Podcast Episode 337 Chris Rawley
Harvesting Returns in Agricultural Real Estate
On today's episode, I welcome the Founder and CEO of Harvest Returns Syndicated Agricultural Investments, Chris Rawley.
Chris has led a truly remarkable life. He has over twenty-five years of accumulated public and private sector experience. He is considered a strong, effective leader in his industry and is regularly engaged to guide organizations through complex cultures and environments.
While these days, Chris sticks mostly to agriculture, he's also got a background in defense, real estate, and tech. In addition to being the founder of Harvest Returns, Chris is also a Navy Reserve Captain and the founder of Harvest Returns, a marketplace for investing in agriculture.
Today, we talk about agricultural investment, crowdfunding, investor relationships, and so much more.
What You're Going to Learn
* Common Challenges to Starting Out in Online Crowdfunding
* How Does a Farmland REIT Compare to a CRE Reit?
* Educate Your Prospects – Your #1 Priority
* Market to Others as You Would Have Them Market to You
* Telling Great Stories to Overcome Barriers to Potential Investors
* Moving Your Prospects through the Investor Journey
* The Nuts and Bolts of Syndicated Agricultural Investments
* The Best Digital Platforms to Get your Message Out
* And much more!
Listen To or Watch the Full Podcast Here
Common Challenges to Starting Out in Online Crowdfunding
Adam: ... Clear that you have some pretty decent experience in not just crowdfunding funding but crowdfunding online-raising money online. So, I would love to know a little bit about the background to how you got there, and I think my first question would be what's your biggest challenge? What was the biggest challenge you had starting out online?
Chris: Well, for us, a number of challenges. In a nutshell, what our company does is we're an online platform for doing syndications, raising capital for farmers. So, our big channels- or our biggest challenges were multifold.
One is people are familiar with real estate. People are familiar there's a number of real estate platforms; a large number of real estate platforms on there for all sorts of niches of real estate, but there was very ... When we started back in 2016, there was very little interest in agriculture as an investment class, at least on the retail side. Building up an audience; starting from scratch as a pioneer in a field is always a challenge.
The next set of challenges for us is just getting our name out there; building both in the farming and agriculture community and in the investment community. I think the final one, just briefly, is just the regulatory- getting our arms around the regulatory regimes involved with raising capital online and publicly.
How Does a Farmland REIT Compare to a CRE Reit?
Adam: ... But I don't have any real understanding how farming is financed. I understand - it's something I presume you also do understand - how, for example, a Value-Add multi-family apartment building would be financed. You've got debt; you've got a business plan; then you need equity to fill the gap. So, the sponsor puts in some money and then raises the rest online, these days. What does it look like from a farmer's perspective? What are they raising money for?
Chris: The farmers that approach us generally fall into two categories. One would be those existing farmers who are trying to expand their operation. They need new land; they need new infrastructure; possibly equipment; some sort of capital need. The second would be sort of a brownfield development - if you want to use a real estate term - where they're starting with a piece of land, and they're going to transform it into some sort of crop production or livestock production, whether it's raising grass-fed cattle on it, or building an indoor greenhouse.
As far as the structures go, my background is commercial real estate investing, so I've invested in multi-family, single-family office buildings, all those. What we do is a little bit unique here at Harvest Returns. We structure our investments more along the real estate side. So, traditional agriculture investing is like a farmland REIT, which is going to go out and buy thousands and thousands of acres and pay someone to operate on that and then basically pay them rents.
The model that we tend to do is where we will bring in equity and, in some cases, debt investors. They'll invest in an operating entity, and those investments may be combined with other sources of capital, whether it's equity, or traditional financing debt to produce a return for our investors.
Educate Your Prospects – Your #1 Priority
Adam: Tell me about the pathway to going online, how you got into this, and then how do you communicate with investors? Tell me about the way you do that to bridge this gap.
Chris: So, the way we got into this was, as I said, I've been a longtime real estate investor. After the corrections in the real estate field in 2008-2009, I started looking to diversify my portfolio into something else. I've always been very curious about different types of investments, whether it's real estate, or equities, or whatever. I've just had a very broad appreciation for the investment spectrum.
Like you, I used to live in a city, and I moved out to the country, so I was surrounded by farmers everywhere. Combine that with my interest in travel ... I've traveled extensively around the world and saw that, in other parts of the world, people are much more in tune with food production because they have to be. They can't just run down to a local market, or restaurant, and buy any and everything they want, produced 365 days a year. They're relying on agriculture. They're either buying their products locally or growing it in their own properties.
So, that newfound appreciation and interest in agriculture and food production, combined with the crowd-funding- emergence of crowdfunding, caused us to start the company in 2016 and combine the two, and sort of become a pioneer in the field. I'd invested via some of those real estate crowdfunding platforms, so I knew the mechanisms.
As far as investor communication, I think a big part of our job is education. Like you, many of the people we talked to didn't even know they could invest in farming. They didn't know the 'why' about it. They don't understand, like you said, the risk involved, nor the mechanism. So, a big part of our mission is to educate investors - the investor population; primarily the self-directed investor population, not those that just dump their money into a 401(k), or whatever, or whatever mutual funds their advisor recommends, but people who are interested in having more control over their investments.
Teaching them about various types of farms, agricultural production, the risk involved. We have blogs. We produce content. We go on a number of podcasts like this. We love podcasts. It's a great way to get the message out. We love the podcasters. Various types of ... We write articles for various publications, and we occasionally attend either investment conferences, or, on the agriculture side, farming conferences. So, education is number one for us.
Market to Others as You Would Have Them Market to You
Adam: ... Digital marketing, which is really the business that you got into. It could've been ... Theoretically, it really could've been anything. You chose to market agricultural investments - the ability to invest in agriculture. What did you know about digital marketing when you first started? Tell me about that and then how you actually started to build your platform.
Chris: So, a couple of things. One, as someone who invested in a variety of things, I appreciate being marketed to, but I don't appreciate being sold to. Those of us who have been investing for quite some time remember being cold-called and dialing for dollars - that sort of thing. There are still a lot of real estate syndicates that do those sorts of things to raise capital. It works, but me, personally, I ... I'm busy. A lot of people are busy. They don't like being cold-called. They don't like being a hard-sell timeline, those sorts of things. I appreciate the digital aspect because you get to choose what you see and what you don't see.
That said, the other side of that is, as a marketer, a digital marketer - and I must say, it's not just me. I have a very talented person on my team named Allison Spence, who does the preponderance of our digital marketing, social media, all those sorts of things - but rising above that noise level in today's investment marketplaces is a challenge, as we all know. So, I think because we have sort of a niche-y product, that that helps us. Because we're unique - we're one of the only few companies that are doing this sort of thing in this space - that's very helpful, and because we're a pioneer in this field, it's also helpful.
Telling Great Stories to Overcome Barriers to Potential Investors
Adam: What I'm really looking for is how do you engage an audience? I understand the barriers that you have [crosstalk] know; they're not aware. So, what techniques are you using to break through that, and to capture their attention, and bring them into your funnel?
Chris: Sure. Well, the lovely thing about agriculture and farming is that it really lends itself to storytelling, and the sponsors that we work with tend to have some really great stories. For example, we're working with a military veteran and his wife up in Virginia who own this absolutely beautiful lavender farm. Lavender is one of those types of agriculture that no one really thinks of ... They've got a great story to tell. We do that, in some cases, via YouTube videos. That's also the way we like to communicate with our investors, whether we're promoting- during a promoting deal phase, or while we're updating them.
We also have a young man in Florida who is growing bamboo sustainably on what used to be orchard fields that are now defunct because a lot of the orchards have died out due to various types of diseases. This man makes YouTube videos of him preparing the land ... It's a great way to tell stories. You can actually see the farmer doing what they do. Most farms in the U.S. are still owned by families, so there's a family connection, and I think that's really important as part of this story narrative.
Moving Your Prospects through the Investor Journey
Adam: Now, once you've captured attention, what is your process for moving the educational dialogue through your investor journey into the, "How the heck am I going to make money out of this?"
Chris: Yeah, and that last point that you made is the most important - how does this company, this agribusiness, make money? We have to show that both on the financial side, but also from a narrative standpoint. The finances is pretty black and white, as far as [crosstalk]
Adam: Wait a sec; Hang on, that's a big statement. Is it black and white?
Chris: Well, you're right in that ... Your listeners are probably familiar with, let's say, multi-family; you mentioned that. You've seen one multi-family Value-Add, you've seen them all, more or less. But for us, you've seen one farm, you've seen one farm. They're all quite unique propositions-
Adam: That's very funny. Right, exactly.
Chris: Yeah, it is. For both the weather, the terrain, the local market, not to mention the specific commodity market, plus all the other variations. For example, we have done a couple of grass-fed cattle deals; different parts of the country. Well, grass-fed cattle is unique in that it demands a higher price because there's a strong consumer demand for it in the United States right now.
The majority of grass-fed beef production occurs outside the United States, so it's imported into the U.S. We're working with some of these producers to grow the domestic market here and build humanely raised products- meat products that taste better, are arguably better for you, lower in fat, higher in some essential minerals, and vitamins, and all the other things that go along with grass-fed beef versus grain-fed beef.
The education piece of that is just letting our investors know that this is an option. You can not only make money by investing in something like this, but also be more in touch with the food production, and you can even ... People that buy publicly traded stocks, for the most part, they tend to use ... You invest in Apple, you've got an iPhone. Well, you can invest in a farm, and visit that farm, and even use the produce from that farm in your daily life, depending on geographies, and that sort of thing.
The Nuts and Bolts of Syndicated Agricultural Investments
Adam: ... Quick bullet points, if you don't mind, just to get my head around the business that you're in. What is the typical size, or what is the range, I suppose- size of the deals, in terms of total dollar, and total equity? How's that break up for you?
Chris: Dollar size, our smallest raise has been about $150,000. Our largest raise has been about $600,000. We hear from farmers routinely in sort of the $200,000 to $2 million range. We see that sort of as an unmet market. Anything above a few million dollars, there's private equity companies that are investing in those sorts of deals. Anything below a couple hundred thousand dollars, one, it just doesn't meet the economies of scale on our platform; two, it's kind of more of a hobby farm.
I believe the second question you asked [crosstalk] size of the deals, equity wise. That also varies from ... For example, the greenhouse I mentioned in Kentucky, that was like a $14 million project. So, besides the half a million or so that we raised, there was a large single private investor along with a significant bank financing. The scale of the actual companies we're investing in can vary quite a bit.
Adam: Gosh, I'm going to sound terribly ignorant, aren't I, when I ask this question? There's a lot of private equity investing, as well, in agriculture. So, presumably, you can pivot off how they underwrite farming to educate your investors, as well, because that's a really good source for thorough, diligent underwriting, presumably.
Chris: Yeah, and in the case of that greenhouse operation, that large $14 million or so greenhouse operation, when someone else writes a check for $5 million, or a bank underwrites it for $5 or $6, or $9 million, it's quite easy to convince somebody to invest $10,000, $20,000, $50,000 because there's obviously someone taking a much more significant risk that's got a lot more at stake.
Adam: Yeah, but- but that applies to every kind of crowdfunding. That's not unique to [crosstalk]
Chris: -of course. Yeah, of course, yes.
Adam: Yeah, it definitely helps. If you were to say, "Gosh, there's no other investors, and the banks won't touch it," you're going to have a hard time.
Adam: What kind of returns? Are they structured the same as multi-family, and office, like a pref, and to a promote, or something?
Chris: Yeah, so sort of ... Sometimes, we'll do a preferential. We'll take that promote, or a carried interest of 10 to 20 percent in our equity deals. The IRR is generally anywhere between ... There's a couple kinds of deals. If it's a existing deal, or a lower-risk sort of sort of thing, we're talking 10 to 14 percent; low double-digit types of returns, which I think is fairly common in commercial real estate investing.
For some of the deals we do that are more, I'd say, momentum-based, you're going to see much higher returns. So, right now, hemp is a very hot investing field because of the demand for CBD oil is just insatiable right now. We've done some deals with a north of 50-percent IRR. Remains to be seen if we can execute on those, but looking at the projections, it seems reasonable. It's more of what I would see as sort of a venture type of investment. Higher risk, higher return.
Adam: And exits ... Do they have exits? I think of farming as being ... If you're investing in a lavender farmer, are they ever going to sell? To me, it sounds like a cottage industry kind of thing.
Chris: Yeah. The exits is something that we work really hard to do with each deal, as we're in a structuring process. That is where I sort of fall back on my real estate investing/development experience, where, traditionally, you bought ... A farm investor is going to buy a piece of land and sit on it for decades, if not generations, and pass it down to their family. That's just the way most farming has worked.
We are starting to structure these deals more like a commercial real estate offering, where, say, three to five years, on average - if it's a development sort of project - based on the cash flows, or the potential to refinance that business, our investors are cashed out at a targeted IRR sort of situation.
The Best Digital Platforms to Get your Message Out
Adam: What have you found to be the most effective? Is it YouTube? Is it LinkedIn? Is it Twitter? Is it written articles? Is it video? Is it podcasts? What have you found to be the most effective?
Chris: I'd say we have two customers. On the farmer side, there's a lot of farmers on Twitter. Social media is a good place to capture farmers, but they've also found us on very agriculture-specific podcasts, and they also tend to read our press release. For example, if we do a successful hemp deal, we're going to be inundated with other people who want to raise capital for hemp because we've proven that we can raise capital in this particular market niche.
On the investor side, we do focus on social media, more from that education standpoint, to do some digital advertising, as well ... I think where we really get our leverage is investor-oriented podcasts and also articles. We've been in MSN, Yahoo! News, Yahoo! Finance, local, regional, national outlets.