The Hidden Wealth Strategy Billionaires Use: Farmland

Steve Bruere (00:00.152)
Brew, Brewer.

Arthur Andrew Bavelas (00:01.233)
Brewer, just like with a W. Hi, everybody. Welcome, everybody, to another episode of Arthur's Roundtable. Super grateful for you being here today and sharing as you have with your friends and colleagues. So thank you for that. Full disclosure, I have a guest on today that even before we booked him, I didn't realize how much they referenced family offices as it relates to their business, but I was super glad to see that.

And Steve Brewer is with us here today from Iowa, right? And just a little context, it's about land and farmland ownership and what's going on with that. So we're super happy to have you Steve today. Thank you for doing this.

Steve Bruere (00:48.396)
Yeah, excited to visit with you.

Arthur Andrew Bavelas (00:50.523)
So let's just start at the beginning of your journey, if that's all right.

Steve Bruere (00:55.502)
Yeah, I'd be happy to. So I'm an Iowa farm kid. My mom and dad farm together with my brother, still farm together today, just south of Des Moines. Growing up, if you're familiar with the seed corn industry, my folks were also pioneer seed corn dealers. My grandpa ran the Ford New Holland farm equipment dealership. And so really grew up in the middle of agriculture and kind of knew everybody growing up. I was always urging my parents to buy more farmland growing up. And like a lot of farmers, they

They like the farm machinery side of it. And I always had a passion for farmland and real estate and went to college and studied real estate. while I was in college, the local farm management and real estate company came up for sale called People's Company. And my real estate professor's neighbor actually bought the firm from the two gentlemen that were running it. And so that's how I got involved with People's Company. My parents were

farming some of the farms that the company managed. And then it traded hands as I was graduating from college. And that was my first job out of college was working for Peoples Company. Peoples was a farm management department for a bank going back to the 1960s. we managed.

Arthur Andrew Bavelas (02:08.218)
I saw that on the history. It had roots in the banking business, right?

Steve Bruere (02:12.366)
Yeah, yeah, we started out as a small Iowa bank, a farm management department in the 1960s. And then there was a bank merger in the 1970s. And we were spun out of the bank at that time. And if you follow that original bank charter through, we'd be part of Regions Bank today. But we've been independent since then. And so when I came on board, it was a small, mon pop farm management company that served central Iowa.

I was young and dumb and ambitious and wanted to have visions of building a national farmland platform. And so for the last, what is it, 23 years now, I've been building our business out. And today we've got 24 offices around the country. We work in around 35 states and anything that involves a farmland transaction, that's what we do. So we've got a farm management business that manages farms in 25 states.

I always tell folks that anything from rice and cotton, corn and soybeans, to wine grapes, to almonds and pistachios, and really everything in between. So a lot of diversity of the types of farms we manage. We've also got a brokerage and auction business that handles a lot of transactional works. We handle about a billion dollars worth of farmland transactions for clients on an annual basis. So farm families, the institutional investors, the family offices, you name it, we work with a lot of different folks.

And then we've got a valuation group. do a lot of appraisal work for bank trust departments, for institutional investors, whether it's the states or financing or whatever it may be. We do a lot of valuation work there. And then we've got an energy management group. There's so much happening in farmland today with renewable energy, wind and solar, battery storage, data centers. You read a lot about that now.

So we end up in the middle of a lot of those transactions. And then there's also the traditional oil and gas part of energy management as well. So we all manage those interests for clients. Then we've got a crop insurance agency. And we'll probably talk a little bit about that. Crop insurance is pretty fundamental to farmland. 97 % of the rural crop bakers in the US have a federally subsidized crop insurance policy associated with them that...

Arthur Andrew Bavelas (04:19.93)
Like floodplain insurance. Is that a good analogy?

Steve Bruere (04:23.406)
You know somewhat, but if you have a you can ensure both price and revenue and yield so If you have a weather event or a poor price year Then you can ensure the minimum revenue on those acres and so it's pretty fundamental to farmland It's one of the only assets where you can ensure your revenue on an annual basis, right? And so a really powerful tool and it's subsidized by the federal government It's part of the farm bill and then that in the

The piece I think we're going to talk about most today is our capital markets group. And so we do a lot of work with institutional investors and family offices and high net worth individuals that want to have farmland in their portfolio. They want that diversification, but they don't know how to do it. They don't know how farmland functions or how to do the diligence or acquire it. And so we'll do that work for them and then manage it on an ongoing basis.

Arthur Andrew Bavelas (05:17.446)
So you talked about farm management. Can you expand on that a little bit? What does that mean really?

Steve Bruere (05:23.534)
Yeah, so it can mean a lot of different things and it depends on the production system that you're in. You know, in Iowa, know, our predominant crops are corn and soybeans and there's about 23 million crop acres that are in corn and soybeans in Iowa. And so about 60 % of the land is rented, meaning somebody else is farming it then owns it. And so we'll work with those absentee landowners and help them negotiate rents, collect rents, document what's happening on their farm.

advise them on some of these things that you see around renewable energy projects and really help them manage the farm to create long-term sustainability and appreciation in the asset.

Arthur Andrew Bavelas (06:02.876)
And it's gotten complex, mean, farming is complex and hard work as we all think we know, but you take the data centers and the solar or the wind and all that, it's gotten really involved, hasn't it?

Steve Bruere (06:21.162)
It really has. When I was growing up and helping mom and dad farm, was just pretty traditional farming and a lot of these externalities, as I call it, really didn't impact you on a daily basis. And now there's just so much happening with carbon and ecosystem services and natural capital and renewable energy.

And, you know, farmland is just fundamental to anything, any economic development project. And so, you know, we end up in all sorts of, you know, ethanol deals or biodiesel deals or livestock deals. And like I said, data centers are all the rage right now. And so, you know, we've got a lot of clients that frankly just need help with those types of issues. And that's what we're here for.

Arthur Andrew Bavelas (07:06.14)
Is, the mind if we talked about data centers for a minute, because people are, you know, there's what's really happening and then there's what people want you to think is happening. And then there's a perception. mean, it's goes to the gamut, right? So I don't know the answer. I'm not suggesting that I do. Uh, but we have Mr. Wonderful out here in Utah that's lobbying heavy to put a, uh, uh, in Northern Utah, a data center and.

Steve Bruere (07:10.392)
Be happy. Happy to.

Arthur Andrew Bavelas (07:35.889)
You know, there's one side of the population or interest that say, you know, you're going to increase the rates of electricity for the locals. It's going to destroy the environment. You know, just go down the list of the bad stuff. And then you get the other thing and say, well, they're not, it's not really doing that. They're not telling you the truth. Do you have an opinion or something to share with us that can either give us comfort or warn us about what's going on there?

Steve Bruere (08:05.102)
Yeah. I'm interested to hear what Kevin's doing with the Utah project. I don't follow that, yeah, I mean, we've been in the middle of lot of these transactions and I think it's like anybody, you know, not in my backyard. Like we want the benefits of what comes from a data center. We all want to use our AI applications and we all want those things. We just don't want to see what, you know, where, you know, where it's made or how it's done or that sort of thing.

So I think if you're truly pragmatic, if you truly just step back and take the emotion out of it, these data centers, a lot of people talk about they use a lot of power, which they certainly do. The technology's changed, but they generally historically have used a lot of water resources and then they create very few jobs. And so if you want to get on the negative side of it, those are the three things you're going to attack.

No jobs, take all of our water, take all of our power. On the positive side, know, in Des Moines where I'm at, Microsoft has a couple of their largest data centers in the country. Facebook has a major data center project here. just, Apple acquired a couple thousand acres for a data center and they're really economic development drivers. They've created a ton of construction jobs, a ton of infrastructure growth.

Cities can take that tax base and take that incremental revenue and create new water treatment facilities and new sewer facilities and pave roads and that sort of thing and improve schools. One of the things that I've tried to tell some of the folks on these data centers, they always come in with code names and it's Project XXX. Then it's done in secret, it goes through, city staff works on it.

P and Z, you know, pushes it through and then city councils approve it. And next thing you know, front page of the newspaper, here's this data center project. And then people naturally don't like it because they just feel like, just feel like it's rammed down their throat. 100%. So I actually think, you know, we do a lot of work in rural communities and a lot of these rural communities are dying. They've lost their manufacturing base. There's not jobs.

Arthur Andrew Bavelas (10:10.864)
Yeah, it's in the dead of night, right?

Steve Bruere (10:29.89)
the municipal infrastructure is crumbling. can't have modern water treatment facilities, modern sewer facilities, city staff, libraries, swimming pools, all those things that you need. I'm watching a lot of these communities put bans on data centers and look at them as a terrible thing. I actually just think if you're pragmatic about it,

You need economic development. If you're not growing, you're dying. And I think a lot of these cities that are running these data centers off, it's like, well, if you're running that off, it's not a livestock processing facility. There's no odors or, you know, a bunch of immigrant labor coming in. I they're skilled, highly paid jobs, incredible tax base. And they actually, you know, look pretty nice when you drive by them. They're well-labeled.

Arthur Andrew Bavelas (11:25.584)
Yeah, it's different than driving by a huge solar farm in the middle of nowhere, or even worse, the windmills. My prejudice just expressed. But they're really not hard to look at, right?

Steve Bruere (11:44.718)
No, no. And so I think if you're in a community that's, you know, needs some tax base and you had to choose between, um, you know, a packing facility that's, you know, bringing in cattle and slaughter ram or a poultry facility or whatever it may be, or a data center. think a lot of people would say, well, the data center is a pretty good alternative. And, but you know, people just get so they react emotionally, like I said, because a lot of times it's done in the

you know, behind the scenes and they don't feel like they any input on it. And I think the data center industry, you know, really missed the PR opportunity on how to do this. And if you would, and I've told a lot of groups, if you would just come out and say, look, we want to invest, you know, $500 million in your community. We're going to create these jobs. We're going to do this for your schools. We're going to do this for your public infrastructure. What community wants us.

I think there'd be plenty of communities that would raise their hand for that. But when they come in with project code name and do it without any public input, that's when people have gotten turned off. And that's where I think they've gotten a black eye. And I think it's unnecessary.

Arthur Andrew Bavelas (12:57.336)
Yeah, missed opportunity, I think. the technology for water has changed. They're doing a lot of recycling water. And then there's, I'm going to sound like I know what I'm talking about, but I really don't. But just repeating what I've heard. There's many nuclear power plants that create all the power that the center could need, not to mention

decentralized power that's not on the grid. mean, there's really creative innovative solutions that are in the offing or in many cases real, right?

Steve Bruere (13:32.162)
Yeah, no, think, think nuclear is ultimately going to have to be part of the solution. And then, you know, you're starting to see a lot of off-grid data center work happening around natural gas where they're not on a 345 KV line, but they're connecting via natural gas. so we've got an internal mapping platform where we've mapped out all the fiber lines across the country and all the transmission lines across the country. And then you can kind of hone in on, you know, great data center sites and that sort of thing.

You know, like I said, there's plenty of places in the country that you can build these and I think there's plenty of communities that'll want it. They just got to figure out how to just not be, you know, ramming it down people. You know, it's just been done poorly.

Arthur Andrew Bavelas (14:15.524)
I think so. There's there and there's people who presumably are in the know that have the same opinion as you as it was a missed opportunity to have positive public sentiment based on the facts as opposed to worrying about what the optics might be and try to slide it in. So I think that's pretty common. Do you have an opinion about

how many are being built and whether it's over capacity or from an investor perspective that the bubble was gonna burst.

Steve Bruere (14:50.062)
You know, I'm not, you know, a tech guru or anything like that. But I mean, when you just kind of look at the future, it just feels like there's unlimited demand for compute, right? And when you do start to understand there's limited capacity on the transmission lines from the electrical grid perspective and limited places where you can build these that have the infrastructure and the timelines that it takes to get these built online.

It does feel like there's a long runway ahead of us where you're going to need as many of these as you can, because we're just going to continue to digitize more and more and more all the time. So I, you know, my, my sense is I'm the stock market might be overvaluing some of the companies, but the demand for data centers just feels endless to me.

Arthur Andrew Bavelas (15:40.689)
Yeah, I think you're right. What about, let's talk about where you, and maybe this is not a good place to start, so you tell me. We've seen Bill Gates allegedly buy lots of land, land banking. Ted Turner did it. He just died. Rest in peace and all that business. Do you see the asset class, you know, the old saying, they're not making any more of it, become more interesting?

and people are trying to express it in some way, like you said, who may or may not know what or where and how to manage it. Are you seeing a trend that it's an interesting asset class?

Steve Bruere (16:23.726)
Yeah, there's no doubt. I I grew up on a farm, so all I've ever understood is agriculture and farming. And I remember when I got in the real estate business in 2003, I used to show up at the family holiday parties and I was pitching farmland to any relative who would listen to me. The heart surgeon that's in the family, you should buy a farm. And largely it was uninteresting for the first, I'd say five or six years of my career. And then...

you when you got to 08 financial crisis, people started saying, hey, what was that again? What farmland?

Arthur Andrew Bavelas (16:58.404)
Yeah, a crisis never let a good crisis go to waste, right?

Steve Bruere (17:03.318)
Yeah, yeah, but I think I think the financial crisis is when a lot of people, including a lot of institutional capital, really discovered farmland. And for those of us that have understood it for a long time, when you study it, it's it's positively correlated with inflation. If you look at a chart of inflation, it looks like the same exact chart as farmland. If you it's non correlated with public equities. So if you're a family that has achieved success and you have

you know, accumulated a lot of generational wealth and you need some diversification and you believe that we're going to have inflation. Farmland is an incredible place for people to put their money. And, I oftentimes tell people, you know, because of my job, I've gotten to drive around in trucks with people I don't deserve to be in their truck because a lot of these successful entrepreneurs, when they've achieved all else in life, you know, a lot of people like to invest in farmland and, you know,

People can't steal it from you and they, you know, it's, it's a stable asset. And, even talking about AI, you know, you think about all the jobs that AI is going to out and, know, the office spaces that aren't needed. But yeah, farmland is pretty fundamental. It's a hard thing for AI to, to screw up. You need farmland to feed the world and power our cars and food, fuel and fiber and growing populations and increasing diets and.

So farmland is just a phenomenal asset. I'm biased. I a couple of points in my career, I saw that interest change coming out of the 08 financial crisis. And that's when a lot of institutional capital started moving into the space. And you saw a lot of LPs investing in asset managers that were professional farmland investors. And that's really played out over the last 10 or 15 years.

But more and more all the time you're seeing this family office group that wants that diversification, wants that inflation protection, wants that direct investment. They're starting to really discover farmland. Then there's a lot of retail investors and WisdomTree, for instance, just acquired a farmland asset manager last year called Series Partners. I think you're going to see more retail investor capital come into farmland. There's some crowdfunding.

Steve Bruere (19:24.792)
platforms out there where smaller retail investors can pool their capital and invest in a farm. so, you I think everybody ought to have a little farmland in their portfolio. And, you I've always said there's two types of people in the world, people who own farmland and people who wish they did. it just hasn't been packaged up in a way historically that it's accessible if you aren't from, you know, a farm family. And I think the industry is starting to...

financialize in a way that it's becoming accessible to more people and more people are discovering the benefits of owning it.

Arthur Andrew Bavelas (20:01.052)
Can I give an example and tell me whether there's analogy or similar to farmland? So I spent a lot of time in New York City, met a lot of the big real estate owners and developers. And I'll give you an example. When interest rates were low, somebody had $300 million they had to move from one building to another in exchange, right?

And so they were criticized because they bought a three or $400 million building at a 3 % cap rate. And the answer from the person that executed the trade was, what else am I going to do with the money? Right. I'm going to put it, forget about the advantage or disadvantage of New York City real estate. It's had a long history of success, but he's just saying

All right, so I get 3 % and I own the asset and it has at least some potential to go up. And then there were the other people like perhaps the landowners that you know that are renting their land to operators. There's tons of land leases in New York City where original people came in, they bought the land, they'll never get rid of it, and they've got a 90 year.

escalating land lease and they're just clipping a coupon every year. And it doesn't matter if the development fails, it doesn't matter. They just have that uncorrelated revenue. Are you seeing, is that a good comparison to farmland?

Steve Bruere (21:44.27)
Yeah, mean, so farmland, you you talk about that three cap rate in New York City on a building. So a lot of people look at farmland and it's hard for people to understand because the cap rates on high quality farmland are, you know, two to two and a half and they're incredibly low. And people have a hard time understanding why anybody would buy a farm at a two and a half cap rate. But when you really understand how it works in Iowa over the last 20 years,

farms have appreciated an average of 7%. So you take your 2.5%, you add your 7 % on there, now you've got a 9.5 % total return. Well, when you could go borrow money during the COVID days at 3%, you're picking up 650 basis points return on owning that farm. And a lot of people are like, well, where did that appreciation come from? And can I count on that in the future? And in commercial real estate, you have depreciating buildings.

And you've got cap rate compression. That's where lot of your appreciation came from. Well, we have all the, I mentioned the crop insurance business earlier. We have all the actuarial yield data going back 50 years for all the crops in the U.S. And what you see is your trend line yield growth on most of your crops in the Midwest, corn and soybeans, are growing at two to three bushels per acre on an annual basis. And so you bought a farm 10 years ago and now you're growing 30 bushels more corn on that farm.

And so, you know, that's that whole natural capital regenerative resource concept where you're producing more on that same acre today than you were 10 years ago. A lot of that's better farming practices, better genetics, you know, a lot of those things that are getting capitalized in the farmland values. But that's where that appreciation comes from. So when people tell me, the cap rates are too low, it's like, well, you know, seven percent is pretty predictable.

I went back, and this is a little bit of a joke, but I went back to the Louisiana purchase. Iowa traded at 3.6 cents per acre. Statewide average today, somewhere around 12,700 an acre. I've always said everybody who's bought a farm since the Louisiana purchase thought they paid too much.

Arthur Andrew Bavelas (23:41.84)
Hmm.

Steve Bruere (23:58.798)
and wondered how they were ever going to get their money out of it. But that inflation where it grows like inflation grows and you've got that improved production every year. And that's really the secret behind farmland. And so it's thinly traded. Some more stats for you. It's a it's a four point three trillion dollar asset class, but it's only leveraged at 13 percent. Yes. Very little debt and then there's very little turnover. And so

Arthur Andrew Bavelas (24:21.53)
Yeah, it's really interesting, right?

Steve Bruere (24:28.59)
You know, you were talking about those people with the land leases where they'll never sell it. You know, a lot of times when I'm flying, I look out the window and it's like, got all that land is owned by somebody who does not want to sell it. And it just kind of blows your mind when you think about that. But less than two percent turns over on an annual basis. And so when you when you think about all the money in the world that wants to own farmland, farmers, investors, and then you think about all the available land that's available.

and there's not enough land available to pacify the demand for it. And so when people say the cap rates are too low, it's like, well, is nine and a half percent total return not good enough for you or what number are you going for?

Arthur Andrew Bavelas (25:07.697)
Right.

So I was going to ask the question about the turnover. All these people, even if they're not operating the farms, they're not selling it. Unless there's a crisis in the family or whatever, they need to slice off a piece to pay taxes or whatever the case may be, right?

Steve Bruere (25:25.838)
Well, you said it, if I sold my farm, where would I go with my money where I would rather be? And people ask me that, I'm like, well, I don't have a good answer for that. But I'm biased, I love farmland.

Arthur Andrew Bavelas (25:39.388)
So 2 % turnover would suggest that even the people who own it will help me do the math. If I own the property,

Is that cap rate plus the appreciation the owners, in nurse to the owners benefit and then the farmers farming it and he's making money.

Steve Bruere (26:08.748)
Yeah, so the farmers, you know, we're in a tougher commodity price environment right now, but the farmer's getting a return on farming it. So they're paying rent to the landowner and then they're getting their return independent of the rent to the landowner. So the landowner is getting their annual cash return on their rent. Plus they're getting the annual appreciation and the farmer's getting their own economics as well. So we've got farms where we're managing the farm. We're directly operating it for our clients.

So they're getting that farmer's return on top of their landowner return as well.

Arthur Andrew Bavelas (26:42.062)
Is there enough margin to do that?

Steve Bruere (26:44.898)
You know, some of our clients want that commodity price exposure and so they, and there's some tax benefits to directly operating the farms as well. But with the crop insurance system, farmers, there's so much competition to lease farmland that farmers inherently oftentimes will probably pay more than they really should for rent because they want to control those acres and spread their farming across over more acres. And so I had a hard time penciling out.

farming it yourself for our clients because the farmers are paying such aggressive rents, like why take the risk? And so we'll build a lot of what we call flex provisions into our leases where, you know, if you have a really great year on yield and price, then there's a little kicker back to the landowner. Yeah.

Arthur Andrew Bavelas (27:21.114)
Rescue.

Arthur Andrew Bavelas (27:31.676)
That totally makes sense. what is

Can we talk about the regions? You're in Iowa, which you know well, obviously. Are there places in the West or in the country that are more interesting than others right now?

Steve Bruere (27:53.998)
Yeah. So, um, if you look at the, the universal farmland, you've got the Mississippi Delta region in the Southeast U S you have, uh, California, you've got the Pacific Northwest, you've got the Lake States, and then you've got the Midwest. And those are kind of your core core farming areas. And in fact, if you look at what you consider investible farmland, uh, Iowa, Nebraska, Minnesota, and Illinois represents about 35 % of all.

the investable farmland value in the country, just those four states. And then if you had California in there, it's like 46%. So when we were building our business out, we put our offices strategically where the major farmland transactions happen. And that's Mississippi Delta in the Midwest and the Pacific Northwest and the California region. That doesn't mean that there's not other great areas to farm in the country.

But when you just look at where the scale of the acres are, those are your predominant areas where the most value is. But when you say what's most interesting, there's challenges right now in California and the Pacific Northwest. There's a lot of permanent crop plantings out there. And the apple industry has suffered greatly the last several years. There's too many apples in production.

We put these tariffs in place a lot of our tariffs went to Canada and our apples went to Canada and Mexico And so you've got you know overproduction soft prices and so guys are losing money in the apple industry right now Almonds have been tough for a few years. That's came back a little bit now You know citrus there's been some challenges in Florida with citrus greening If you watch the headlines there the rice farmers and

the Delta have been getting really hard, but there's been a lot of public subsidy that's gone in that covers some of those losses. For me, I'm biased. I think the Midwest is the best farmland in the world. If you're going to one farm in one place, then you probably want to be in Iowa or Illinois. But that's one production system, it's corn and soybeans for the most part.

Steve Bruere (30:19.374)
Next week I'm going to be out in the Pacific Northwest and they grow about a hundred different crops in Washington state. So there's a lot of optionality out there. They're number one in cherry production, number one in hops production, number one in blueberry production, number two in wine grapes. I think number two in potatoes. And so there's a lot of optionality. So some of our clients want some diversification to their portfolios where they don't want a hundred percent.

corn and soybean exposure. They want some of those specialty crops in their portfolio.

Arthur Andrew Bavelas (30:53.946)
Yeah, that's really mean. Let's face it, we go to the grocery store and we don't know where all this shit comes from. That's really helpful and interesting, right?

Steve Bruere (31:03.854)
Yeah, it's changed my perspective. When I'm in the produce aisle, I'm always kind of picking up like, what kind of apple is this and where is it from?

Arthur Andrew Bavelas (31:12.646)
How about, can we talk a little bit about glyphosate and all that kind of stuff and how the farmers look at it and whether there's good options and what the Kennedy's doing and the lawsuits and all that business is, can you comment on that?

Steve Bruere (31:33.098)
Yeah, a little bit. We manage quite a few farms organically for clients. so I think the consumer has accepted USDA Organic as a proxy for this is sustainably managed and this is better. And again, it's kind of like the data center argument. It's like, what problem are you trying to solve?

Are you trying to solve world hunger? Are you trying to solve, you know, erosion? Or are you trying to, you know, eat healthy? Is organic eating healthy? Like, what's the carbon footprint? And so, like, on our organic farms, as a, instance, there's a ton of tillage. So you're continually running because you're not using glyphosate. You're not using Roundup for weed control. So, you know, that's a positive for some people that you're not using glyphosate.

But then all that tillage means you're have more erosion. so, and then you're gonna be burning more fossil fuels, taking that equipment over the field. So now your carbon footprint for organic is worse than it is unconventional. And if you're trying to solve world hunger, then you probably wanna farm with glyphosate, not organically, because you're not as efficient and you're not as productive. So.

Arthur Andrew Bavelas (32:33.776)
Huh.

Steve Bruere (32:54.506)
I struggle, you know, depends who you're having the debate with, but I can kind of get on either side of any of these arguments. And, you know, I call them wicked problems because some of them are just impossible to explain.

Arthur Andrew Bavelas (33:06.756)
Yes, it's just about just different issues on either side, right?

Steve Bruere (33:10.924)
Yeah, yeah, very few people can pragmatically, like, you know, tackle this stuff and think about it with a clear mind. They get emotional about

Arthur Andrew Bavelas (33:19.068)
Well, and let's face it, we've got virtue signaling all over the place. You know, just, I saw it the other day that, they were trying to criticize some Senator that was bringing out what presumably is facts and the Congressman just said the word glyphosate and

held up her coffee cup like this, say, take that, like she didn't know what she was talking about. And he said, are you drinking Clifestake? Because I wouldn't recommend it. mean, there's people that virtue signal. I mean, we had our own issues politically with all that crap. it is true that Bayer has just set aside a bunch of money and knows that it's toxic and not good.

But the farmers don't have a choice. There's nothing else to use, right?

Steve Bruere (34:11.118)
Well, I mean, yeah, I mean, there's some other products out there, but, again, going back to, you know, growing up on a farm, um, you know, we used to, they called it walk in beans and, and, uh, you know, I mean, you're manually pulling the weeds out of the field. And, and then they came along with some different herbicides that you would apply them and it would fry the beans. Um, and it would fry the weeds and, and you drive by after you sprayed it and, and.

Arthur Andrew Bavelas (34:26.0)
Yeah.

Steve Bruere (34:40.542)
and look like the whole field was dead. And you kind of think about some of those old chemicals that we used to use. And then now you've got soybeans that are resistant to glyphosate and you go spray that and it kills the weeds and it doesn't kill the soybeans. it's like, you know, so your alternative back to are we feeding a hungry world? Alternative, you eliminate, it's like be careful what you wish for. If you eliminate glyphosate,

Arthur Andrew Bavelas (35:02.224)
Right.

Steve Bruere (35:08.674)
Are we going back to those old chemistries that we used when I was growing up? Are we walking beans? Are we farming organically? And I don't have the answers, but they're not as simple as some people think they are either.

Arthur Andrew Bavelas (35:22.172)
Yeah, it's easy to get on one side of the argument and the other if you're ill-informed or you have an agenda for one side of the, right? Yeah. So what would some, if somebody wanted to make an expression in farmland, what are the steps that you, so it's interesting to you, meaningful. In other words, it has to be an interesting enough project for you and.

Steve Bruere (35:30.616)
That's a fact, absolutely.

Arthur Andrew Bavelas (35:51.453)
Is somebody's deploying 100 million bucks, 20 million bucks, 300 million? What sort of size does it make sense, and project? I mean, I'm sure you'll do a consulting project for a fee to get to that place, what amount of money does somebody need to deploy to effectively make an expression on farmland?

Steve Bruere (36:16.02)
Yeah, I mean, it depends who you talk to, but there's there's been quite a bit of research done on farmland. Like if you add farmland to your portfolio, it lowers the risk of your portfolio and it increases the return. Like it just it's hard to debate it. There's a professor at the University of Illinois, Bruce Sherrick, that runs the Farmland Research Center. And it's he's got incredible data on adding farmland to your portfolio and.

You know, most financial advisors who've studied farmland and they've done this different simulations at the University of Illinois will show that most people should have five to 10 percent of their portfolio in farmland. Well, if you're if you're a guy that's got half a million dollars in your portfolio, you know, five percent of half a million dollars, that's pretty tough to to go, you know, get into farmland. There's ways to do it, but I don't know if I'd recommend it.

because the transactional costs kind of eat into your overall performance. And there's some publicly traded REITs out there that are traded on the stock exchange. Farmland Partners is a publicly traded REIT, Gladstone's a publicly traded REIT. So people that want to get some farmland in their portfolio, there's places like that you can go. There's a couple crowdfunding platforms, one's called Acre Trader, one's called Farm Together, where you can go invest.

$25,000 in one farm. And I think a lot of people, especially my generation, likes the idea of being connected to where their food's grown and they want to make that investment. But if you're a high net worth individual or an institution or a family office and you want to go build a farmland portfolio, through our capital markets group, we've got our separately managed account platform where we'll work with these family offices.

You know, lot of the, tell people you need to be thinking a minimum of $20 million to really go build a geographically diverse portfolio where you've got some high quality Midwest ground. Maybe you mix in some permanent crops and you mix in some specialty crops. But you can do it for much less than that. And we've got a lot of people that'll call us and say, Hey, I want to buy one farm. And, you know, I've got a couple million bucks and.

Steve Bruere (38:34.242)
You know, and there's no problem doing that. And there's plenty of people that have had a lot of success doing that. But you really have got to find somebody that you trust when you're just buying one farm, because it's pretty easy to get hometown. You know, there's plenty of people that will sell you a farm for too much money and take advantage of you and that sort of thing. And so you just got to really have an advisor that will help you make sure you're buying it right. You're not buying a problem and that it's.

being managed well because the return is going to come from that appreciation. And so you want to make sure, you you got to buy it right, but then you got to manage it well. And that's where you're to get that great total return.

Arthur Andrew Bavelas (39:15.036)
Totally makes sense. Can we go back to the large landowners for a second? And this may not be a fair question, but are they third generation families that had 20,000 acres? Are they institutions that bought up a bunch of land and have you manage it or somebody else? Is there a profile?

of the large landowners that lease out the land.

Steve Bruere (39:46.326)
Yeah, I mean, it depends on the region too. So, you you mentioned Ted Turner. know, Ted Turner was famous for buying these massive ranches and running, you know, bison on them. And that's a little different than buying a farm in Iowa. And there's a great magazine called The Land Report where they feature the top 100 landowners in America.

Arthur Andrew Bavelas (40:06.364)
The land report is how we got to each other, by the way, I think. Yeah.

Steve Bruere (40:09.878)
Okay, okay. They will appreciate that. So Eric O'Keefe is the editor of the Land Report. He's a great friend and we actually sponsor their top 100 landowner issue on an annual basis. And so he'll profile these large landowners. Well, that's done in terms of acres, not necessarily in terms of value. And I chuckle and I'll jab Eric about it a little bit, because there's some farm families in Iowa that my own

50,000 acres of the best of the best farm ground in the world that's worth far more than some of these landowners that own 100,000 acres in Wyoming, for instance. So the profile is a little different depending on what you're looking at. But I would say, when we sell farms, 70 % of the time a farmer's buying it. And so when you think about that, that one to 2 % turning over, yeah, the farmers are the predominant

Arthur Andrew Bavelas (41:03.078)
It's like an assemblage, right?

Steve Bruere (41:07.704)
players in the market. And yes, there's investors. There's an index called a NACREIF index for farmland. So the professional asset managers think Nuveen, Manulife, the UBS, Prudential, the major asset owners in farmland. And I think that index now is somewhere around 16 billion dollars of farmland. And that sounds like a big number, but when you have this 4.3 trillion dollar asset class,

and these institutional owners have 16 billion of it, it's a rounding error. And you'll read the headlines about Bill Gates and the Chinese buying all the farmland. And it's largely overblown. It's not the issue that a lot of people think it is.

Arthur Andrew Bavelas (41:41.04)
Yeah, totally.

Arthur Andrew Bavelas (41:56.509)
Can we talk about that? The allegation is that the Chinese are buying land near our military centers or whatever, something like that, right? Is that true?

Steve Bruere (41:58.05)
Sure.

Steve Bruere (42:09.07)
There's been a couple of transactions, but when I look at our transactions, I can tell you that I've never had a transaction with a Chinese buyer. In Iowa, there's corporate ownership restrictions and there's foreign ownership restrictions. It's Chapter 9H and Chapter 9I of the Iowa Code that prohibits a foreign entity from owning more than

50 % of a farmland entity in Iowa and corporations are prohibited from owning farmland in Iowa. And most states have some sort of law on this. And so there's a lot of attention being paid to it right now. It's a big political issue. And President Trump has taken this up and Harry Booker has introduced some legislation.

And it's a hot button issue right now. But if you dive into it, the Chinese out of all the governments are the 16th largest foreign owner in the U.S. So they're way down the list. And then when you dive into the transactions, it's related. They own a publicly traded hog business called Smithfield. So there's some Chinese ownership associated with that.

that hog facility or there's a timber business where there's some land associated with it, or there's a data center that there's some land associated with it. But what there's not is a bunch of Chinese owned farmland throughout Iowa.

Arthur Andrew Bavelas (43:46.586)
Fair enough. That's comforting anyway. Who's the number one on that list?

Steve Bruere (43:52.142)
I think it's Canada. Yeah.

Arthur Andrew Bavelas (43:54.16)
Well, that makes sense.

There was a time 20 years ago, Steve, might remember this. You might have been too young. don't know. But the Japanese were buying everything. They bought Rock Center, right?

Steve Bruere (44:08.686)
100%. I remember sitting at the dinner table and dad thought, you know, the Japanese were taking over the world there growing up for sure.

Arthur Andrew Bavelas (44:15.228)
Yeah, there was a time. They're probably on that list too. So yeah, think I did see a chart that you guys shared comparing the land ownership with gold. So, you know, a lot of people are, I'm involved in this a little bit, but you know, gold has always been, know, should I get gold? I not get gold?

Is it store of value? What is it? And so there's a pretty good indicator that if you're looking for store of value, land might be a better bet. It's just not as liquid as gold is, for example.

Steve Bruere (45:01.324)
Yeah, and I would argue that it might be just as liquid as gold. But yeah, a lot of people will say farmland is gold with a dividend, right? And they're both real assets. They both have that inflation protection. What gold doesn't have is the ability to 1031 exchange in and out of it, the ability to go put leverage on it, the optionality to go hunt on it, fish on it, hike on it.

Somebody knocking on your door saying, want to build a solar farm on your gold, or I want to build a wind turbine on your farm, or I want to build a data center on it. And it doesn't have that underlying yield growth that we talked about earlier or the federally subsidized crop insurance guarantee. know, Warren Buffett had some quote about owning all the farms in Iowa or all the gold in the world, and he'd rather own all the farms in Iowa. So I might have that.

screwed up, but yeah, but yeah, I mean, you can clearly tell my view on it. I did, Costco sells some gold bars and you can go into Costco now and so for fun, I bought my kids some gold and silver bars, but farmland in my mind is a far superior investment. And you touched on the liquidity. So, you know, being in the transactional business.

Arthur Andrew Bavelas (46:01.166)
We get the point.

Steve Bruere (46:29.55)
there is always demand for high quality farms and and you know, I think a lot of people think farmland is a liquid but And I think this is something a lot of people screw up when they're buying farms You know, I always tell our clients the strategy is to buy high quality farms with high quality operators and high quality areas and if you do that, it's hard to screw up and And then if you change your mind and you got somewhere else you want to go with your money

There's always demand for those high quality farms and high quality areas. And so we sell a of farms via auction. And so if somebody said, hey, I want to monetize my farm, it's about a 90 day process to schedule the auction, market it, close it. And it's more liquid than a lot of people think it is.

Arthur Andrew Bavelas (47:18.31)
So can we talk about that? Why one would generally think, and probably in error, that if something goes to auction, that means there wasn't a willing buyer at the market rate.

Steve Bruere (47:33.326)
Yeah, so I always tell people there's two reasons to have an auction. It's either a highly distressed situation where you're just trying to liquidate something as quick as you can and set the terms and move on. Or it's a highly competitive situation where multiple people are going to compete to own something. And farmland is a generational asset. So lot of farms we sell are century farms. They've been in the family for generations. And people in the community maybe have drove by that farm for

20 years and dreamt about owning that farm someday. And there's what a farm will trade for economically, and then there's what it'll trade for emotionally. And most homes sell for a rational price. Most commercial real estate sells for a rational price. Farmland is the exact opposite. You take a farm to market that hasn't been for sale for a hundred years, and you've got four neighbors on each side of it that have dreamt about owning it. And the old saying is,

the time to buy a farmer's when it's for sale. And a lot of these people are making generational buys for their family and they'll pay more than you could economically justify. And that confuses a lot of people, but it happens all the time. so, so auctions are a great way to achieve outcomes that would be impossible to otherwise achieve.

Arthur Andrew Bavelas (48:55.696)
That's really an interesting perspective because, like I said, oftentimes when something goes to oxygen, it's distress. Steve, there's a...

Arthur Andrew Bavelas (49:08.86)
a general perception that farming is hard. not, it fluctuates in profitability and that while farming could be lucrative, it's not somebody building a software program and exiting to Google for 750 million. And all of a sudden you've got this big chunk of money that's liquid. How does a farmer that's been on his farm for 20 years and his neighbor comes up for sale.

And he wants it. How does he finance something like that?

Steve Bruere (49:40.642)
Yeah, mean farming is tough, but it's evolved so much. The meeting I was in before this one was with one of the executives for John Deere, and we were just talking about autonomous farm equipment, and they have a technology called Spot and Spray where it'll selectively spray the particular weed and not the whole field. And there's so many advances now.

you know, when my dad growing up would get home from planting corn, he'd show up covered in dirt and dust and didn't even recognize him. And now you get in this equipment and it's driving itself and my dad.

Arthur Andrew Bavelas (50:23.356)
Air-conditioned tab, right? Listen to a podcast, right?

Steve Bruere (50:28.138)
Yeah, and my dad, who I had to teach how to turn on a computer is now watching TikTok while he's farming. But we've been in a downward commodity price cycle the last couple of years, and so there's definitely some pain. But the federal government is highly incentivized to have farmers not go broke. They want to have a food production system that can feed the world.

Arthur Andrew Bavelas (50:35.557)
Right.

Steve Bruere (50:57.166)
There's been a lot of government subsidy targeted at farmers in these poor economic environments that make sure that they're viable. And the crop insurance is a big part of that. And, you know, I'll tell my folks once in a while, I wish I could ensure my revenue at the beginning of the year where I could, the government. And so there's no question that farming is a tough business and people earn every dollar they make.

Arthur Andrew Bavelas (51:15.408)
Yeah, me too. Me too. Yeah.

Steve Bruere (51:26.606)
But it's different than it was 20 years ago even. And you go through these commodity price cycles and you make your money when you make your money and then you got to hunker down when you got to hunker down. But in the meantime, your yield on your farms that you own is growing. You're creating that appreciation. So when that farm comes up for sale next year, a lot of times you'll have equity in the farm that you already bought. so you'll blend those two together and

and your basis and the whole thing maybe goes up a little bit, it works. so, you know, it's, I'm oversimplifying it, but a lot of these families, you know, there's generational wealth in these farming families and lot of paid for land that helps kind of expand when things come up for sale.

Arthur Andrew Bavelas (52:18.864)
Yeah. Is there a typical LTV that the banks, like bank financing will pull the trigger on?

Steve Bruere (52:27.394)
Yeah, there's so in your world, there's Fannie Mac and Freddie Mac and farmland. There's the farm credit system and then there's farmer Mac. And the problem is right now where cost of capital is, six percent. And then you think about these cap rates I was talking about of two and a half percent. It's really hard to go make that math work if you're buying a farm and you're and you're borrowing money at six and you're getting two and a half back. So you've got to put

about 75 % down to get a farm to cash flow right now. But when you look at the loss ratios, can at FarmerMax publicly traded, their loss ratio on their loans is almost zero. And so when you look at the leverage, there's plenty of banks that'll go 60, 50, 60%, maybe 70 % on farmland mortgages.

Arthur Andrew Bavelas (53:01.2)
Wow.

Steve Bruere (53:26.03)
because they know there's alternative sources of repayment beyond just the income that that farm generates. And they also know that there's other factors like the appreciation that we talked about that will eventually kind of get that in balance.

Arthur Andrew Bavelas (53:41.456)
Yeah, that's encouraging. So Steve, we have to run, but this has been super informative. Thanks for fielding my questions. A lot of them are from a place of not knowing. So thank you for allowing me to ask them.

Steve Bruere (53:57.954)
Yeah, no, it's, you know, you can tell I love talking about farmland and we'll talk to anybody who will listen to me talk about it.

Arthur Andrew Bavelas (54:05.008)
Yeah. And I really appreciate you doing this and we'll thank our friends at what's the name of the magazine? They, they, they, ended up getting to them first and they said, it's not us. You need to talk to this guy. Yeah. Yeah.

Steve Bruere (54:18.24)
Okay, the land report, Eric O'Keefe. So we host an annual event in Iowa called the Land Investment Expo and we've been hosting it for 20 years now. And you mentioned Mr. Wonderful earlier, he was one of our keynote speakers several years ago, but we've had Boone Pickens and who's a great landowner, had the 65,000 acre Mesa Vista Ranch in Texas. But we had President Trump at the Land Expo, Martha Stewart, Drew Bledsoe.

Anthony Scaramucci and so Eric O'Keefe, the editor of the Land Report. He's our MC for the event and then he rolls out that Land Report top 100 issue at the Land Expo in Iowa every year.

Arthur Andrew Bavelas (54:48.356)
Nice.

Arthur Andrew Bavelas (55:01.958)
What month?

Steve Bruere (55:03.894)
It's in January, which people love coming to Iowa in January.

Arthur Andrew Bavelas (55:08.356)
Yeah, right. So, Scare Mucci and I've been friends for 25 years and I interviewed him right after he got out of the White House. was like a Saturday night live episode.

Steve Bruere (55:24.878)
You know, the Mooch is a great guy. we had the Mooch come one year and then he came back the following year with General Kelly, who fired him at the White House. And so we had them on stage together, which was really neat. And I was just in New York a couple of weeks ago. The Mooch is a partner in a restaurant called the Haunted Fish Club, if you're familiar. Yeah.

Arthur Andrew Bavelas (55:46.62)
been there many times. In fact, in fact, I don't mean to interrupt you, but that's where I met Kelly. I met. Yeah, I met Kelly there at a dinner where Anthony was not there. And, it was downstairs and I, I, I called Anthony on the phone. I texted him and then he called me and I said, I just met your friend, Kelly and Scaramucci said,

Steve Bruere (55:52.845)
I'll be darned.

Arthur Andrew Bavelas (56:14.49)
That's nice. How's the food? Right? You wanted to make sure the food was good at the restaurant, right?

Steve Bruere (56:19.862)
Yeah, you know, we, so I think this year was our fifth year of doing a restaurant buyout. There's a big event we're active in out there called the Globe leg investment expo. And so we host a lot of our big clients at the hunting fish club every year. And we saw we're just out there a couple of weeks ago and, and that basement bar that you're talking about is exceptional, but the mooch usually will stop by and say a few words. He was, he was heading to London this year, so we missed him, but great guy.

Arthur Andrew Bavelas (56:47.888)
Yeah, he's a great guy. Yeah, I have dozens of stories that I'll tell you offline. Steve, thanks for doing this. I really, really appreciate it.

Steve Bruere (56:52.994)
Hear them.

Steve Bruere (56:57.326)
It's a topic not enough people are talking about. So, you know, I'm glad you're sharing it with your network.

Arthur Andrew Bavelas (57:06.364)
Yeah, it'll get out there somewhat. We'll see what happens for sure. I really appreciate it. And thanks everybody for joining today. Steve, stick around for a second.