Agricultural Investing with Brandon Rebiero | Episode 36
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Brandon Rebiero:
So he's doing a search and this almond grower with a Palo Alto address pops up. He's like, "What the hell? This can't be right." So he goes and interviews him and it happens to be the same LP who I was very close with. And he says, "Hey, I'm doing this eBay for almonds, but it's not working. I'm not getting good traction." And I'm thinking about this path and it was somewhat similar to what I was doing. So he made the introduction. This was back in 2017, and love at first sight, we just sort of hit it off. All the contemplating I had done previously, the gut check was there, and hence the genesis of Gold Leaf.
Moderator:
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Ryan Swehla:
So today for our episode, we're here to speak with you, Brandon Rebiero, co-founder and head of farming for Gold Leaf ag. And ultimately our goal today is really to get a sense of the world of ag investing, agricultural investing. It's not something that we're personally familiar with, but there are a lot of overlaps in private equity real estate investing and agricultural investing. And I'd love for our listeners to be able to get a better understanding of what it is you guys do, and also how they should be looking at agriculture investing when it comes to their whole portfolio. But before we launch in, I'd love it if you could just give us a little bit of background on you and how you got to where you are today.
Brandon Rebiero:
Sure. So first of all, thanks for having me. Honored to be a guest. I grew up here in Modesto and went to Modesto High. Later, went to Cal Poly, San Luis Obispo. Grew up on a small almond orchard, it was my grandpa's 30 acres, and loved almond farming at a young age, loved getting dirty, driving a tractor, getting blisters, all the fun stuff as a kid. And always dreamed of being a farmer, full-time farmer. And then about eighth grade, my dreams were shattered when I learned you couldn't make a living off of 30 acres of almonds.
That was like, oh, man, total buzz kill. So basically what I did is throughout high school, I worked for a lot of the neighboring large farmers. A lot of my classmates in grade school and high school, their families were large farmers. So I would work for them and learned basic operations, equipment operations. And I'd say one big takeaway of that was real appreciation for the culture of labor and the workers. Got to know them.
Ryan Swehla:
What do you mean by that?
Brandon Rebiero:
Well, their stripes, right? What they go through every day. And not understanding that culture previously and then sort of rubbing elbows with them at lunch, literally sitting on our buckets in the shop. And I'm eating my sandwich, they're eating their lunches, and I don't always understand what they're saying, but we just really bonded on a whole different level. And that always stuck with me. So I went on to college and started studying agronomy and the plant sciences, had a real interest in that. And came back and was an agronomy consultant. Consulted for lots of acres of tree nuts in California, pistachios and almonds. And then later started a farm management company. It's kind of the norm in the industry is you have an agronomist, if you're a grower. You have your agronomist as your advisor and then you have a farm management company and they're usually different companies.
So I saw an opportunity to merge those, so to consult and then execute, sort of like for the spotter, the sniper; I wanted to take the shots. So that was my first bridge into that. And then I came back and we got the business off the ground, the consulting and the farm management. It was about that time when one of the first private equity firms in the space came to Stanislaus County and started developing almonds. So they had an agenda to deploy quite a bit into green field raw land developments. And we developed about 10,000 acres in eight years, from Oakdale all the way up to Davis, California. And that was about an eight-year sprint. They were bootstrapped. They raised money from high net worth capital and then basically at the end of that life, they exited to a Canadian pension. During that time, I was kind of learning their playbook.
I knew the farm side well, and I was really interested in the investment side, but just didn't have the acumen. So I was exposed to it and at exit, they offered me an opportunity to come on board with them as a partner, a junior partner. And I ultimately declined just for personal reasons. It just quite frankly didn't feel right in my gut. I just wasn't feeling it. So there was a pivot away from that. And I had developed some good relationships with the original LPs in this fund who were the original investors. I would be the guy, they'd jump in my truck and I'd show them the orchards. And they thought it was cool, they could take selfies in front of the trees and show their buddies they're invested in orchards. Great people you could have a beer with, not some stuffy types.
So when that happened, I talked to a few of them and said, "Hey, here's what I'm thinking. I'm interested in this 2.0." And they quickly said, "Well, you need a good partner who gets the investment side and the finance side." Went down that path, found a partner and we were too similar skill sets, it wasn't complementary enough. So it was sort of about ready to tap out, wasn't going anywhere. And then one of the original LPs who I was close with said, "Hey, you got to get over here to Palo Alto and meet this guy, Jack."
And it turns out Jack was GSB, business school at Stanford. And he was working on an eBay for almonds. And part of his thesis was to interview entrepreneurs in Palo Alto, but also just almond growers. So he's doing a search and this almond grower with a Palo Alto address pops up. He's like, "What the hell? This can't be right." So he goes and interviews him and it happens to be the same LP who I was very close with. And he says, "Hey, I'm doing this eBay for almonds, but it's not working. I'm not getting good traction. And I'm thinking about this path." And it was somewhat similar to what I was doing. So he made the introduction. This was back in 2017, and love at first sight, we just sort of hit it off. All the contemplating I had done previously, the gut check was there and hence the genesis of Gold Leaf.
Ryan Swehla:
That's awesome. And you said a match at first sight between you as partners. Maybe you could talk a little bit about that. Because having a partnership in a business is its own thing. Joe and I have that partnership and we certainly look at the strengths that that partnership brings, but I'd love to hear when you're first meeting that potential business partner, what are the thoughts going through your mind and what made you feel like it was the right fit?
Brandon Rebiero:
Totally. As much as I'd love to say there's this quantitative analysis and this box checking, it was trust. The gut check was there, I just felt it. And once the dust settled and the gut check was there, we realized our skill sets were very complementary. Jack comes from TPG and Mackenzie, consulting and private equity investing and I come from large scale farming operations; very opposite, very different perspectives. But that really solved for the gap in our weaknesses. So it was tactical and then it was more trust than anything. And that sort of continues throughout the Gold Leaf story, our different views. And we have very healthy tension because we have different perspectives and we don't avoid the tough conversations because our worlds are very different from one another's.
Ryan Swehla:
No, that's great. Very similar. So maybe just backing up a little bit, you gave kind of the high level on your background and how you got to here. Tell me about a time or experience or something in your past that maybe was a challenge, but was formative in how you view the world or how you run the business or whatever the case may be.
Brandon Rebiero:
Totally. Good question. I would say in the early days I was pretty envious of my classmates who were born into large farming operations. And just, man, I wish that were me, sort of thing. Because farming, obviously, is one of those things you don't just get into, it takes generations to build up any sort of portfolio that you can make a living off of. So I was really motivated early on to, "I'm going to have to do this myself or I'm not going to do it." There's no simple solve. So I also didn't appreciate how I saw a lot of the labor force being treated, quite frankly, just sort of undervalued. And that bothered me and I wanted a chance to change the world in whatever small way I could. Didn't realize those exact words at the time, but looking back, that's what I was really solving for.
So I would say sort of being the underdog and not the 10th generation grower, that sort of thing. Wish I could have, but as I look back, I no longer wish I could have because those battle scars and that sort of grind is what helped me see a lot of tough situations, how to solve them. So I would say it was that just drive to want to farm basically full-time as a living and then finding the right path to get there. And I tried that in a few different avenues and it wasn't until the stars aligned that Jack and I met and realized this is a good fit.
Ryan Swehla:
That's great. So your business, you said 2017 you started?
Brandon Rebiero:
2017, yeah.
Ryan Swehla:
So tell me a little bit about when you guys first started, what type of investments were you looking for? How did you assemble your capital? And I'd love to understand that in the context of ag investing in particular.
Brandon Rebiero:
Sure. So I guess broadly speaking, we want to be in supply constrained crops. We don't want to be in commoditized crops that are traded on the boards of exchange. So with that being said, we were pretty quickly focused on almonds. 80 plus percent of the world's almonds are grown in California. So we want to be in businesses where demand continues to outstrip supply. So pistachios would be another crop that ran; almonds, pistachios. And our views would be an inch wide and a mile deep, just be true experts in our crops before we move to any tertiary crops. So we're getting really good at almond and pistachios, we think we have a really good playbook and a good team. An example of a tertiary crop would be dates. So dates, also supply constrained. They have really unique climactic requirements, similar to almonds and pistachios. So we have a 40-acre date farm down south of Coachella in Bard. No one's ever heard of Bard, but it's somewhere between Yuma and Coachella and it's very hot.
Ryan Swehla:
There's a music festival in Coachella.
Brandon Rebiero:
Yeah, that's what everyone thinks. That's why I throw out Coachella, not Bard. It's way cooler. So basically that's an example. We want to get really good in that business before we expand. We've had that holding for maybe three years now, and until we have ultra confidence we're not going to deploy anymore into the date space. Our capital base, so we just had our five-year anniversary and we were kind of reflecting on since 2017. Our capital base continues to be mainly high net worth individuals and some family office money, but the bulk is high net worth.
In the early days in 2017, GLF1, our first deal, we're now at GLF28. We're not very creative with our namings here. Anyways, it was a 132-acre almond orchard, that looks like maybe five million of equity. And so year one, GLF1, 132 acres. And then we just were reflecting, GLF28, we're at about 12,000 acres at year end. We'll be at around 12,000 acres and about 220 million of equity raised. So the growth has been good, I would say. With that comes a lot of growing pains. I would admit we are behind on hiring and we're playing catch up there. On the farm side and probably on the business team side, growth is just outpacing our infrastructure so we're playing catch up on the hiring.
Ryan Swehla:
So how do you identify that as a problem in the first place and how are you solving for it?
Brandon Rebiero:
Yeah. Good question. So we operate on EOS, which I think you guys do, Entrepreneurs Operating System. And that really helped us identify the blind spots. As you know, there's an RPS chart, vision traction organizer. By the way, I'm not getting any royalties for selling these EOS books. But it was game changing for our business. It really helped us just have a dashboard and make sure we're firing on all cylinders and we have the right people in the right seats. So when we did that full assessment, we realized we had a lot of the right people, but we had the right people in the wrong seats.
So once we had that sort of charted out, we realized, okay, what are the gaps here? What changes do we need to make? Who do we need to hire? So we had a clear plan forward of move these folks here, it's going to align with their wants and their passions. And most of the time we moved someone, their quality of life was much better after that is what we found. It wasn't as hard of a conversation as we thought, it was more of a relief. And then I would say, we realized with that, the need for hiring. It was just very obvious where we needed to hire.
Ryan Swehla:
Yeah. That makes sense. Let's talk a little bit about your investing. How do you look at a new investment? A new deal comes along. What are you looking for? What type of investments are you looking for? And then what does execution strategy look like on an agricultural investment?
Brandon Rebiero:
Yeah, sure. So we spent a lot of time in researching the whole state and we have a pretty comprehensive map. It's an interactive map with all these different layers. Some of the layers are yield, so we know which areas are yielding better than others. It's taken us years to collect this data. We also have an overlay of water districts, so where's the good water? Where do we want to be investing? We have another overlay for climate. Perennial crops like almonds and pistachios have a chill requirement. That just means it needs to be this many hours of cold temps during the winter, and with climate change that becomes a real consideration. So we have a pretty data-driven approach to where we're going. It's not by any means a shotgun. Once we identify an area, there's two paths. One is broker outreach.
So I'd say we're on the good list for most brokers because we can give a quick yes or no. I think more importantly it's like, can you say no quick so you don't waste people's time? And when we commit, we always close. So I'm sure it's similar in your space. And so we've got, I think, pretty good reputation for being able to close deals. Once the deal's identified... Let me back up. So one path is sourced through brokers. The other path, what I'm starting to spend more time on, is deal outreach. So go into potential off-market deals just in my network of growers in the industry. Once we have these areas identified, sort of 80/20 rule. Canvas the highest target areas and then I'll personally reach out to them, not with a cold email, but literally a visit to their doorstep or a phone call and try to set up lunch.
So that's our path to deal flow. Once we see something we like and we get in a contract, pretty lengthy diligence process, but the real takeaway is we want to be the lowest cost producer. So right now almonds are in a trough in 20-year pricing. And that's really exposing people who are either over-leveraged or just expensive operators. And two ways to do that; have a low cost structure and have high yields. So first thing we do is focus, where's the yield at? And then where's the lowest cost structure? The biggest variable in cost structure is water cost. So we do have areas that are very high yielding, but the water's expensive.
So the cost structure imbalance is not a good situation to be in and we've since learned from that. We had a not so good situation that we've learned from and we're getting back on course. But I would say from that takeaway, it was be the low cost producer. So then we identify the asset. I lead the farming diligence process. That's all soils, tissue; tissue's like leaf samples. Water samples, meet with the operator, full diagnostic of the orchard, walking through it, meet with the operators. And then on the asset side, it's a lot of legal, it's debt raising, figuring out the pro forma, and then are we going to hit our target IRR and cash-on-cash?
Ryan Swehla:
And what sort of strategies do you guys deploy on your properties? Are you looking for what we call heavy value add? Or are you looking more for stabilized cash flowing with incremental improvements? Do you guys develop from the ground up orchards?
Brandon Rebiero:
Yeah. Combination of all the above, but I would say we don't view ourselves as turnaround specialists. So we can't add a ton of new value to an orchard in terms of boosting yields. There's a saying in the wine industry, the best winemaker in the world can't make good wine out of bad grapes. If the vineyard's in Modesto versus Napa, doesn't matter who the winemaker is, the grapes out of Napa are going to make better wine. It's true with orchards too. So certain things are fixed like soils and climate. Biggest drivers of yield. Doesn't matter how good we are as operators. If we know the historical yields, so in that example, we would step into an existing orchard, we'd look at historical yields and then I would sort decipher all this data and say, "I think we can stabilize here for the long haul." And we do a low case, a base case and a high case scenario for yield.
And then that's really the driver of its entry price and its yield and its OPEX. Yield probably moves IRR and cash-on-cash the most. So I'd say our down the middle of the fairway deals are cash flowing deals, annual cash flow. And we model a terminal exit value for IRR purposes, but Jack and I are both in our thirties... Oh, I just turned 40, I got to correct myself here. So we intend to do it for life. But as fiduciaries, if someone came with some crazy thing, we have to consider that. But that's really not part of our business plan now.
Ryan Swehla:
Got it.
Brandon Rebiero:
Green field developments, in ag we call it open ground developments, we do those not as frequently just because the payback period is a little bit painful. When some of our investors come from real estate and they're used to the annual distributions, like you guys do, that's a little bit different. However, we are dabbling in opportunity zones, which is pretty nuanced for ag. And I would say we're probably leading the charge on that. We don't see a lot of other competitors in that space. But I know real estate, there's a similar play there. We find a little bit more opportunity because areas we already operate in tend to be lower-income impoverished communities already identified as opportunity zones. So those are attractive to investors who normally would not invest in a long-term hold development deal, because their capital's tied up for long.
But as you know, and some of your listeners might know, is basically Mr. Investor can sell his Tesla stock and then roll the gains into this deal tax-free. And then there's some catch up down the road, but that tends to be our focus on developments unless we have a super strategic entry price. The main reason we don't do developments, though, is the entry price is pretty high.
Ryan Swehla:
So they're kind of pricing in the upside of the purchase price.
Brandon Rebiero:
Exactly. And the market is really inefficient. So what I mean by that is it's more comp-based than value-based and cash flow-based. So the average grower, and I grew up in a farming community, if your neighbor got $30,000 an acre, by God, you want 30,000 an acre for yours. He might be yielding 3,000 pounds an acre and spitting out 10% cash-on-cash every year. The other guy might be yielding 2,500 pounds an acre and yielding 5% cash-on-cash.
Most of the time, they'll sell for the exact same price. So that hurts us and it helps us. Where it helps us on the sourcing side is if an orchard's very high yielding, we know we can pay more for it. And the other guy's likely to think that's just overpriced based on comps, but we know it kicks out enough cash flow to hit our thresholds. So we're very competitive there. Where it hurts us is when we would just want a down the middle of the fairway easy deal, good water district, yields tend to be a little bit lower in some cases. We can't overpay and we'll just never overpay. So that's sort of our go to market and how we'd run a deal to ground. And then I guess fundraising would kick off after that. So the diligence passes the sniff test and then...
Ryan Swehla:
So you fundraise per deal?
Brandon Rebiero:
We do. Good question. So we're a fund of one, if you will. And so GLF1 through 28 is 28 different LLCs, which is not easy to manage. But one thing we like about it is versus the fund model, which is what we've also talked about doing, getting started in the early days, the deal of one was really important because we had to build trust and track record. It was much easier to say, "Mr. Investor, here's the PowerPoint deck of the orchard. Here's the pro forma, PPM. Here's pictures. Here's the assumptions. Here's the location, do you want to go look at it?" So there was more buy-in. They knew what they were getting into and that sort of built trust. Maybe down the road as we get more track record and more credibility and consistent performance, I think the fund model is something to talk more about, because then people sort of know what they're getting into.
Ryan Swehla:
And it's interesting because I also heard from you that it sounds like it's more of a... Maybe not a perpetual life thing, but investors going into these investments, it sounds like you're saying they're driven by cash yield and knowing that they kind of have a durable long-term cash yield, not some sort of a big exit.
Brandon Rebiero:
That's right. Yeah. So our investors are all taxpaying, so it'd be a real problem if we said we're going to hold for 20 years and we exit near five. Then they have the problem of redeploying, they have a tax problem, all sorts of problems. So our view is protect the capital at all costs. And it's a long-term hold, steady return. We're not promising any big grand slams or exits. Very safe asset class. And we want to under-promise and over-deliver.
Ryan Swehla:
Maybe just kind of concluding, it'd be great to talk a little bit about why investors seek agricultural investing. What are the characteristics of it? What are the considerations when people are thinking about investing in ag?
Brandon Rebiero:
Yeah, so interesting question. We had our first investor conference last year in San Francisco and it was the first time we got a lot of just general feedback and good questions from the audience. And number one, it's just a very difficult asset class to get access to. If you look at the publicly traded markets, you're going to maybe go to REITs, big ag REITs, and that's really a commoditized focus on corn and soybeans. And they do some of them have an emphasis in tree nuts, but it's very broad. So it's difficult. It's a difficult asset class to get into and to invest in. And we found there's demand for that. One other interesting way is how do you invest in a scarce resource like water? Everyone would love to invest in water. There's no investible market. One vehicle for that is buying land with very strong water rights in very good water districts.
And what we're seeing now with the drought taking place in California, a lot of people view California doesn't have water. The truth is it's highly fragmented where we have water, where we don't have water. And so where we're invested and have paid premiums to be in good water districts, we're seeing healthy appreciation there. These marginal water areas are now devaluing. So we see that as one interest level of just water investment. The other is it's a noble business. We're growing food, a healthy food to feed the world. People like that. I also think, we're converting 70% of our portfolio into organic, and our north star is to leave the world better than we found it. So that's not only the right thing to do for the environment, but it's a good business decision too. It's sort of a nascent market right now and we're going to hopefully be the pioneers in growing that business.
That'll make us easy one of the largest organic nut producers in the world, once that all converts over. So that's of interest to our investors. And then a lot of these guys come from real estate, guys and gals come out of the real estate business. So they understand hard assets and annual cash flow, but this is a little bit of a diversification for them. And we're really uncorrelated to the S&P, so as a benchmark, if you look, since World War II, farmland has grown incrementally and really is uncorrelated to the S&P 500 volatility, so it tends to be stable over the long haul. They like that on the macro.
And then I guess maybe on the people side, we treat our people much differently. This is a minimum wage industry, by the way. For the most part, we start our people at $20 an hour, they have a hundred percent paid healthcare, same healthcare offered to me and Jack is also offered to them. They can put their kids on it, we cover it all. Retirement, 401(k). Jack and I have lunch with all of them once a quarter, we kind of migrate throughout the state and these different hubs and sit down and have lunch and listen to what they're doing.
Ryan Swehla:
I'm curious. That's amazing, by the way.
Brandon Rebiero:
Oh, thanks.
Ryan Swehla:
You mentioned lowest cost structure and then you mentioned starting wages $20 an hour, full benefits, in a minimum wage business. I'd love to dig into that because obviously there's a conception, it sounds like, in the agriculture industry that you have to be low cost and therefore the only way you can be low cost is by driving your labor cost down. Yet how have you guys obviously been able to-
Brandon Rebiero:
Yeah. Great question. So our view is to have all A players, A plus players on the bus, the right people on the bus. You can't offer C minus wages and expect A plus players to show up. So what we're finding is, as we move more and more to technology, we're a very tech-driven, data-driven farming company, not just back office, but our farming practices are fairly sophisticated from a tech standpoint. It takes smart people to run that. And you can use less staff, quite frankly, with some automation, but it takes smarter people. So in order to execute on our organic initiatives and deliver a better return at the end of the day, we need smart people and the right people on the bus. So we're willing to pay a premium for that. That also sets the bar much higher, so when under-performers see that, oh, the bar's here, they tend to step up their game, which is what we've seen.
We also get good word of mouth press. Once people hear that, "Oh, my friend is making 20 bucks at Gold Leaf," that sort of is attractive. Maybe the neighboring farmer doesn't like that too much, but as far as leaving the world better than we found it, he's going to have to probably raise wages for his folks too, to be competitive. So it kind gives a lift a bit to the industry.
And we're proud of that. And I would say we really, from a cost perspective, labor is that much of a total budget. When you really tear apart the financials it's really inputs like fertility, crop protection and water. Those are the big drivers of cost. So if I'm going to go strip out a budget, those are the big drivers. What's the 20% that I can move 80% of the needle? But the budget, that's where I focus. Labor's really not huge, and when we raised wages to 20 bucks starting, it was a very minimal impact on our budgets.
Ryan Swehla:
That's awesome.
Brandon Rebiero:
And retention is much better.
Ryan Swehla:
On that note, just kind of closing out, would love to hear what you guys think five years from now or 10 years looks like for Gold Leaf Farming.
Brandon Rebiero:
Wow, great question. Jack and I were reflecting on that a bit recently and we think there's an obvious path to go vertical. So right now, the way it works is we sell our crops, almonds and pistachios, to a processor and then probably goes to Costco, it goes to KIND Bar, all sorts of folks like that. We see a real opportunity, because we're going to be one of the largest organic producers in the space, to be able to tell our story. So we're doing a lot of good things for the environment that we're just not getting credit for. And we think the consumers of the future want to know the story of where their food comes from. No one's going to tell our story for us so we have to tell it ourselves.
So I think there's an obvious path to vertical, having our own branding, labeling, processing side of things down the road. A lot of wood to chop to get there but I think that's a real outcome. I also think one of the premier employers in this space kind of leading by example of how to treat people in a place where I want to work there. That's something that really matters to us a lot. And then hopefully, a solid proven track record in five to 10 years of trust and consistent returns and ultimately delivering on what we're promising.
Ryan Swehla:
That's great. Well, thank you for your time today. And this has been very beneficial and hopefully we can talk more in the future.
Brandon Rebiero:
Appreciate it. Thank you.
Ryan Swehla:
Thank you.
Moderator:
Thank you for listening to Durable Value: An Investor's Podcast, where we demystify commercial real estate with safe sound investment strategies to help you balance your portfolio. If you enjoyed this podcast, be sure to rate it on iTunes or wherever you get your podcasts. To learn more, visit graceadapartners.com where you'll find more information, investor's tools, case studies and more. This podcast is hosted by Joe Muratore and Ryan Swehla. It's produced, edited and mixed by melodiq with intro music by Ian Post. Thanks again for listening and we'll see you next time.
Summary
Brandon Rebiero is co-founder of Gold Leaf Farming, a farming and investment company focused on owning, operating, and acquiring agricultural assets in California and Arizona. Brandon shares insights around due diligence, the parallels between agricultural investing and CRE, and how Gold Leaf has utilized the Entrepreneurial Operating System (EOS) to grow rapidly.
In this Episode
How Gold Leaf Farming was started
What does a business partnership need to be successful?
Dealing with challenges head on
Due diligence in agricultural investments
Rooting out and addressing blind spots
Evaluating and executing deals
How ag investing strategies are similar to CRE strategies
Teachable moments in investing
Why invest in agriculture?
Maintaining low cost structure while paying top dollar for labor
Planning for the next 5-10 years
Runtime
38:00