iroquois-valley-farms | September 17, 2019

Iroquois Valley Farmland’s direct public offering lets smaller investors get a share of ‘soil wealth’

Amy Cortese
ImpactAlpha Editor

Amy Cortese

ImpactAlpha, Sept. 17 – Tired of gold? Leery of Bitcoin? Smaller investors can now invest in soil wealth. 

Last month, Iroquois Valley Farmland began offering shares in the 12-year-old REIT to investors with as little as $10,000, via a direct public offering. Previously, only wealthy individuals, foundations and family offices – so-called accredited investors – were eligible to invest. 

The firm’s real estate investment trust, or REIT, finances the conversion of chemically-farmed land to organic production. 

“We take dead soil and bring it back to life,” says Iroquois Valley’s David Miller.

Iroquois Valley is the latest firm to open up once-exclusive impact investments to everyday investors, who have had limited opportunities to make investments that leave a positive mark on the world. Iroquois Valley and others are expanding their pool of investors by making use of an under-the-radar provision of the 2012 Jumpstart Our Business Startups Act (JOBS) Act.

“We feel good about enabling the public to invest for public health,” said Miller.  “We need that capital to make changes—and lots of it. There is big, scalable change out there in the fields.”

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Miller founded the firm in 2007 after buying farmland in Illinois’ Iroquois Valley from his uncle and converting it to organic production. The REIT purchases farmland, provides “farmer-friendly” leases or mortgages and  helps support farmers through what Miller calls “the valley of death” – the three-year process to convert to certified organic production. Investors receive shares in the REIT that rise and fall with the value of farmland.

Iroquois Valley is among a small but growing number of private firms that are making impact investments more broadly available through direct public offerings. CNote, based in Oakland, Calif., invests in community development finance institutions, or CDFIs. American Homeowner Preservation buys distressed mortgages with the goal of helping families stay in their homes. StreetShares lends to veteran-owned businesses. 

As part of the 2012 JOBS Act, Title IV updated a little-used securities exemption called Regulation A, lifting the amount that companies can raise from $5 million to $50 million. The idea was to make it easier (and more cost-effective) for smaller firms to access the public markets without a full-blown initial public offering. Innovative financial firms are using the provision in a different way, creating special-purpose subsidiaries, including REITs, and making those investment products available to the public. 

“We’re seeing more and more platforms look at this,” says Brian Korn, a  partner with law firm Manatt, Phelps & Phillips, which has helped CNote, StreetShares and others navigate the new regulations.

Keeping up with the farmers

Iroquois Valley is among 30 farmland investors managing a total of $22 billion in assets identified in “Soil Wealth,” a comprehensive analysis of private investment in food and agriculture. The report found building soil health can mitigate climate change, foster resilience on farms and in rural communities – and reduce agriculture investment risk. 

To date, Iroquois Valley has invested $50 million to help 40-plus farmers restore 12,000 acres of farmland in 14 states. Still, organic farms represented less than 1% of more than 900 million acres of total U.S. farmland in 2016, according to the Department of Agriculture.

Organic produce can still command premium prices—studies have found organic farming is up to 35% more profitable than conventional—but farmers may face a loss of income during the three years required to make the transition from conventional farming.  

“These farmers are ready willing and able. What they don’t have is the capital,” says Miller. “That is still the biggest impediment to change.”

Iroquois Valley, likewise, has been constrained by capital. The firm has eschewed institutional investors who might insist upon an early exit, which could mean selling farmland from under the farmers. “We have no way of keeping up with the farmers who want to transition their farmland,” says Miller. 

Regulation A has been a game-changer for the firm, enabling it to tap into pent-up demand from ordinary investors. “We now have a shot at funding all of the growth that is coming at this.”

The minimum investment is a still-steep $10,000, but that’s a third of the previous minimum and much less than the average investment of $100,000. The shares will not be listed or publicly traded on an exchange, but Iroquois Valley will offer redemption rights after five years. 

Julia Bunn, an “eco-functional” landscape designer in Evanston, Il,  heard about Iroquois Valley several years ago when she attended an event at a local restaurant with a certified organic rooftop farm.  She was intrigued, although she admits, “I wasn’t big investor material.” When she heard recently that the firm was opening up its REIT to all investors, “It was a no-brainer,” she said. “ I’m really wanting to disinvest from the bad players and I want to support good in the world and what’s working.”

The shares pay modest dividends—less than 1% annually. That could increase over time as farms reap the benefits of organic certification. 

“It’s a good, long-term investment that pays dividends to the planet and your health, and should be paying more to your pocketbook over time,” says Miller. “This is patient capital.” The company says it has already doubled the number of investments it typically receives. 

Different strokes

The funds making use of Reg A strategy vary, in terms of the terms they offer and the impact they target.  American Homeowner Preservation, a 10-year old company based in Chicago, started as a nonprofit advocate for families facing foreclosure, but soon found buying distressed mortgages itself was more effective than working through the big banks. AHP has a minimum investment of just $100. Because it pays pennies on the dollar for distressed mortgage debt, often in low-income neighborhoods that hedge funds avoid, it can reduce payments for homeowners and still pay investors 12%. 

CNote, based in Oakland, pools capital from a mix of investors and invests it in CDFIs. Founders Cat Berman and Yuliya Tarasava admired the work done by these socially-minded financial institutions in lending to small and local businesses, but found it challenging to invest in them. 

“There was no easy way for everyday Americans to invest in these high-performing, deep impact organizations,” says Berman, until they learned of the new Regulation A.  

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Conventional private placements, which are restricted to wealthy investors and institutions require fewer documents and approvals. Companies such as CNote, AHP or Iroquois Valley were required to prepare lengthy disclosure documents and qualify with the Securities & Exchange Commission before their Regulation A offerings. Unaccredited investors can’t invest more than 10% of their assets or income, whichever is lower, in a Regulation A offering. 

Once qualified, however, companies can raise up to $50 million a year for three years, including for each subsidiary fund they create.

“Our vision is to have an impact on these dead monocultures,” said Miller. “Given that type of big vision, I think we’re on the right track with how we’ve set this up.”