Agriculture Investing in Opportunity Zones, with Chris Rawley

Chris Rawley

How can agribusiness capitalize on the Opportunity Zones program?

Chris Rawley is founder and CEO of Fort Worth, TX-based Harvest Returns, an investment firm that facilitates capital raises for small- to medium-sized farmers. They launched the Sustainable Agriculture Opportunity Zone Fund earlier this summer.

Click the play button below to listen to my conversation with Chris.

Episode Highlights

  • How Harvest Returns combines agriculture, investment, and technology into a single platform, giving individual investors the ability to diversify their portfolios into agriculture.
  • How agriculture is transforming to meet consumer demand changes.
  • How sustainable agriculture can produce environmental and social benefits, creating more jobs in rural America.
  • The technology behind indoor controlled agriculture to remove traditional farming risks, and how it may be ideally suited for Opportunity Zone investing.
  • Farming and agriculture’s place in an investment portfolio.
  • Agribusiness fund. Impact investments in OZs. Environmental impact. Social impact.
  • The amount of economic activity and job growth that agribusiness deals are capable of generating.
  • Some of the biggest challenges of agribusiness investing in Opportunity Zones.

Featured on This Episode

Industry Spotlight: Harvest Returns

Harvest Returns

Founded in 2016 in Fort Worth, TX, Harvest Returns facilitates capital raises for small- to medium-sized farmers. They have a platform of agriculture investments open to accredited investors, including their new Sustainable Agriculture Opportunity Zone Fund, which launched earlier this summer.

Learn more about Harvest Returns

About the Opportunity Zones Podcast

Hosted by founder Jimmy Atkinson, the Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.

Show Transcript

Jimmy: Welcome to the Opportunity Zones Podcast. I’m your host, Jimmy Atkinson. If you’re like most people, you probably equate opportunity zone investing with revitalizing blighted urban communities. But many of the nation’s opportunity zones are located in rural areas, where agriculture and farming produce much of the economic activity. Today, I’m at the office of Harvest Returns in Fort Worth, Texas. In July, they launched one of the first agriculture opportunity zone funds. And joining me is Harvest Returns CEO and founder, Chris Rawley. Chris, welcome to the show.

Chris: Thanks for having me, Jimmy. Glad to be here.

Jimmy: Yeah, glad to be with you. It’s always fun to do an interview locally here. I’ve done a couple of them, so it’s nice to meet another Fort Worth person who’s interested and knows this. So, Chris, tell me about Harvest Returns. When did you start the firm, and why did you start it?

Chris: So we came up with the idea for Harvest Returns in 2016, and the basic idea was people want to invest in farms, but it’s very challenging to do so. It takes a lot of capital, a lot of know-how, and there’s an education curve. And so we created the platform to sort of take some of the friction out of the investment process, lower the minimums, and lower the expertise it takes to invest in a farm. Launched in 2016, put our first deals together in 2017, and we’ve raised successful deals ever since. And now, we are excited about launching the Sustainable Agriculture Opportunity Zone Fund.

Jimmy: Yes, the Opportunity Zone Fund came along after you guys had launched probably I guess about…about a year after you launched maybe is when you first heard about the program. We’ll get into that in a minute. I wanna ask you more about the Sustainable Agriculture Opportunity Zone Fund that you launched. But first, let me get a little bit more of your background. Chris, can you tell me how you got to where you are today, and when did you become interested in agriculture?

Chris: Sure. So I grew up in North Dallas. Like a lot of suburban kids my generation, I spent a lot of time eating TV dinners, watching TV, and kinda ate whatever my mother put in front of me, didn’t really have any sort of appreciation for food, how it was produced, what was in it, or who produced it. And then after college, I was commissioned as a naval officer, and as they say, I got to see the world. Join the Navy, see the world.

And so I traveled all over the place, all over the world, been very fortunate and blessed to see, to visit more than 50 countries. And one thing I noticed as I was traveling to some very war-torn and poverty-stricken places was that people were reliant on food, and people in other countries don’t take their food for granted like we do here in America, where you can pretty much go to any restaurant or any supermarket and get just a huge variety of food. And some of these countries, you know, they are happy to get whatever they can eat, and that means they’re growing their food, they know where it comes from, they’re often producing it in their own backyards or in the local community, and so it means much more.

And so that kinda gave me a gradual appreciation for agriculture that I didn’t have. I also, after I left active duty, I worked in commercial real estate, kinda got an investing bug for real estate at that point, and worked in tech, in big tech companies here in Dallas, Fort Worth and in Florida, and started learning. Seeing how those two things could work together, real estate and technology, so took that idea, did appreciation for agriculture, along with investment in technology, put the three of those concepts together in a platform, and that’s when we launched Harvest Returns in 2016.

Jimmy: Harvest Returns is giving regular investors with maybe not a whole ton of money, some access to some of these agriculture properties that they wouldn’t have otherwise had access to. What type of agriculture does Harvest Returns invest in typically? And where are your properties located? And what’s the typical size of these properties? And what types of properties, what types of assets?

Chris: Sure. So we do a variety of types of agriculture. Most people when they think of farming in the U.S., they think of sort of large-scale row crop farms. So you drive pretty much any place in the Midwest, Southwestern United States, you’re gonna see thousands of acres of corn or cotton or sorghum or wheat or you name it, conventional row crops, that’s the vast majority of the produce or the food that is produced in the U.S. is produced on these sort of large-scale industrial types of farms.

We don’t really mess with those types of projects. We are more interested in the specialty side of agriculture, whether that is organic conversions. There’s a high demand, consumer demand right now. Consumer preference is rapidly changing, so people are becoming more, unlike, you know, when I grew up, people are becoming more aware of what’s in their food and how it’s produced and where it’s produced, and who’s producing it. So people want farm-to-table food, they want organic, they want grass-fed meats, they want non-GMO foods.

So all these types of agriculture are becoming more and more specialized to meet changing consumer demands, and because of that, the way that food is being produced is changing. And these types of operation, be it indoor agriculture, hydroponics, aquaponics, that sort of thing, it’s capital intensive.

And the farmers that we speak to, and we speak to probably four or five different farmers every single week, they approach us for capital or looking for flexible funding sources. Because quite honestly, the capital, the ag finance and banking system hasn’t changed a lot in 50 years, it hasn’t evolved to meet the needs of these new types of farmers, and that’s where we see an opportunity to help be that alternative source of financing for farmers.

And the deals we look at, people that wanna raise anywhere between, say, a half a million, a couple million dollars in debt or equity, we’ve done a debt deal and we’ve done several equity deals, and these are investors…or these are farmers and farm business, agribusinesses that want to scale their operations so they could compete with some of those larger-scale farms. So they’re looking for just like you might in the commercial real estate deal, they’re looking for equity investors to come in and help them scale up, combine that with some bank financing to get a larger amount of deal.

Jimmy: Good. These are not huge corporate farms. We’re talking about mom-and-pop farms typically, and it kinda runs the gamut in terms of row crops or some of it’s indoor, some of it’s hydroponics.

Chris: Yeah. So we do, yeah, that specialty indoor. Most of our focus is in the United States, but however, we have funded two small deals in emerging markets, so frontier markets, one in West Africa, one in Belize. Both happen to be coincidentally cacao farms. We do get a lot of inquiries from overseas, and eventually, we’d like to grow and be able to fund more of those, because there’s very little opportunity for capital development in these emerging markets. That’s really where the future of food production lies.

That said, our focus is primarily on American farmers and family farmers. Most farms, even large-scale ones in the U.S., are family farms. It’s just that it’s tough for them to compete because with globalization that family farmers are not just competing with the guy in the next county, he’s competing with the large-scale farmer in Brazil or organic farmers in Mexico or the Caribbean. And we wanna shorten the miles and help correct the trade surplus in agriculture in the U.S.

Jimmy: And that shifts our focus now to your Opportunity Zone Fund, which will focus 100% on American farms. So let’s talk about that a little bit more. Your Sustainable Agriculture Opportunity Zone Fund you launched just a few weeks ago. Before launching this fund, your platform focused only on single projects. But I believe this is your foray into a multi-asset fund, which is a bit of an interesting shift for you guys. What is your fund’s strategy though? And maybe you can tell me and my listeners what makes it unique among opportunity zone funds.

Chris: So yeah, we were very excited when we started learning about this time last year, last summer, about the opportunity zone legislation and how it was evolving. As we started talking to our farmers, we found out that some of them were on opportunity zones and didn’t even realize it, and these are the same types of projects we would normally fund.

Just as I mentioned, the focus is sustainable opportunity or sustainable agriculture. Sustainability means different things to different people, but yeah, when you really look at its projects, there are good for the environment projects that have social benefit. A big part of that is bringing rural jobs, jobs to rural America. There are 8,700 opportunity zones, I guess roughly, and according to USDA, we found that 40% of those or roughly, you know, 4,000-something are in rural areas.

So that is a big untapped resource. Most of the opportunity zone funds out there are focused on urban areas, as you said, commercial real estate. And quite honestly, they’re betting on some amount of gentrification to come in and bring up those areas. We’re looking at these rural areas, and as most of your listeners know, there’s a big urban-rural divide in the United States. It’s cultural. It’s economic. It’s geographic. There’s just a large number of factors that create that divide.

And so one of the things that we are excited about with this Opportunity Zone Fund is to bring some of that urban capital, people who have those capital gains, into rural areas to benefit the families and the farms that produce the food for the rest of us, because the vast majority, even though we do see some urban farming more and more, the vast majority of food is and probably always will be produced in rural areas of the United States.

Jimmy: And what is the fund strategy exactly? How many properties, I guess, will you invest in do you anticipate? How much money are you looking to raise? And what types of properties are you looking at typically?

Chris: Sure. So we’re doing a $25-million fund, and we expect, out of that amount, we will probably invest in 4 to 5 projects. Right now, we are sort of scrubbing through about 35 deals. The total value of that pipeline is about $275 million. So we’re looking at, you know, 8% or so of those deals. We’ll perform some due diligence, and we’ll narrow that down and select these offerings based on a variety of factors, you know, the experience of the sponsor, the economics, the way it balances risk in a portfolio.

And the types of offerings that we’re looking at or projects we’re looking at are very similar to the ones that were already on our platform. So we’re looking at some controlled environment, indoor agriculture like hydroponics. We’re looking at…we’re talking to a grass-fed livestock operator, one of the same ones we’ve already helped raise capital for expanding his business further, things like timber and row crops. Organic row crops might or regenerative agriculture could be a part of it. Generally, the returns from those types of investments are lower, but we’re looking at creating that balanced portfolio that’s gonna manage risk while still creating capital appreciation for the opportunity zone investor.

Jimmy: I’m gonna talk about your indoor or controlled climate agriculture product. What does that look like exactly? Paint a picture for me. I don’t know much about that, and it sounds really interesting. I wanna hear a little bit more about that.

Chris: So you know, it goes by different terms, controlled environment agriculture, indoor agriculture, even urban agriculture. The whole phenomenon has been going on in Europe for longer than it’s going on here, but essentially, what you’re talking about is pulling a lot of the risk out of a farm by controlling some of those factors and producing the food indoors.

So, what are those risks? Well, weather and water consumption is the most obvious one. When you take like hydroponics, you’ve got a closed system, so the water consumption is much less than if you’re doing outdoor field-based agriculture. The propensity for pests and insects to infest the crop and ruin the crops and disease is less. You’re controlling it more. Because you can grow year-round, there’s a lot of benefits there, both economic and just in general. So you can grow food and multiple crop cycles, so rather than growing…say, if you’re growing tomatoes one or two a year, you can grow several cycles of tomatoes per year. You can grow it closer to where it’s consumed.

So there’s a concept called food miles where it’s the amount of miles that food has to travel before it gets into the grocery store or in the restaurant or on the table. And the more you can reduce those miles, one, the less energy that’s consumed getting that food to market, but also, the food is fresher when it gets to market or on to your table, and it’s frankly more nutritious. So there are a lot of benefits by doing this controlled environment agriculture, indoor agriculture.

That said, it’s capital intensive. So rather than buying a piece of land and preparing the soil and maybe putting in irrigation with a typical outdoor field-grown project, you’ve got to take that same piece of land, you’ve got to build a greenhouse, you’ve got to put in sophisticated irrigation, electronic automated controls, there’s still a labor component you’ve gotta do, and that is becoming more and more automated. But we’re really bullish on the future of indoor agriculture, and we see more of those types of projects springing up all over the U.S. And we’re excited about including one or more of them into our Opportunity Zone Fund.

Jimmy: Yeah. I would imagine that if you could build those anywhere in the country, might as well build them in an opportunity zone, right, if you’re gonna do it for an opportunity zone fund.

Chris: Yeah, that’s exactly right and that’s some of the conversation we have with farmers who are looking at projects. And some of them have heard about opportunity zones and know about it, but others have not and we’re sort of straying them in that direction.

Jimmy: Overall, how do you view farming and agriculture fitting into opportunity zone investing?

Chris: So we see it as a great way to diversify a portfolio in any event, whether it’s in or outside an opportunity zone. And you know, the sort of saying that goes around opportunity zone circles is you don’t wanna do a deal just because it’s an opportunity zone or you don’t wanna do a deal just because it’s got favorable tax circumstances. You wanna do a deal because it makes financial sense and any other benefits involved in investing. And we feel the same way about agriculture.

So where it fits in the portfolio, say, compared to commercial real estate, and I have been and still am a commercial real estate guy, that there’s a diversification. It’s not such a cyclical market, especially the types of specialty premium agriculture that we’re looking at, premium food products. Where rural-based agriculture, you know, most people have heard that farmers, a lot of the farmers in the U.S. are going through some tough times, and that’s due to commodity prices, tariffs, you know, just weather events.

Those sorts of things make it tougher to the farmer. The types of products we’re looking at and the projects we’re including in our fund do have some of those risks to mitigate. Things like grass-fed, humanely raised livestock, people are willing to pay a higher price for that, and because they’re willing to pay a higher price, it’s like a lot of sort of luxury items, it’s less volatile to economic cycles or in this case, commodity-based cycles. The prices are gonna stay high even if the underlying commodity tends to fall.

And the diversification that agriculture provides… You know, I really see three benefits to investing in agriculture writ large. One is just the demographics, the amount of arable land all across the world continues to decrease, the population continues to increase, the wealth of populations continues to increase, and as populations become wealthier, they tend to eat more, especially protein. So that is just driving the economics behind food production in the U.S. and across the world. The diversification that agriculture provides is pretty important from a portfolio management basis.

As far as having an asset, it is not correlated with stock and bond markets in your portfolio. It makes a lot of sense, which is the reason why you have pension funds and university endowments have invested in timber and farmland for decades now, and it’s becoming sort of a new thing for the retail investor or the typical real estate investor. And then the returns are also very competitive with real estate. For our particular fund, we’re looking at sort of a pretax benefit 10% to 12% return we’re shooting for. Some of the projects we do on the platform already have higher than that, some a little bit lower, but it’s kinda similar to what you might find with a real estate fund, but you’re able to get a little higher level of diversification.

Jimmy: And then you layer in the tax benefit, and your after-tax return shoots up a little higher even maybe.

Chris: Right.

Jimmy: I kinda see agriculture, correct me if I’m wrong, but agriculture and farming almost a hybrid really between real estate and business. Is that fair to say? You’ve got the underlying value of the real estate, the land, but then you have a business operation on top.

Chris: Yeah, that’s exactly right. We are doing a business fund for, you know, your listeners, I’m sure they are familiar with the difference between real estate and business, and our fund is a business fund. Because we see that agribusinesses, yes, there’s that underlying value, the land and the infrastructure improvements, makes sense from an opportunity zone regulatory perspective of you have to double the basis of the fund, and by taking a raw piece of land and putting a greenhouse on it or creating a cattle herd on it or whatever you’re doing to increase that, double that basis within the opportunity zone rules is important.

But it’s also, yeah, it’s very similar. Location is important, location and market, although, unlike real estate, you’re exporting the product. You may be growing it inside an opportunity zone but exporting it outside an opportunity zone. And you’re still meeting the rules of the opportunity zone, but from a business perspective, it just makes more sense. It’s more of, you know, like a Google. Google works in a data center or whatever, but their product is consumed all over the world. But yeah, whoever owns that data center is making bucks.

Jimmy: So just to clarify then, your fund isn’t gonna invest into real estate directly. It’s investing in the businesses that make use of the land. I guess that’s a lot easier to meet the requirements because you don’t have to pass the substantial improvement provision or the new asset test, is that right?

Chris: That is right, you know. Obviously, the opportunity zone rules are complex and dynamic and, you know, we’re waiting for the new set of rules. But yeah, we found that investing in production agriculture businesses as well as value-added agriculture processing facilities that take that raw product and convert it to something a little bit closer to consumer, whether it’s packaged food or hemp turned into textiles or CBD oil, that sort of thing makes a lot of sense for our fund, and that’s why we decided to put it together that way.

Jimmy: What type of economic development are these businesses gonna produce? Do you anticipate the types of jobs they’re gonna create, how many jobs that they’re gonna create? Just within your fund, maybe you can cite one or two examples of some of the deals that you’re looking at in your pipeline. What type of economic activity do these deals generate within their communities?

Chris: Yeah. So it varies from deal to deal, but I’ll give you an example of a deal we did that was not in the fund but it’s probably typical of the ones we would include. It was a hydroponic operation. It was at a small town in Kentucky and it is a town that they’ve had a factory closed down. Like this is happening in a lot of small towns, is some of that manufacturing goes offshore, and they had lost, I think, like 250 jobs.

And so our greenhouse operation was gonna bring 75 new jobs to the town, and that, you know, ranges everything from unskilled labor, the harvesting side, to skilled foreman and managers and job training opportunities and vocational opportunities for the schools and the neighborhood of that town. So those are the types of economic benefit that we hope to achieve with our impact investments in opportunity zones. We’re also looking at other types of impact, whether that’s environmental impact. You know, some of the producers we’ve talked to talk about the carbon credits that their operation is producing because, you know, they’re growing something and that’s offsetting carbon consumption. We talk to some Native American farmers and groups like that, disadvantaged groups. So there’s a lot of impact beyond just the financial impact that one can invest those sort of intangibles when you invest in opportunity zone fund.

Jimmy: Yeah. There’s a social impact and there’s also an environmental impact with your fund in particular as well. What do you see as being some of the biggest opportunities for you, for Harvest Returns, as you get this O-Zone fund off the ground?

Chris: For us, it’s a way to take the projects that we are already funding and put them together and get some scale and some rapid growth for the company, as well as alternative sources of capital. And that’s the same benefit that a lot of these opportunity zone funds are seeing, where people who may not have ever invested in real estate or in our case, may not have ever invested in agriculture, now they have this opportunity to take those capital gains from selling their Amazon stock or maybe they sold a business or whatever asset they sold to achieve that gain and taking it and having that 6-month period or 180-day period to redeploy it into these opportunity zones and to reap the benefits of that from a tax perspective, but also from an impact perspective.

Jimmy: Have you given consideration to exiting these investments, you know, 10 years down the road? Talk to me a little bit about your exit strategy, because that’s really the necessary piece of the puzzle that you need to execute properly for your investment to be able to take full advantage of the program, that exclusion of capital gains on the back end.

Chris: Yeah. And you know, that was another reason that kinda steered us in this direction, because most of the projects that we look at in agriculture are sort of long-term-oriented projects. So whether you’re doing just growing row crops, you know, it’s sort of you’ve got some cash yields that are pretty modest, but then you’ve got the underlying value of the land, which takes a long time to appreciate. That would be one example.

Another example is a development project. So you’re taking a raw piece of land and you’ve got a two to three-year period to build, say, a hydroponics operation, a large-scale greenhouse on that land. And then once you get that going, it’s gonna start throwing off cash flows, and it basically becomes almost like a utility play, where you’ve got cash flows. And at some point, you can sell that to a private equity firm or you can sell it to another firm that’s consolidating these types of projects, because for the most part, agriculture is pretty fragmented in the U.S. This type of agriculture, the specialty agriculture is really fragmented.

So there’s opportunities for liquidity events, you know, before or at that 10-year point. Another example is just some crops take a long time to grow, timber being one of them, you know. We consider timber a piece of agriculture where you need that 10 years for the trees to mature and you start with smaller trees that may be 4 or 5 years old before you can get that first cut and make 16, 18-year point. It takes time and it’s a slow agriculture. There’s this whole slow money investing agriculture group. And so it works pretty well with opportunity zones. It’s not just slap up a hotel and sell it and flip it.

Jimmy: Yeah. So actually, the 10-year-plus hold kind of fits in well.

Chris: Yes.

Jimmy: And you’re anticipating you’re gonna likely sell off these assets one by one.

Chris: Yeah. You know, obviously, it’s hard to have a crystal ball and look 10 years into the future, but the strategy is to sell off or refinance the assets to pull the investors out, you know, the 10-year period or shortly thereafter.

Jimmy: Good. What have been some of the biggest challenges that you’ve faced so far with getting this Opportunity Zone Fund off the ground?

Chris: Yeah. Our biggest hurdle was probably the same as most of the fund managers, especially on the business side, is sort of watching these regulations evolve and change. And we didn’t wanna launch until after this, I guess it was April, the last second tranche of rules came out. And so just watching that, making sure, as we sort of go through our investment opportunities for consideration of the fund, make sure that they’re gonna meet the OZ rules as complex and dynamic as they are.

Jimmy: Yeah, absolutely. Yeah, we had that second tranche issued in April and the hearing just a few weeks ago. Hopefully, we’ll get final regs here in the next few weeks or so, I guess. Very good. Well, Chris, before we go, I’ll give you one last chance here for you to give us the business case for agriculture investing. I think you kinda hinted at this already a little bit, so you may repeat yourself about one last pitch to everybody listening. Why should they invest in agriculture?

Chris: Yeah. So yeah, I did kinda go over the three pieces of why agriculture is important, that demographics that is ever-present, the diversification, and just the overall returns. But I think, you know, if you’ve got a portfolio and whether it’s got stocks, bonds, real estate, you’re looking for something a little bit that has all the economic benefits but also it’s important… Food is important, you know. Everyone has to eat. Agriculture is the one industry on the planet that impacts everyone. Everyone has to eat, everyone has to wear clothes. A lot of people drink coffee. There’s products that are consistent around the world that are all derived from agriculture, and we take them quite honestly for granted. So if you want to put a little of your portfolio into a very important asset, a very important industry, then consider investing in agriculture.

Jimmy: Before we go, Chris, can you tell our listeners where they can go to learn more about you and Harvest Returns?

Chris: Sure. Easiest place is There’s a dropdown there of Invest, and that’s got a link to our Opportunity Zone Fund, some questions about it, and then you can register on the platform and access the offering documents and invest in, you know, soup to nuts, review the documents, sign the documents, invest, do everything all automated or we can do it offline. And then we’re on social media and we put a lot of educational products, because we think it’s important for people to understand before they invest. And Facebook, Twitter, LinkedIn, you name it, we’re out there. So is it.

Jimmy: Good. And for our listeners out there, I’ll have show notes for this episode on the Opportunity Zones Database website, and you can find links to all the resources that Chris and I discussed on today’s show. And you can find those show notes at Chris, again, thanks for joining me today. I appreciate it.

Chris: Glad to be here. Thank you, Jimmy, for the opportunity.


Discover Your Next Opportunity Zone Investment...

OZ Pitch Day

March 7, 2024