It's real simple.
Bravante Farm Capital is buying small farms with sustainable, abundant, long term access to water in the drought ridden California Central Valley, to create networks of larger ranches so that when competing ranches dry up, we will still be producing high profit crops to meet ever increasing demand.
Combined with our focus on the 'Oasis' of California, we are also taking advantage of a dislocation in agriculture land values that have, ironically and until today, meant income producing farms have never been valued based on their income potential.
We are buying dozens of small farms to create a large scale ranch networks and adding value to them to create income streams as consistent and predictable as you will find in most other commercial real estate asset classes.
As other agricultural land in California falls out of use because of lack of water, our ranches will be in increasingly high demand and our land will increase in value for the following nine reasons:
1. We add value by planting high profit, high demand crops.
2. We utilize state of the art farming techniques and tech.
3. We grow, pack, and ship all the way from farm to consumer.
4. As supply falls when other land in California falls barren, ours will remain productive and so being in ever increasing demand will increase income and valuation for investors.
5. Demand for our produce is also increasing because the global population is increasing.
6. There is a disconnect between the way farmland is valued today and has been for generations and the way it is rapidly becoming valued.
7. There is an influx of institutional capital that is buying farmland at inflated prices - but to them that are entirely reasonable prices based on long term ROI.
8. We are buying ranches that are too small for institutional capital and consolidating them into larger ranch portfolios to add value through scale.
9. By consolidating a fragmented industry and through owning the entire supply chain, we are able to bring economies of scale to our ranches, driving down costs while driving up profits.
10. We are a large, significant, well established, and respected presence in a fragmented local market bringing economies of scale to our acquisitions and exceptional ability to execute on our business plan while reducing costs and increasing returns.
Read on to learn exactly how this works and why investing with Bravante Farm Capital is the best way to beat the overheated commercial real estate market.
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A quirk of banking regulations that will make you rich
There is a strange corner of banking regulations that requires farmland to be valued only the basis of sales comparisons and not on the income it can produce.
In fact, it is prohibited for banks to base their lending on any measure of income from farmland - it does not matter whether a ranch has one orange tree or one hundred, it can only be valued based on comparable sales.
But who, in commercial real estate, every heard of such a thing?!
Certainly the billionaire family offices, private equity funds, and institutions that are swarming into farmland do not.
These folk, sitting in their office skyrises, who never set foot on the land and only look at it through the cells of spreadsheet, they look at farmland strictly from its income yielding potential.
This provides a unique opportunity for you to join us here at Bravante Farm Capital as we matriculate the difference between the way land is currently valued and has been valued for all of history, and the way it is beginning to be valued as big-money hunts for yield.
An upward spiral of farmland value inflation
This quirk of banking regulations reinforces the archaic way that land has been valued by farmers for generations and continues to be valued which is by the acre.
It does not matter what the income is that a farm generates, farmers and their bankers alike look only to comparable sales per acre.
As incomprehensible as this may be to any savvy real estate investor accustomed to underwriting real property based on the net operating income using cap rates and ability to repay a loan based on debt service coverage ratios, it speaks to the extraordinary opportunity that Bravante Farm Capital is exploiting.
In the California oasis we are targeting farms and ranch properties with strong water fundamentals, most ranches have been owned by the same family that farms it today for generations and when sold, sold on a per acre basis.
Not only have farmers always thought of farmland valuations this way, but regulations have reinforced this methodology.
This is in stark contrast to institutional and private equity shops entering the market.
Removed (literally) as they are from the land itself, their underwriting requirements demand that they value the land based on its potential to yield ongoing income streams.
As more of these investors enter the field (if you will excuse the pun), so they will drive up values because they see not price per acre, but cash yield per invested dollar.
Even if initially banks are unable to lend to increasingly outsized purchase prices because comparable sales do not justify the prices being paid, as more deeper pocketed investors enter the market, so those comparable sales will increase and banks will begin to lend more as their appraisals justify the increased price per acre.
And so an upward spiral of price inflation will hit farmland like never before in history.
Build wealth by farming capital
What is particularly fascinating is that even as land values skyrocket as it becomes valued based on income not comparable sales, this likely will not impact food costs because all that is happening is that yields on capital being used to purchase farmland is being redefined.
It is a rationalization of the farmland business, not an increase in costs.
As farmland becomes increasingly financed based on expectations of returns on investment and not per acre, so prices for land will go up without placing upward pressure on the price of the produce being grown and sold.
This will continue until the true value of the land reaches equilibrium with the yield expectations of institutional investors and their inherent cost of capital.
Here at Bravante Farm Capital, our strategy is to identify value add farms that are priced on a per-acre basis and that offer outsized long term yield potential.
We will reap the benefit not only of outsized yield per invested dollar because we are buying the land at such relative low prices, but also from capital appreciation as the price of the land we purchase increases as it shifts from a price per acre formula (sale comparison) to a yield on capital formula (cap rate).
In farmland, regulations have served to keep values down by prohibiting the use of the income approach to valuing land, reinforcing an antiquated pricing mechanism.
At Bravante Farm Capital, our strategy is to capitalize on this dislocation in valuations by buying at an undervalued per-acre basis, enjoying outsized returns on our investment, and watching and waiting as the private equity and institutional investors drive up values by underwriting based on yield.
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