audio producer. Sean Russo is my researcher. Sage Bauman is the head of podcasts here at Bloomberg. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.