Jimmy Atkinson: Welcome to the Opportunity Zones podcast. I’m Jimmy Atkinson, and my guest today is Kevin Maher from Cranmore Advisors. He joins us today from the greater Albany area in Upstate New York. Kevin, great to see you, great to have you on the show. Welcome, how are you doing?
Kevin Maher: I am fantastic, thanks Jimmy. It’s a real pleasure being on. I’ve been a long-time listener of the podcast, so I enjoy this.
Jimmy Atkinson: Well, it’s great to get you on the show today, Kevin. We’re talking about farming and agroforestry today on the podcast and how that topic intersects with Opportunity Zones. But why don’t you tell us a little bit about Cranmore Advisors and what you guys are doing with regard to agroforestry where you are currently in Upstate New York?
Kevin Maher: Sure, thank you. We are establishing perennial crop farms using agroforestry practices, well-defined USDA practices, in Upstate New York. Our core crops are chestnuts and hazelnuts, and we’re building off the model of our partner and co-founder Mark Shepard, who pioneered large-scale temperate agroforestry on his farm in Wisconsin. Here in New York, the plant species we’re working with, chestnuts and hazelnuts, have existed here for thousands of years. We’re using these practices to establish them in this region and capture the long-term potential of these crops, both for nutrient density, biodiversity purposes, and other ecosystem services. It’s been a fantastic ride over the last few years. As we got planning for our investment farm, to partner investors with Mark and his network of experts to implement these systems, I came across the Opportunity Zone legislation and was very excited about the potential in how those two things could overlap.
Jimmy Atkinson: Good. Well, that’ll be the bulk of our conversation today, focusing on that very topic: how Opportunity Zones overlap with what you’re doing. I also want to talk about some of the environmental impacts that your type of farming has. Can you tell me about Mark, first of all? I know he’s an expert in the field. Tell me a little bit about Mark and your team.
Kevin Maher: Sure, yeah. Mark started his New Forest Farm in Wisconsin in the mid-90s and essentially took over an overgrazed pasture/long-term corn crop farm and turned it into a savanna ecosystem using these perennial crops. One of the benefits of agroforestry techniques is that it gives a lot of different options. Obviously, we have the trees and shrubs, which are the perennial crops, but within the spacings in between, we have the options to do annual crops, things like a perennial crop like asparagus. We can do grazing, whether it be ruminants or poultry, so there’s all sorts of additional options that we can stack. We’re actually getting multiple yields off the same acre.
Jimmy Atkinson: Good. Now, let’s talk about Opportunity Zones. Opportunity Zones are a policy that really can be used as a tool to help raise equity for certain types of projects in certain locations, obviously. But what do you like about Opportunity Zones, and how does that policy overlap with the type of farm that you’re doing?
Kevin Maher: Well, as I said, it was very exciting to me when I first found it because these perennial crops have been used in different areas, and the long-term economic potential of them is understood. People are investing in almonds and other perennial crops in different areas, but one of the hurdles is the delay between the establishment of the crops and when they begin to yield. The fact that our investors could get the benefit of the Opportunity Zone legislation if they’re using capital gains gives them that extra benefit and incentive to adopt a longer-term time horizon, which lines up perfectly with the need to have that patience as these crops come into bearing. It was just really exciting to be able to structure things in a way that gives more of a benefit to our investors.
Jimmy Atkinson: Yeah, the types of crops that you’re developing, hazelnuts and chestnuts primarily, what’s the timeline there? What’s the time frame for someone who may not be familiar like myself—how long until the plants go in the ground until they start bearing?
Kevin Maher: We’ve had chestnuts that have actually started bearing in year two or so, but in general, we anticipate them starting to come in around year five and really kicking in year seven or eight. Then, it’s actually quite a continued growth curve all the way out to like 25 years, potentially increasing every year. Hazelnuts, year three we should be getting something, but for our models, we assume commercial harvest in year five. So, there is that delay. In the meantime, we will be pursuing other things. Like I said, we have the opportunity to do grazing and other things to enhance early-stage cash flow, but for our economic models, we try to be conservative and base it off the revenue from chestnuts and hazelnuts.
Jimmy Atkinson: Good. So, I guess to put it in real estate terms, it takes a little while longer to get the asset fully stabilized and leased up with perennial crops than it would for traditional multi-family real estate buildings inside an Opportunity Zone. But I guess that kind of plays into that longer time horizon you were suggesting—needing a 10-year hold is not really a big problem for someone investing in perennial crops. Those types of crops do need a long-term hold before they start bearing and turning out cash flow.
Kevin Maher: Yes.
Jimmy Atkinson: So, what about job creation? Part of the intent behind the Opportunity Zones tax policy is to lift people out of poverty in these impoverished census tracts identified as Qualified Opportunity Zones all over the country. Part of that goes back to creating jobs for these people and increasing the economy locally in these different communities. These are rural communities in Upstate New York that we’re talking about today. What types of jobs is this type of farming creating, and how many?
Kevin Maher: There are sort of two tiers to that. On-farm, we will be bringing in farmers and people to work on the farm, so a few jobs, some of which may be seasonal. But we will be establishing farm managers on each of the farms. Part of what we’re focused on is a particular Opportunity Zone, so we’re working across farm projects in a tight area. We’ll have people working back and forth on our properties. Another part of it is that we can offer land access to other farms or farmers aspiring to get onto land and might want to work within our alleys and have a complementary enterprise. So, we’re bringing in new people, training them alongside Mark and our in-house network of experts, providing land access for people looking to get into farming and establish their enterprises.
The other thing we’re doing is establishing processing for some of these crops, which will be an additional layer of job creation. We’re working on that now. The second part of what I think is really exciting is that we’re bringing in new crops for our region that have long-term potential. A lot of the region has been dairy-centric, which has had its ups and downs over the years. One of the benefits of us coming in and establishing these systems is that this can offer another option for farmers and landowners in the area to diversify their holdings and expand their economic production. By being the first in and establishing the necessary rails to both demonstrate how to do it and process and bring it to market, it becomes a greater option for other farmers in the area with crops that have long-term economic potential, offering an opportunity to diversify away from things that have been struggling.
Jimmy Atkinson: Where are you in the process right now of getting these farms planted and equity raised to proceed with operations? What’s the status of your farming operations right now, and how much additional equity are you raising currently?
Kevin Maher: We closed our first investment farm last year, and it’s fully funded. We’ve just secured another property down the road, raising an additional $1.5 million for that property. We have the potential to raise up to a total of $5 million to add a second farm, so that would be for three properties all within this tight area.
Jimmy Atkinson: And that tight area—are all the farms located in Opportunity Zones? Are these all Qualified Opportunity Zone businesses?
Kevin Maher: Yes, they are.
Jimmy Atkinson: How do you take investors’ money? Do they need to have their own QOFs set up, or do you have your own fund? Do you have one fund for each farm, or do you have one overall fund that diversifies across different locations? Walk us through how you’ve structured everything.
Kevin Maher: With our first farm, we established our own Qualified Opportunity Fund for investors to put their capital gains into, and we manage that. For the second project, and going forward, we have the option to either establish a Qualified Opportunity Fund for investors to invest in, or we can accept third-party QOFs to invest into the farm QOZBs. We have some flexibility on that front, and not all of our investors are investing capital gains, but the majority are.
Jimmy Atkinson: Yeah, so the majority of the money flowing in is OZ-eligible equity, I guess, but you have a few non-capital gains dollars coming in as well, which is fine. Let’s zoom out a little bit. I want you to put on your investor’s hat or your wealth advisor’s hat. For the record, this isn’t meant to be investment advice, I have to give that disclaimer off the bat. But let’s talk about some of the benefits of perennial crops in an investor’s portfolio. How should investors think about perennial crops in terms of an asset class, and how do they fit into a portfolio?
Kevin Maher: I think you would consider them a real asset, similar to farmland or timber. They kind of fall into that category. They are real assets that, once established, will put out an annual yield in terms of crops. We would expect some measure of inflation protection because of the pricing of that year being captured in the selling of crops. It’s also diversified somewhat from financial markets, being a real asset as opposed to being tightly coupled with bonds or equities. It’s a diversification, and we think there’s a lot of potential. For people looking to diversify, this is an exciting way to look at it. One benefit, for example, as opposed to timber, is those annual yields once we get established.
Jimmy Atkinson: What does a yield typically look like? I don’t know if I need to ask you what your pro forma is projecting, although you can get into that if you want. But what’s a typical range in terms of an annual yield for a perennial crop farm like this one?
Kevin Maher: We’re targeting a 9 to 12% IRR, and we anticipate returning all of the investment by year 10, or years eight to 10.
Jimmy Atkinson: What about in terms of an exit strategy? Do you have an exit strategy in place? Any sense of what you might do beyond year 10, or maybe you’re planning on holding for several decades?
Kevin Maher: Overall, the project intends on holding, but we would facilitate those exits in-house. Once those crops are up and established and using cash flows, if people want to exit, we would facilitate that.
Jimmy Atkinson: Okay, so if I were to invest and wanted to exit 10 or 11 years from now, you could essentially just buy me out?
Kevin Maher: Yes, we would use the cash flow from the farms themselves. One of the interesting things about these crops is that around year 10, things really start to hum, and the production continues to go up. But everyone’s time horizons and needs are different, so we would facilitate the exit and buy people out if that’s what they choose, or they could stay along for the ride.
Jimmy Atkinson: Sure. Who have your investors typically been? I’m not asking for names, but more of a profile of your investors. Are they farmers local to the area? Are they high-net-worth investors just starting to get exposure to farming? They must have patient capital if they know they’ll be in this for at least 10 years, I would imagine. How would you characterize your investors so far?
Kevin Maher: High-net-worth investors. We’re limited to accredited investors. So, obviously, they are looking for a good financial return and most are looking for the capital gains benefit provided by the Opportunity Zone legislation. But our investors today have also been excited about the co-benefits of these types of farms and practices, such as ecological services, carbon sequestration, biodiversity enhancements, water, and nutrient-dense food. There’s this range of co-benefits that come with these practices, which our investors also want to see implemented.
Jimmy Atkinson: I want to hear more about that because we talked about the tax policy and the social benefits, job creation, the economic benefits, and the benefits to the investor in terms of diversification and having a non-correlated real asset that may also have some inflation resistance. Let’s talk about the environmental benefits now. Why is the type of agroforestry that you’ve developed and are implementing important to the environment? Can you tell us more about those metrics you’re looking at in terms of biodiversity, water quality, and carbon sequestration? Why is that important to you and your investors?
Kevin Maher: This week, actually, COP27 is continuing in Egypt, and more and more, over the last few years, there’s been an awareness that reducing fossil fuel use is wonderful and necessary, according to climate scientists. But nature-based solutions, like agroforestry, offer a high-potential tool to do that in a well-proven way. Essentially, we’re using natural systems that have proved themselves over millennia. They can not only achieve carbon sequestration—agroforestry and perennial crops, trees, and shrubs are real workforces in that regard, and there’s a lot of research on that—but especially these diverse agroforestry systems we’re using, with multiple trees, shrubs, and small trees of different heights and structural diversity. This also offers habitat for a wide range of biodiversity. Mark has had rare and endangered species just show up on his farm in Wisconsin, for example. These systems provide a refuge. The more we can do, the more biodiversity we can provide—plants, insects, birds, mammals. In the long run, this reduces our expenses because we leverage pest control by encouraging a diversity of insects and birds. By managing this way, we increase biodiversity and resilience and reduce costs.
Mark has written two books, Restoration Agriculture and Water for Any Farm. One of the first things we do is implement a water management system on our farms for long-term water resilience in the face of droughts or floods. We can buffer large rainfall events and provide long-term hydration to the plants. This also helps store and clean the water through natural systems, which is the cheapest way to filter water. We get all these benefits while producing high-nutrient-value crops. It’s one of those things where there are co-benefits and wins every way you look at it.
Jimmy Atkinson: For sure. We talked about the social benefit, the Opportunity Zone tax benefit, the importance in an investor’s portfolio of having non-correlated assets, and the environmental benefit. But wait, there’s more, right Kevin? The environmental benefit can lead to what some call environmental economics or environmental credits that can create an additional financial benefit. I’m thinking of carbon credits or ecosystem credits. Are you taking advantage of any of those? What can you tell us about them?
Kevin Maher: We’re actively looking at that and in discussions around it. It’s always been our intention to do this. Carbon credits are more well-developed, though still developing. There are interesting opportunities to monetize the carbon sequestration of these systems. There are people who either voluntarily want to reduce their carbon footprints or entities committed to net-zero goals. Most entities will never fully reduce their impact in-house through efficiencies, so they will need to source carbon credits or offsets from another source. Those markets have players now who will pay $20 a ton upfront for projected sequestration over, say, the first 15 years. There’s also the option to document that and sell it in the market at some point in the future. On the carbon side, that’s becoming better defined with more clear options that we’re exploring. The ecosystem services side—biodiversity and water—has potential but isn’t fleshed out well enough yet. But the fact that our project hits all these ecosystem services will enhance the value of the carbon credits as we bring them to market.
Jimmy Atkinson: That’s great. Really interesting what you’re doing at Cranmore Advisors with this agroforestry. I enjoyed our discussion today and learning more about it. If our listeners or viewers are interested in learning more about you and Cranmore Advisors, where can they go?
Kevin Maher: The best place is our website, cranmoreadvisors.com—that’s C-R-A-N-M-O-R. It’s Gaelic for big tree, which my co-founder came up with. So cranmoreadvisors.com, and you can reach out through the contact us link. We’re happy to talk more about our project. We’re real excited about it.
Jimmy Atkinson: Excellent. For all of my listeners and viewers, I’ll have show notes available for this episode at opportunitydb.com/podcast. There, I’ll have links to all the resources Kevin and I discussed on today’s show. I’ll be sure to link to Mark’s two books and Cranmore Advisors’ website. Please be sure to subscribe to us on YouTube or your favorite podcast listening platform to always get the latest episodes. Kevin, thanks again for being with me today. Appreciate it.
Kevin Maher: Thank you, it’s been a pleasure, Jimmy.
