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Perennial crop farms and regenerative agriculture in many ways overlaps with Opportunity Zones, creating a positive financial benefit for investors, as well as a positive environmental impact.
Kevin Maher, founder of CrannMor Advisors, joins the show to discuss how his group is utilizing Opportunity Zones to raise equity for their regenerative farming operations in upstate New York.
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- How the Opportunity Zones policy overlaps with perennial crop farms and regenerative agriculture.
- How the long-term bearing cycle of perennial crop farms lines up well with the time frame of Opportunity Zone asset holding.
- Seasonal and year-round job creation in rural Opportunity Zone communities.
- The current status of CrannMor’s farming operation, and Opportunity Zone equity raising for future farms.
- How perennial crops as an asset class may fit in an investor’s portfolio, offering some diversification from financial markets and an element of inflation protection.
- The environmental benefits of regenerative agriculture, and how environmental economics (including ecosystem credits and carbon credits) can create a financial benefit for investors as well.
Featured On This Episode
- Mark Shepard’s New Forest Farm
- Restoration Agriculture by Mark Shepard (Amazon)
- Water for Any Farm by Mark Shepard (Amazon)
- Crann mor: Scots Gaelic for big tree.
Today’s Guest: Kevin Maher, CrannMor Advisors
About The Opportunity Zones Podcast
Hosted by OpportunityDb.com founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.
Jimmy: Welcome to the “Opportunity Zones Podcast.” I’m Jimmy Atkinson, and my guest today is Kevin Maher from CrannMor Advisors. He joins us today from the Greater Albany area in Upstate New York. Kevin, great to see you. Great to have you on the show. Welcome. How are you doing?
Kevin: I’m fantastic. Thanks, Jimmy. It’s a real pleasure to be on. I’ve been a long time listener of the podcast, so enjoy this.
Jimmy: Well, it’s great to get you on the show today, Kevin. We’re gonna be talking about farming and agroforestry today on today’s podcast, and how that topic intersects with Opportunity Zones. But why don’t you tell us a little bit about CrannMor Advisors, and what are you guys doing with regard to agroforestry where you are currently in upstate New York?
Kevin: Sure, thank you. We are establishing perennial crop farms using agroforestry practices, sort of well-defined USDA practices, in Upstate New York. Our core crops are chestnuts and hazelnuts, and we’re building off the model of our partner and co-founder Mark Shepard, who has sort of pioneered this large scale temperate agroforestry on his farm in Wisconsin. And here in New York, the plant species that we’re working with, chestnuts and hazelnuts have existed here for thousands of years. And we are using these practices to establish them in this region, and capture the long term potential of these crops, both for nutrient density, biodiversity purposes, other ecosystem services. And yeah, it’s been a real fantastic ride over the last few years. And as we got planning for our investment firm to partner investors, with Mark and his network of experts to implement these systems, I came across the Opportunity Zone legislation, and was very excited for the potential in how those two things could overlap.
Jimmy: Good. Well, that’ll be the…the bulk of our conversation today will focus on that very topic, how Opportunity Zones overlaps with what you’re doing. And I also wanna talk about some of the environmental impacts that your type of farming has. Can you tell me about Mark, first of all, though? I know he’s an expert in the field. Tell me a little bit about Mark and your team.
Kevin: Sure. Yeah. So, Mark, he started his New Forest Farm in Wisconsin in the mid ’90s, and essentially took over an overgrazed pasture/long-term corn crop farm, and turned it into a Savannah ecosystem using these perennial crops. And, you know, one of the benefits of agroforestry techniques is it gives a lot of different options. So, obviously we have the trees and shrubs, which are the perennial crops, but within the spacings in between, we have the options to do annual crops. Things like a perennial crop like asparagus, we can do grazing, whether it be ruminants or poultry. So, there’s all sorts of additional options that we can stack, so we’re actually getting multiple yields off the same acre.
Jimmy: Good. Now, well, let’s talk about Opportunity Zones now. Opportunity Zones are a policy that really can be used as a tool to help raise equity for certain types of projects in certain locations, obviously, but what do you like about Opportunity Zones and how does that policy overlap with the type of farming that you’re doing?
Kevin: Well, as I said, it was very exciting to me when I first found it because these perennial crops, you know, have been used in different areas. And, you know, the long-term economic potential of them is understood. I mean, you know, people are investing in almonds and other perennial crops in different areas, but one of the hurdles is, you know, the delay between the establishment of the crops and when they begin to yield. So, the fact that our investors could get the benefit of this Opportunity Zone legislation if they’re using capital gains, and give them that extra benefit and incentive to adopt a longer term time horizon, lines up perfectly with the need to have that patience as these crops come into bearing. And so, it was just really exciting to be able to structure things in a way that gives more of benefit to our investors.
Jimmy: Yeah. The types of crops that you’re developing, hazelnuts and chestnuts primarily, what’s the timeline there? What’s the timeframe for somebody who may not be familiar like myself? How long until the plants go on the ground until they start bearing?
Kevin: Well, you know, I mean, we’ve had chestnuts that have actually started bearing in year two or so, but in general, we anticipate them starting to come in around year five, and really kicking in year seven or eight. And then, it’s actually quite a continued growth curve all the way out to like 25 years. They could potentially increase every year. Hazelnuts, year three we should be getting something, but for our models, we assume commercial harvest in like year five. So, you know, there is that delay. In the meantime, we will be pursuing other things. Like I said, we have the opportunity to do grazing and other things to enhance early stage cash flow, but you know, for our economic models, we try to be conservative, just base it off of the revenue from chestnuts and hazelnuts.
Jimmy: Good. So, I guess to put it in real estate terms, it takes a little while longer to get the asset fully stabilized and leased up with perennial crops than it would for a traditional maybe multi-family real estate building inside of an Opportunity Zone, but I guess that kind of plays into that longer time horizon that you were suggesting. Needing a 10-year hold, not really a big problem for somebody who’s investing in perennial grow crops. Those types of crops do need a long term hold before they start bearing and churning out cash flow.
Jimmy: So, what about job creation? Part of the intent behind the Opportunity Zones tax policy is to essentially lift people out of poverty in these impoverished census tracts that have been identified as Qualified Opportunity Zones all over the country. And part of that goes back to creating jobs for these people, and you know, increasing the economy locally in these different communities. These are rural communities out in Upstate New York that we’re talking about today. What types of jobs is this type of farming creating and how many?
Kevin: Well, so there’s sort of two tiers on that. So, on-farm, you know, we will be bringing in farmers and people to work on-farm, so a few jobs. Some work may be seasonal, but we will be establishing, you know, farm managers on each of that farm. And part of what…we’re focused on a particular Opportunity Zone, so we’re working across farm projects in a tight area, so we’ll have people kind of working back and forth on our properties. And another part of it is we are also able to offer land access to other farms or farmers who are aspiring to get onto land, and might wanna work within our alleys, and have a complementary enterprise. So, we’re bringing in new people and new farmers, training them alongside Mark and sort of our in-house network of experts, providing land access potentially for people who are looking to get into farming and establish their enterprises.
The other thing we are doing is moving ahead in terms of establishing processing for some of these crops, so that will be an additional layer of job creation that we’re working on now to establish. And the second part of what I think is really exciting is, you know, we are bringing in new crops for our region that have a great long-term potential, and a lot of the region has been very dairy-centric, which has had its real ups and downs over the years. And one of the benefits of us coming in and establishing these systems is this can make it another option for farmers and landowners in the area to diversify their holdings and expand that sort of economic production. So, by being sort of the first in establishing the necessary rails to both demonstrate how to do it, but the rails to process and bring to market, it actually becomes a greater option for other farmers in the area, and with crops that have long-term economic potential, and diversifies away, or offers an opportunity to diversify away from some other things that have been a little more struggling.
Jimmy: And where are you in the process right now of getting these farms planted and equity raised for them to proceed with operations? What are the status of your farming operations right now, and how much additional equity are you raising currently?
Kevin: Well, we have…our first investment farm we closed last year, and, you know, so that’s fully funded. We now just secured another property right down the road. We’re raising an additional $1.5 million for that property. And we have the potential to raise up to another five…a total of $5 million to add a second, so that would be for three properties, all within this tight area.
Jimmy: And that tight area, are all the farms located in Opportunity Zones? Are these all Qualified Opportunity Zone businesses?
Kevin: Yes. Yes. That is.
Jimmy: And how do you take investors’ money in? Do they need to have their own QOFs funds set up, or do you have your own fund? Do you have one fund for each farm? Do you have one overall fund that’s a multi-asset fund that diversifies across all the different locations or…walk us through how you structured everything.
Kevin: Sure. So, with our first farm, we established our own Qualified Opportunity Fund for the investors to put their capital gains into. And so, we managed that. With the second project and going forward, we have the option to either establish a Qualified Opportunity Fund for investors to invest into, but we can also accept third party QOFs to invest into the farm QOZBs. So we have some flexibility on that front. And not all of our investors are actually investing capital gains, but the majority are.
Jimmy: Good. Yeah. So, the majority of the money flowing in is OZ eligible equity, I guess, but you have a few non-capital gains dollars coming in as well, which is fine. Let’s zoom out a little bit. I want you to put on your investor’s hat or your wealth advisor’s hat. And for the record, this isn’t meant to be investment advice per se. I have to give that…
Kevin: Appreciated. Yes.
Jimmy: …disclaimer, off the bat, but let’s talk about some of the benefits of perennial crops in an investor’s portfolio. How should investors think about perennial crops in terms of an asset class essentially, and how do they fit into a portfolio?
Kevin: Yeah, I think, you know, you would consider them a real asset, you know, sort of just farmland or timber or other things. They kind of fall into that category. They are real assets that once they’re established, they’re gonna be putting out an annual yield in terms of crops. And, you know, we would hope and expect that there is some measure of inflation protection because of whatever the sort of pricing of that year is, we should be able to capture in the selling of our crops. And of course, it’s diversified somewhat from financial markets, being a real asset as opposed to tightly coupled with, you know, bonds or equities. And so, it’s a diversification, and we think that there’s a lot of potential. And, you know, for people who are looking to diversify, this is, I think an exciting way to look at it. And one benefit, for example, as opposed to timber is those annual yields when we get established, as I mentioned.
Jimmy: Right. So, what does a yield typically look like for…you know, I don’t know if I necessarily need to ask you what your pro forma is projecting, although you can get into that if you want to, but what’s a typical range in terms of an annual yield for a perennial crop farm like this one?
Kevin: Yeah, so we’re targeting a 9% to 12% IRR, and we anticipate returning all of the investment by year 10 or so, years 8 to 10.
Jimmy: And then what about in terms of an exit strategy? Do you have an exit strategy in place? Any sense of what you might do beyond year 10 or maybe you’re planning on holding for several decades?
Kevin: Well, overall, the project intends on holding, but we would be facilitating those exits sort of in-house, like once those crops are up and established using cash flows, if people wanna exit to facilitate that.
Jimmy: Okay. So if I were to invest and I wanted to exit 10 or 11 years from now, you could essentially just buy me out.
Kevin: Yeah, we use the cash flow from the farms itself. And you know, one of the interesting things about these crops is, you know, around year 10, things really start to hum, and the production actually continues to go up from there. But everyone’s time horizons are different and their needs are different. So we would be looking to facilitate the exit from them and buy people out of, if that’s what they choose, or they could stay along for the ride.
Jimmy: Sure. So, who have your investors been typically? I’m not asking for names, but I guess more of a profile of your investors. Are they farmers, local in the area? Are they high-net worth investors who are just starting to get some exposure to farming? I mean, they must have some patient capital if they know that they’re gonna have to be in this for at least 10 years, I would imagine, but how would you characterize your investors so far?
Kevin: Yeah, high-net worth investors. I mean, we’re limited to accredited investors. And one of the things…you know, so obviously, they’re looking for a good financial return. Most of them are looking for the capital gains benefit provided by the Opportunity Zone legislation, but our investors to date have also been very excited about sort of the co-benefits of these types of farms and practices in terms of ecological services, in terms of carbon sequestration, in terms of biodiversity enhancements, water, and like nutrient dense food, so there’s this range of co-benefits that come with these practices that are also things that our investors want to see implemented.
Jimmy: Yeah, I wanna hear more about that because we talked about the tax policy, intended social benefits, the job creation. We talked about the economic benefits and the benefits to the investor in terms of having a diversification, or a diversified non-correlated real asset that may also have some inflation resistance component to it as well. Let’s talk about those environmental benefits now. Why is the type of agroforestry that you guys have developed and are implementing important to the environment? Can you tell us a little bit more about those metrics that you’re looking at in terms of biodiversity, and water quality, and carbon sequestration, and why that’s important to you and your investors?
Kevin: Sure. Well, you know, so this week actually, the COP 27 is continuing in Egypt. And more and more over the last few years, there’s been an awareness that, you know, reducing the use of fossil fuels is wonderful and necessary to some component according to climate scientists, but nature-based solutions which agroforestry falls within sort of offer a really high potential tool to do that in a way that is well proven, because essentially we’re using natural systems that have proved themselves over millennia, and can not only achieve the carbon sequestration, and agroforestry in particular, and perennial crops, trees and shrubs are real workforces in that regard. And there’s a lot of research on that. But especially these diverse agroforestry systems that we’re using where there’s like trees and shrubs and small trees with different heights and diversity within the system and structural diversity, that also offers habitat for a wide range of biodiversity.
So, you know, Mark has had rare and endangered species just show up on his farm in Wisconsin, for example. So these actually provide like a refuge. And so, the more that we can do, the more biodiversity plants, insects, birds, mammals, you know, we’re providing more space for that, which actually in the long run reduces our expenses because we leverage some of like the pest control, for example, by encouraging a diversity of insects and a diversity of birds. So, we’re actually, by managing this way, not only are we increasing the biodiversity and resilience of the system, we’re reducing our costs. So, I forgot to mention, Mark has written two books, “Restoration Agriculture” and “Water for Any Farm.”
So, one of the first things we do is we actually implement a water management system on our farms for long-term water resilience in face of droughts or floods, because we can buffer large rainfall events. And this provides long-term hydration to the plants, but it also helps us store that water, clean it through these natural systems, which is the cheapest way to sort of use for water filtration is natural systems. So, we get all of these benefits while producing high nutrient value crops. And it’s sort of one of those things where there’s a number of co-benefits and win-wins pretty much every way you look at it.
Jimmy: Yeah, for sure. So, we talked about the social benefit, the OZ tax benefit. We know very well, we talked about how it’s important in an investor’s portfolio to have some non-correlated assets. Again, not financial advice, so we talked about the environmental benefit, but wait, there’s more, right, Kevin? Because the environmental benefit can lead to what some call environmental economics or environmental credits that can create an additional financial benefit. I’m thinking of carbon credits or ecosystem credits, are you taking advantage of any of those? What can you tell us about those?
Kevin: Yeah, we’re actively looking at that and in discussion with people around this right now. It’s always been our intention to do this, but carbon credits are sort of the more well-developed, although they’re still developing. But there’s really interesting opportunities now to actually monetize the carbon sequestration of these systems, where there are people who either want to voluntarily reduce their carbon footprints or entities that have committed to net zero goals. And most entities will never be able to fully reduce their impact just in-house through efficiencies or so forth. And they will need to source carbon credits or offsets from another source. So those markets, you know, there are players now who will pay $20 a ton upfront for the projected sequestration over say the first 15 years. And then there’s also the option to just sort of document that and sell it in the market at some point in the future.
So, on the carbon side, that’s becoming better and better defined with more clear options that we’re exploring now. But the ecosystem services side, there’s a lot of interest, so biodiversity and water, both of those have potential, but they’re not really fleshed out well enough, yeah. But the fact that our project does hit sort of for the cycle in terms of these range of ecosystem services, I think will enhance the value of just the carbon credits as we bring them to market.
Jimmy: Well, that’s great. Well, really interesting what you guys are doing at CrannMor Advisors with this agroforestry. Enjoyed our discussion today and learning more about it. If our listeners or viewers are interested in learning more about you and CrannMor advisors, where can they go to learn more?
Kevin: Yeah, probably the best place is our website crannmoradvisors.com. It actually is Gaelic for big tree. My Korean partner, I come up with that. But yeah, so crannmoradvisors.com, and you can reach out on the Contact Us link, and we’re happy to talk more about our project. We’re real excited about it.
Jimmy: Excellent. And of course, for all of my listeners and viewers out there today, I will of course have show notes available for this episode at opportunitydb.com/podcast. And there I’ll have links to all of the resources that Kevin and I discussed on today’s show. I’ll be sure to link to Mark’s two books, and I’ll also link to CrannMor Advisor’s website. And please be sure to subscribe to us on YouTube or your favorite podcast listening platform to always get the latest episodes. Kevin, thanks again for being with me today. Appreciate it.
Kevin: Thank you. It’s been a pleasure, Jimmy.