DST Farms currently offers the opportunity to buy into a 1,100 acre organic property in Arkansas in compliance with Section 1031 of the federal tax code, which allows investors to defer capital gains tax on proceeds from the sale of one property when used to purchase another. Compliant investments must be identified within 45 days and closed within 180 days under the rules of the provision, which is already used by real estate investment trusts, family offices and others active in farmland markets.
DST is not a subsidiary of Peoples Company – a Clive, Iowa-headquartered land transaction and advisory firm that operates throughout the US – but Peoples Company is the exclusive manager of properties offered by the company. Bruere said DST Farms came together over the past three years in collaboration with Bruce Eisen of Los Angeles-headquartered farmland manager Green Energy Advisors.
“This [DST Farms] is more of what I would call a retail investor structure. Even though it is a huge industry and these transaction sizes can be huge, it is not designed for institutional investors, although it may be a way for an institutional investor to dispose of an asset,” Bruere told Agri Investor.
“A lot of these people [1031 exchange investors] are millennials and they are high-income earners that want to invest in the asset class because they care deeply about it. Frankly, outside of the REITs, if you are an East Coast or West Coast millennial that has a sincere interest in farmland, how do you get exposure to the asset class in your investment portfolio? It has been largely unavailable to you.”
DST Farms differs from existing retail-focused farmland platforms such as AcreTrader and FarmTogether, Bruere said, because it has a minimum investment threshold of $100,000 and its investments require complex structuring to stay in compliance with Internal Revenue Service tax codes.
Under terms offered by DST Farms, explained Bruere, investors will receive a 3.5 percent annual cash return derived from professional management of farmland and a 9 percent internal rate of return that includes appreciation over a seven-year investment period.
DST Farms’ 1,100-acre Arkansas property has 867 irrigated tillable acres that will produce organic rice, wheat, corn and soy. Named the Delta Organic Ag Properties and valued at $2.6 million, the farm is on a long-term lease to a single tenant and is equipped with irrigation and zero-emission power infrastructure.
Peoples Company has encountered many potential farmland buyers with 1031 capital, said Bruere, who cited research estimating the overall 1031 exchange market to be worth approximately $3 billion. Some such buyers, he added, have been people with no previous exposure to or interest in farmland, who are searching for places to re-invest after selling assets like commercial and logistic properties or trailer parks that have seen recent growth.
“California happens to be a major market, but anywhere on the coasts – Florida, New York, even Texas – there is just a lot of highly appreciated real estate all around the country,” Bruere said.
Demand from 1031 exchange buyers comes amid an increased pace of activity in farmland markets brought on by covid-related stimulus payments to farmers, low interest rates and commodity prices strengthened by adverse weather events, according to Bruere. Across Peoples Company’s client base, which includes institutions and high-net-worth individuals, investor demand for safe haven assets has increased, he said.
“When we are fielding some of these phone calls, it is a new source of capital. It is a new investor; people we have not been talking to for the past five years,” he said. “There is new interest as a result of covid and just the world we live in right now.”
According to a July NPR interview, Peoples Company brokered the $23 million sale of a 3,300 acre organic property in Umatilla County, Oregon to Pendleton Land, an entity that shares a mailing address with RWN Management, a single family office associated with Apollo Global Management co-founder Mark Rowan.
Apollo and RWN did not respond to messages seeking further detail.