YouSaid · the spoken record

Jay Girotto

lines on the record: 51
first: 2019-10-14
most recent: 2019-10-14
sittings or episodes: 1
sources: podcast

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“I would say taking advantage of moments of opportunity when they come up. So as we're here 10 years later after starting farm line opportunity, that was obviously a moment of opportunity that was really presented quite a narrow moment of opportunity to jump through and go and do. And I take a look back on my life and think that maybe I should have tried to jump through one of those moments of opportunity earlier rather than maybe taking more conventional approach of going into consulting and working for other people at companies in that sort of thing.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“When I grew up, I was a gymnast, so I spent lots and lots of times in the gym and eventually evolved into like 25 hours a week in the gym and being on the US Junior national team and things like that. But no matter how many times I'd come home frustrated or crying or upset or tired or whatever, they would always say you don't know what you're actually capable of until you do something that you didn't think was possible. And in that context, it was double back off the high bar, whether it was certain vault or something like that. But things that could be pretty scary. So yeah, I think that was the biggest thing.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I read something called FarmDoc from the University of Illinois every day. You've never heard that one, right? Not like the economist or something like that. Yeah, it's basically a daily analysis of an issue in U.S. agriculture that is published every day. It's been around for almost 20 years now and they've kind of morphed it from something they sent out in the mail to now to an email blast. But it's a great thing if you're going to sign up for one thing and you want to learn about aspects of US agriculture from Economics, to subsidies to production, to whatever. It's a good daily to take a look at.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“This disconnect that I often see between the CIO or investment manager versus their client, the endowment or the family or the individual. I think there's blame on both sides, but I think a lot of that disconnect comes by creating financial incentives, bonuses and things like that for the investment manager that actually steer them away from things that the client should actually be investing in. And I see that often in farmland where when you talk seriously about high single digit returns to some investment professional, we might make a ton of sense for an endowment to own farmland forever. I think so. I mean, I think the endowment thinks they're going to be here 100 years from now. But the short-term return profile that the endowment wants, it doesn't match up with owning farmland. And so it's just that disconnect that to me that just really, I think, is a bad thing.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“I really do think it is the smartphone coupled with social media is my biggest pet peeve at this point. It was a funny interaction Took our kids to Dan and Shea concert. It's like a country music group that's really popular in Dan Plush. Great group. I mean, they like wholesome concert they can actually sing, which is unusual, you know, among us. But we told our kids they couldn't use their phones when they were in there.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“You're actually upgraded from the stopwatch. They give you a clipboard and a whistle. So yeah, yeah, no, you run the whole thing. The take your mark and the disqualifications and the whole process of the me. But yeah, that right now that consumes about 300 hours a year. So that's a big activity outside of everything.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Family and all that. It is a little related to family. I'm a USA swimming official, which I say kids are swimmers, and I'll do it after they go to college. They're in high school now. But it's one of those, like a lot of amateur sports that don't have a lot of money in them, but they rely on volunteers to run the swim meets.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“I do think it's these types of external shocks that I mentioned. The biggest concern certainly is that in some way through this whole thing with China, that China would truly go away as an agricultural trading partner somehow. That's probably the biggest overall risk. The other macro risk that I mentioned around interest rates and inflation scenarios I don't think are as worrisome.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Our main competition is farmers on deals. Yeah. So in the areas that we buy 80% plus of the land are bought by farmers, we don't see a lot of competition from other farmland investment funds. A lot of that is the size of the market. And the size of the market is about $2 trillion in farmland value in the U.S. And there are two publicly traded REITs in the space, and they each own around or less than a billion in farmland. Your largest institutional investor is TIA Cref in the US. They own maybe five or six billion. And so when you roll up the world of professional investment competition, it's rounding error as a percentage of the overall market.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“For two years, and so it looks like you're doing great. The reality is that if you're owning farmland over a very long period of time, you're not able to do that. And for that reason, this is not a market that you try to time.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I'm first very carefully examine how they're sourcing their deals. The diligence around how they select farms and then also are they actually getting these things at a discount to the market rate? Because I think it's very easy to think that you're doing that, but the reality might be separate from that. And so I would very carefully examine their proprietary deal pipeline flow, how they've done it. And it's not enough just to say, oh, my operators send me good deals because that's not a strong alignment of interest. Secondly, I would really poke holes in or talk with them about the return characteristics. There are people in space to talk about at least mid-teen returns, right? On farmland, that's just not reality. We talk about high single digits in terms of returns. And sure, in the short term, you might get a discount to market or have an initial bump. We might have a drought and $8 corn again and land prices go up 20% a year.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you were sitting down across the table from someone, you had capital, you wanted to play in farmland, but you weren't doing what you did. What are the couple of most important questions you would ask someone in this space to try to sess out if they were going to be good?”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“We've had one client sell half their portfolio. They were involved in a divorce. And we successfully exited within 3 or 4% of what our mark-to-markets were. And the exit is you want to be selling in a market that farm incomes are flush and commodity prices are high is what you want to wait for, especially if you have the ability to wait for that. And then you want to do a public auction. You want to get the local farmers who always wanted to own the farm and hate each other in the room, bidding against each other with the 1031 exchange guy who just lost his 1031 exchange property and is willing to buy anything not to pay taxes along with more institutional capital that has a low cap rate and have all those people fight out what the price is and so that's that's what we did in that situation unsolicited offers we have a couple farms that sit next to potential urban development areas near des Moines and also near Poland Washington”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, definitely we've invested in a couple, but we have also kicked around the idea of why don't we have a venture capital fund, an ag tech fund, but that space has gotten very, very crowded when you saw the success of high-profile venture firms and investments in like climate corp and granular.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Club to walk across. So yeah, that's kind of an interesting one that we'd like to see developed. That's a very practical application.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's certainly been a wave of big data farm companies that were heavily invested in by Silicon Valley types that have been at least financially successful, things like Farmer Business Network, Granular, Climate Corp. There's, I think, a large number of companies that have been funded in that space. We'll see whether that now falls out. But those big data applications were a good step forward in terms of actually being able to analyze a lot of the data that comes out of your combine and applying that to you in your next year's farming practices and things. A lot of our operators utilize that. We facilitate it for them. We use a company that has a lot of expertise in soil testing to not only make sure our operators are doing the right things on the farms, but also to help them in terms of their production. The most interesting one we've seen a new company pop up that has an automated rock picker. It's basically a robotic attachment to a tractor so that you can actually go out and pick rocks in an automated fashion rather than hiring the local force.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“And that's part of the team that we've built as well as the fact that we're buying for what is perceived as an individual or an individual entity rather than buying for a fund or a publicly traded reach or anything along those lines. And we think that that gives us a great advantage and our clients a great advantage in order to getting transactions at a discount. And we think we'd lose that if we were a publicly traded read.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so we, over time here, we've been approached with the idea of creating a client that was a fund that could become a reit and go forward with that. And we've really at this point said no to a lot of those types of land-based different alternative ways to manage and run land. Read is a perpetual vehicle where you wouldn't need to sell or specifically price things out that were out there. We found a distinct advantage that We are viewed as locals in terms of the transaction market.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's definitely the deal flow. So finding those quality market inefficient transactions at a discount is by far the hardest thing for us to do. And so we typically will average deploying around $40 million in capital a year. If we hired a few more people on maybe another person similar to me, at the partner level, could we get that pipeline up to 70 or 80 million? Yes, it's probably possible. But if somebody showed up and said, I want to.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think most of our clients are probably 15 to 20 years older than I am. So we've been doing this for 10 years. There's no way we're going to stop doing this at any time. So I'm only 45. So I'm sure I've got another good 20, 25 years to run in terms of doing this. And over time, we've brought several people onto the team that are even younger than I am that can also potentially carry the business on forward.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“So a lot of our individual clients put it in the member of the LLC is an irrevocable trust. There's some great tax advantages for doing that. Well, as long as it's well managed and it's a good farm, you buy it at the right price. There's no reason why you need to sell this one to buy another one over there.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I mean, our view is that this is a illiquid, long duration asset in terms of how long you want to hold it. You want to hold it for longer than your typical private equity fund. And because of that case, you want to be in control of the actual disposition of that asset. You don't want to be in a fund with a bunch of people that you sort of kind of know. And somebody wants out or somebody else wants in. Well, how do we set the price of somebody getting out or somebody else getting in? I'm sure it's written down in the private placement memorandum, but unless you're actually selling assets in order to determine those exit and entry prices, that's a huge risk. Our view is from an investor standpoint, we would never want to do that. So that's the primary reason why we set it up as separately managed accounts. So you can control that. It also has some other unique characteristics, which is you can set up your own structure.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“or things along those lines. That, of course, with the Trump administration was sort of stopped, unclear with the next political group that gets in which way things will go, who knows. So that's the biggest issue, though, that we track on the regulatory side. On the trade war, that certainly has been obviously a big negative impact and created a lot of uncertainty in the market. So the commodities markets as well as the land market peaked basically in Q2 of 2013. Since then, we've seen farm incomes come down by about 50%, mainly due to a great set of years in terms of weather. So we had an oversupply of the major commodities, which drove commodity prices down, obviously, and farm incomes down. And then we were sort of starting to see the end of the light of the tunnel there in 2018. And then we ignited the trade war, which then dropped, particularly on certainty into the soybean market. The US corn market is mostly domestic. It's only about 10% exported.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Regulation is coming out of Washington. Certainly the biggest issue that has been put out there in the last decade was the Obama year proposed change to the waters of the United States, the Wodos Act, where they were proposing a change to language in terms of what is a body of water in the U.S. Right now you have to be a navigable body of water to be regulated underneath that, as opposed to streams in farmland or an acre pond that might form after heavy rain. And it wasn't clear when they made that language change whether or not the temporary ponds that might be there for 15 days or whatever were actually going to be regulated under the waters of the US Act. And if that had actually borne out either through implementation of that rule and or combination of litigation with that, that would be a very bad thing for U.S. farming in general because you'd have to go take out permits to apply fertilizer or to do tillage practices.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“They're two big macro risks that are out there. One is that the United States or globally gets into a deflationary environment that would be very bad for farmland. The other scenario is if you actually had high inflation but you didn't have high interest rates. So, those are the two scenarios, the macro scenarios that I sit around and potentially worry about if you had some conviction that either one of those two things were going to happen. If you do have a high inflationary environment with high interest rates, that works well for farmland. That's the 1970s for farmland.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Really, one of the cores of our business, both on finding clients as well as on developing new areas and operators, which is we've really essentially grown entirely by organically on the region side in terms of finding operators. So we had a close friend that was an operator just north of Cedar App in Zowa. That person, when working on a combined equipment exchange with somebody in the plus by Pullman Washington for a number of years, he said, wow, you know, I know you're thinking about buying farmland in western Kansas where you grew up. Why don't you go out and go talk to these guys in Pullman, Washington about how farms work in Pullman, Washington? And they were a farmer operator that was out there. And we talked through it out there with them. They plugged us in with their lawyer, who is now on our team. And we started to sort of stick our tentacles out into the market. And now we have 14 operators that are in that area, all generated from that one initial contact and market research that we did seven years ago.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“It has existed primarily because of sort of a cultural aspect to that specific region. There are very, very few public land sales in that region I just described, two or three a year. Almost all the land transacts on the private market through estate attorneys who are employee out in that region isn't a state attorney that we eventually hired. And so I think a lot of that has depressed prices because of the way that it's actually sold and managed by families. Another thing is that area was particularly hard by the farm crisis in the 1980s where you had lots of families, a whole generation essentially was lost. And now you have an extremely old farming community that is slowly starting to turn over now as they're hitting their 80s and 90s.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Second geography, so about 25% of the land is there. The third geography is a region called the Plus, which is basically eastern Washington down into Umatilla Valley into Oregon and over on the Camus Prairie, basically into Lewiston, Idaho. And that is the highest productivity wheat farmland in the world, or a set of counties that flow through that area. We went there mainly because from a relative value standpoint, we view the land out there as a deal. produces twice the US average so US average wheat yields around 46 47 bushels pretty consistently you know you'll even see those crop insurance tea yields around 85 out there and the price of the land's only 40 higher than if you're buying wheat farms on the Great Plains and so we think that that's a long-term arbitrage that will get priced out as more and more professional investors or investors get into buying farmland”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, it is. It is. It's a very short growing cycle. And that's the danger, which is typically you want corn to grow for over 100 days. And sometimes between planting and your first frost up there, you don't get 100 days. And once you get a hard frost on a corn and a soybean plant, you're done, right? It's over. You got what you got. But the number of heat units for growing corn and for soybeans has been growing over the last 10 years, as well as some of the hybrids, their performance of like 75, 80, 85 day growing corn has been getting better. And so it's made it more viable. So we're hopeful that what we've seen there is that you're seeing slowly growing corn yield rates at higher than the USDA trend rates and that that can drive more land value appreciation.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“To actually get into corn soybean rotation, which is a lot higher gross revenue per acre than growing things like barley.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“That we look at as well as a way to do things. And so from there, we've really focused in on three geographies that we have essentially proprietary deal flow into. And that is the component of our portfolio. About 50% of that is what you would call core Midwestern farmland. This is Iowa, where I grew up in all the states that touch Iowa where our families are basically from. And core U.S. farmland stretches further afield in that way into Illinois, Indiana, Ohio. We don't go there because we don't see any relative value in terms of the farmland there and we don't have the inside connections. The two other geographies that we developed we've done over the last 10 years in doing this. And one of those is in northern Minnesota. We were there because of the long-term global warming trend that we see that's traditionally been a small grains world like barley, sometimes soybeans. And it's with the different shorter duration hybrids for things like corn, you're able.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Our basic strategy is we target inefficient transactions, right? So we try to find Aunt Margaret that's selling their parents' farm that was willing to take a price discount. So we then evaluate that farm in terms of whether or not we like it at that price. We can underwrite it to the cash yield returns I talk with you about. Then we look for are there ways we can actually unlock value after we buy it. And so that comes in many forms. That can be improving the drainage. Maybe there is a drainage problem that can be easily fixed by installing drainage tile or waterways or what have you. We knock down acreages. A lot of these places have an abandoned house five or six acres on it that you can then reclaim and turn into farmland. Sometimes they have three or four acres of trees too that you could take out. We also look at the potential for selling off a small portion of the farm like three or four acres for some type of livestock production where then we can get an easement to get all the manure for organic fertilizer. There's a whole bucket of improved”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“The pen you're holding right there. I mean, it goes into everything. It is an inflation hedge. Tracks inflation. And then the other 3% has been basically from crop production growth. So you're just producing more corn, more soybeans, more wheat, more garbanzo beans, whatever it is. And that has driven the other component of land value appreciation. So now we're talking.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“The other component of it is long-term land value appreciation, which is what we haven't talked about yet. And on that, we specifically structured our vehicle as separately managed accounts. So there's just a management contract with us that is for seven years. And then after that, it's annually renewable. There is no carry on the actual sale of the farm. And there's no carry at some artificial date based on a third-party mark to market that no one can believe, right? We do a mark-to-market on a yearly basis every three to four years. There's an external third-party mark to market, but we don't get paid based on that at all because that's not real is actually selling the thing. So that long-term capital appreciation is entirely kept by the investor. Historically, that has been around 6%. Half of that is inflation. This is a very good inflation hedge. Soybeans go into like 3,000 products, including.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Management fee, we basically take 20% of the gross revenue off the farm. So that's any lease revenue. That's primarily farming, but could be windmills and various other things. So our gross cash yield rates are around 5%. So we're taking, I think we've averaged around 98 basis points, you know, in terms of a fee that comes out of it. And then property taxes, which is your other main cost, that varies by state can be as low as five basis points. It can be as 20 basis points, 25 basis points depending on the state.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“So the 4% is net of all your costs. The 3% number is the US average if you're out there doing it yourself and haven't hired anybody or paying anybody and you're not paying property taxes, they're not netting property taxes out of that.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so I should mention the USDA number is 3%. Our historic returns actually are at 4% because we are buying at a discount to the market rate as well as we're using an operator that's getting 20% higher crop yields and can pay more in terms of cash rent. So our underwriting number is net of fees and property taxes, which are really your only two expenses as an investor, that you're right around a 4% net cash yield.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“businesses in America, right? And so it is very easy for a farmer to look profitable or unprofitable depending on what it is they want to talk about that day, whether it's taxes or renting a new farm. And so the other metric that we use a lot more around financial stability is to look at the number of acres that the farmer actually owns and what debt has been recorded against those acres.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“There certainly is some element of a data quality to it, as well as qualitative things. So on the data side, one of the things we like to look at is there's something called a county tea yield, which is a crop insurance yield that the USDA generates based on lots of historical data on crop production in a particular county. So at a county level. And it's accurate, right? I mean, this is getting insurance in terms of your livelihood and that sort of thing. We like to take a look at the operators, actual reported yield, which is what they report to that insurance agency. And we like to see about a 20% above what the county average is. And that's also kind of our goal in terms of farms that we buy as well is to be beating the county crop insurance average by 20%. Another data aspect of it, people always ask, oh, don't you ask the farmer for his balance sheet and his income statement or whatever? Well, you know, farming is one of the last cash accounting.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“In the selection of these operators, you mentioned some things that sound like it's just knowledge of how to do this or progressive practices. Is there a data component to it or is it a qualitative assessment?”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so in terms of operating the farm, sure, we have a network of, like I was mentioning, we have 66 operators that operate our 87,000 acres. And we've carefully selected those operators in terms of being very progressive in their practices using things like precision agriculture, which is a variable rate application of seed and fertilizer to maximize crop production. And so by and large, we'll go in and remove whoever is currently on the farm. Lease is terminated or it was an owner operator. And we'll put one of our qualified operators out there to farm it. That's also for us a due diligence step. So we never buy a farm when we don't know who is going to farm it. And that person has reviewed the farm with us and has agreed to the leasing rates on that farm based on it. So we never go in and buy something without, in our view, knowing what the unit economics are going to be.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“So it's in low 3% today. So if you look at just the USDA average cropland rental rate in US divided by average cropland value, it's come down to about 3%.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“And then you avoid the big problems. You know, like we don't buy farms even if they're cheap and it's the greatest farm in the world and it sits behind a levee on either the Missouri or the Mississippi River. So we try to get rid of some of the idiosyncratic risks where things could really go haywire.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a combination of things. I mean, the largest driving factor is certainly soil quality. So there are different rating systems in different states that measure soil quality. And those geographically in one of the 99 counties, for example, in Iowa, that rating system can work better than in other counties. So you have to really understand the nuances of the rating systems. But that will give you a baseline set of information about sort of the soil quality of the farm. That is a raw value of if it's managed well and if it's set up right and if it's farmed right that's the measure of potential productivity. So then you have to go look at the other factors, right, which is yeah has it been managed well what's the fertilizer application history been on it? How's the drainage set up? So most of farms in the Midwest, we focus primarily on non-irrigated farms are about managing too much water, not managing too little water. So that's another whole bucket of farm management areas that you get into.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's right. And so if you are good in terms of having local connections, being able to know where to buy, when to buy, we do that through our farmer operator network of people that are renting our farms, through our estate attorneys, through bankers and all the relationships that we have, you can actually access transactions at a discount to market because someone doesn't want to publicly auction their farm because their dad didn't want them to do that. They don't want to sell to the neighbors because neighbor Joe would be pissed off at neighbor John in terms of I picked one of the neighbors, right? And so you really have to dig in there at a local level and you'll find somebody that will say, hey, if I just sell to J, I don't get into all these local politics or these other issues or I need to close in 30 days or whatever it is. And I'll tick a 10%, 15%, maybe a 20% price discount in order to sell the farm and get out of this situation.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Farmland and look in the plat book, which is basically the phone directory for land. And in there, you'll find more than 3,000 owners of those 300,000 acres. And so it's not owned by large corporations. It's not rolled up even under really large individuals. And so that marketing efficiency is great if you can actually access it in terms of the acquisition side because there's lots of people that sell farms for reasons that are non-economic.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. Yeah. So farmland is an extremely inefficient market, particularly when you're north of the Mason-Dixon line in the United States. So that was all settled underneath the Homestead Act. So basically anyone that was in Pennsylvania to the east could get $160 acres of land for free as long as they went out and settled in the American West. So what that did between 1850 and 1900 was it transplanted a lot of very entrepreneurial, industrial immigrants, a lot of them out into the Great Plains. And every one of them had their own business on 160 acres of land, which is what's called a quarter section, which is basically a half mile on each side. And from that, you had this very, very fractured ownership base for land. So you'll even go into a state like Iowa now as 99 counties. One of those counties will have around 300,000 acres of tillable plantable.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“We were talking about that and talking about how my own family and my wife who grew up on a dairy farm and they also own a lot of farmland how we actually manage this, what the investment characteristics of it are, returns that sort of thing. And we kind of cooles around, wow, this would be a great idea for institutions, endowments, high net worth individuals as a great diversifier amongst their portfolio. That's when it started. We set it up in the fall of 09, basically.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Throughout all that one.com that I was at sort of fought through it and eventually it was company called homestead.com eventually became an on-ramp basically for small businesses to get on the internet, which was something people were willing to pay for. And we eventually sold that into it. So we didn't completely implode. From there, went to another software company called Demandech, where I helped with their product development. That was pricing software for retailers. That company went public. Then we moved up into Seattle, mainly for my wife's job. And that's where I was in late 2008, early 2009, coming to my 10-year business school anniversary. And that's where farmland got started. Right. So that's just how naturally it's like Harvard Business School Farmland. Right. Yeah. How had that all play out? That's right. There's actually a Harvard Business School affiliation group for agriculture. I think there's five of us that are in it. But yeah, how that played out was in 2009, we were actually back.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source
“Jay, great to see you. Thanks, Ed. It's good to be here. Well, why don't you dive in with your background? I grew up in Cedar Rapids, Iowa. I was the kid of two sets of farm kids. So they grew up in western Kansas and moved in the late 1950s to Cedar Rapids, Iowa, and didn't go back to the farms. But it was always in our blood and our family continued to own farmland in absentee form in terms of renting it out to some locals as well as relatives all the time I was growing up. Later went out to the East Coast and went to college, both at Harvard undergrad and Harvard Business School, worked in Boston at Bain& Company in between the two. And in 1999, sort of launched myself into software coming out of business school at the height of the internet bubble, which was an interesting experience for sure. I think 99 was the only class of Harvard graduates that said more people to San Francisco than New York City, which was a leading indicator of what was going to happen, and it did happen a year later.”
2019-10-14 · Capital Allocators · Jay Girotto – Farmland Opportunity (First Meeting, EP.10) · IDENTIFIED FROM THE TRANSCRIPT · source