How We Conduct Due Diligence on Farmland Investment Opportunities
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AcreTrader performs rigorous due diligence for investment opportunities on our platform so that investors, family offices, and other institutions have access to high quality farmland and timberland. We evaluate the investments we offer with care so you don't have to do the nitty gritty research yourself.
So what does the due diligence process look like? Here's the inside scoop.
Our expert team inspects each opportunity thoroughly before an offering is put on the site–including an investment committee review that requires a unanimous decision. After a property is funded, AcreTrader continues to communicate with each farm's management about their ongoing processes. We work with the managers of a farm for the entirety of an investment cycle until a favorable exit opportunity is identified from the property and any net proceeds are made to investor accounts. That means we're performing due diligence before, during, and after any farm is funded.
Why does AcreTrader provide a due diligence process?
We care about making investing in quality farmland assets more accessible. Just like any real estate or land asset, it’s important to conduct diligence on the land and what it will be used for before making an investment. In the past, if you were an outsider to the farmland investment space, it was difficult to get in on this historically consistent alternative asset class. If you don't know about American farmland – and let's be honest, there's a lot to it– you might not be sure which farms are going to succeed. Each farm's success depends upon qualities like soil components, water availability, lease structure, crop type, and the history of the land. These qualities work together to make certain land ideal for certain crops. For example, a successful vineyard in California requires a different type of soil and water access than a successful corn and soybean farm in Iowa. Understanding what farms need to thrive equips AcreTrader to offer high quality opportunities on our platform.
The AcreTrader due diligence process works because we pair experts from two teams to help create success for our investors. Our farm team reviews each opportunity based on factors like water access, soil quality, climate, and the crop history of each farm. They become authorities on details of each particular property: getting to know the people who run each farm and the processes they favor. Our experienced investor relations team members understand the ins and outs of how each offering can benefit investor portfolios.
Our Due Diligence Process
There are five steps in AcreTrader's due diligence process: sourcing, screening, valuation, review by our internal investment committee, and ongoing management.
Farmland takes up about forty percent of the United States. So how do we decide which farmland is worth investing in? The farms on the AcreTrader platform are often brought to us by farmers and farm managers who find an opportunity in their area. This means that people who are familiar with the land in their towns and states are drawing our attention to the land they want to operate and manage. These properties are often off-market, which gives AcreTrader a unique position to select from some of the highest potential farms.
Once an opportunity is brought to our attention, our team begins detailed research on the property.
The screening process for every property on our platform is extensive and begins with Acres, our advanced land valuation platform that uses historic data and images as well as details about soil quality, drainage, and elevation to create a detailed picture of land quality across the United States. This research gives our team an understanding of the intrinsic value of potential investment offerings. Preliminary screening will also include a site visit from a local farmer and a third party consultant to the property. On the ground, the farmer and the consultant may test soil or nematode samples, check soil drainage, test crops for diseases, or test water for salinity. A third party consultant is extremely helpful at this point in the process because they have the right tools and labs to effectively conduct these studies. If a property moves past the early stages of the due diligence process, it will move on to the next step: valuation. Because the screening process on investment opportunities is so rigorous, only ~5% of properties that are sourced and researched actually make it to the AcreTrader platform.
In the valuation step of the due diligence process, we use Acres' extensive historic maps, satellite imagery, and crop history to study important agricultural data. Our experienced team takes into account the price per acre, price per PI point, county yields, and county rent, along with other essential financial data. Together, these data points inform the quality of an investment. We also consider the land around a farm, not just the property itself, to understand the commodity pricing of the property. Understanding commodity pricing is essential to determining the economic viability of the land and its potential, and understanding the asset’s risk profile. We also consider trends in local markets to gauge how well a property will perform and how profitable it will be in relation to the land around it.
By considering this data, our experts then determine a valuation of the farm based on its income potential. After the land is valued, it goes to our investment committee for review.
4. Investment Committee Review & Funding
Each of our investment opportunities is reviewed by an internal investment committee who performs a detailed risk analysis of every property. The committee takes into account comparable sales data, the financial model, and the operating structure of the farm, before finally making a unanimous decision to move forward with the property. Because of this, the number of opportunities we bring to the platform is relatively low compared to the number we review – only about 5%.
Only after all of these steps do we initiate a purchase agreement and move toward putting the offering on the AcreTrader platform. AcreTrader's due diligence doesn't end after an opportunity is funded on the AcreTrader platform. Throughout the entirety of an investor's holding, we continue to perform diligence on the property to ensure the stewardship of the investment.
After an investment is successfully funded on the AcreTrader platform, we continue to communicate with the experienced farm managers and operators throughout the length of our investing relationship with them about their farm operations. Examples of communications include mid-year reports and ongoing check-ins on development status, budget, actual crop yield, and any weather related impacts.
Our asset valuations are routinely updated with actualized performance, and any annualized distributions are made to investor accounts. We monitor operations on each farm until an exit opportunity, when a farm is sold and investors receive any returns they've earned on the property.
AcreTrader's due diligence process is designed so that we bring only high quality farm opportunities to investors, so you can invest with confidence. Our experienced team works to source, screen, value, review, and manage land so investors can advance their portfolios with this historically stable asset class.
Want to get started on growing your portfolio? Talk to a member of our investor relations team today to see which of our platform investments could be right for you.
Note that Investors are purchasing shares in an entity that will purchase a farm but are not purchasing actual acreage of the farm directly.
The above content is not intended to be a comparison between products but is intended for general, educational, and informational purposes only. Any performance noted is historical and there is no guarantee any trends will continue. All investing involves risks, including the complete loss of principal. Diversification does not guarantee a profit or protect against loss in a declining market. It is important for each investor to review their investment objectives, risk tolerance, tax liability, and liquidity needs before investing. Investment vehicles have differences in fee structure, risk factors, and objectives. Investments are considered speculative, involve a high degree of risk, and therefore are not suitable for all investors.
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