Of all the asset classes that fintech has changed over the past decade, real estate is perhaps the most transformed. Technology’s impact on underwriting efficiency and the ability to crowdfund capital have changed the scope and scale of alternative investments that are available to investors.
But real estate’s rapid evolution into a broadly accessible alternative asset class has largely focused on commercial and multifamily properties. Yet farmland, a $2.5 trillion market in the U.S. alone, remained unchanged. This gap in the market leapt out at Artem Milinchuk, founder CEO of the farmland investment fintech startup FarmTogether.
“Part of the reason farmland hasn’t yet been opened up to the investment community is because it’s a very fragmented asset class. The physical assets are fragmented, but so is the market data,” Milinchuk said in a recent interview about the platform. “Part of what we’re doing in underwriting and sourcing for our investors is to collate that data quickly and cheaply and in a quality way using technology.”
By applying data-focused underwriting principles similar to those used by commercial real estate companies, FarmTogether aims to provide accredited investors access to fractional ownership of U.S. agricultural land that’s then leased out to farmers.
Investors Buy, Farmers Lease
For Milinchuk, the value stability in farmland is what made it such an appealing candidate for a technology-enabled fintech startup.
Although crops may be impacted by price swings, the actual value of well-maintained farmland and property has historically grown steadily and experienced low volatility. Data from the USDA claims the average annual capitalization rate for American farmland has held steady between 3%-5% over the past 20 years.
“While agricultural commodities and crop income can be quite volatile, the historical volatility of farmland has actually been really good,” said Milinchuk. “It’s been historically about 6% to 7% volatility as measured by the NCREIF Farmland Index, which is historically a little bit higher than bonds, but absolutely lower than stocks and ETFs.”
According to the U.S. Census Bureau, 44% of all U.S. farmland is leased. Because the farmer leasing the land takes on the price risks associated with the commodity market, Milinchuk saw an opportunity to meet investor demand for exposure to real estate while also meeting the growing demand for rented farmland.
“The leasing part is typically the easier part of our investment process,” said Milinchuk. “You have—in different jurisdictions—a lot of high-quality farmers. It’s part of our underwriting process to make sure that there are a lot of great operators in the area.”
Overachieving Through Underwriting
That underwriting process is where Milinchuk believes FarmTogether sets itself apart by implementing institutional expertise alongside data and research-heavy analysis.
“To give you an example from an almond orchard deal we did, we had a very experienced farmer that is a fourth-generation who helped us look at the property. We did water testing, soil testing, leaf testing, water pump testing, a lot of analysis around water. It was a very comprehensive and thorough due diligence process that is of an institutional quality.”
Milinchuk explained that this same institutional caliber approach extends through the property evaluation all the way to the management and rental of the property.
In addition to its exacting underwriting protocol, FarmTogether also leverages this data to find farmland that’s valued below market prices.
“The way we think about liquidity for investors and the price appreciation of land is that we always try to buy and underwrite land that is below market value, and we can do that because roughly half of the farmland market that is changing hands is in a private manner,” said Milichuk. “There isn’t like Zillow for land. In private markets, there is always an opportunity to buy below market.”
The last piece of the fintech puzzle that FarmTogether brings to investors is the intuitive way in which the platform presents investors equity information on each individual property and allows them turnkey access into the agricultural real estate market.
“We make it really simple to read the documents, understand the risk-reward profile of each particular piece of land and sign the documents and wire the money. In fact, we had one investor who did everything from start to finish in about 10 minutes.”
As the platform grows, Milichuk sees opportunities for providing investors access to entire portfolios of U.S. farmland. For now, he intends FarmTogether will continue to provide institutional level underwriting principles to the widest possible variety of investors.
FarmTogether is a content partner of Benzinga
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