Carter Malloy - I Looked At Farmland And Realized…It’s Wildly Inefficient | #186

Episode Summary

Executive Summary: Carter Malloy, founder and CEO of AcreTrader, explains how farmland has historically delivered attractive, low-volatility returns through rent and appreciation, yet remains hard for most investors to access. The discussion covers farmland’s supply-demand tailwinds, leverage risk, agricultural cycles, AcreTrader’s platform model, and why professionalization and transparency could make farmland a major portfolio diversifier.

Main Topics: Farmland as an investable asset class (Priority: 5/5): Malloy argues farmland has historically produced strong total returns with low volatility, driven by yield plus appreciation, and benefits from limited supply and rising food demand. AcreTrader’s marketplace model (Priority: 5/5): He explains AcreTrader as a platform that sources farms, places each parcel in an LLC, and lets investors buy shares online, making farmland accessible in smaller amounts. Cycles, leverage, and farmland risk (Priority: 5/5): The conversation reviews the 1980s farm bust, today’s Nebraska water-driven bear market, and how leverage materially affects outcomes in farmland and real estate. Farmland vs. other real estate and assets (Priority: 4/5): Malloy contrasts farmland with leveraged commercial/residential real estate and public equities, emphasizing passive income, low vacancy, and lower volatility. Due diligence, sourcing, and operational management (Priority: 4/5): He describes AcreTrader’s screening process, tenant quality requirements, geography focus, and ongoing management of farms after acquisition. Portfolio construction and investor access (Priority: 4/5): The discussion covers accredited investor access, IRA compatibility, future liquidity features, and farmland’s role as a diversifier and inflation hedge. Company origins and market opportunity (Priority: 4/5): Malloy says the idea emerged from personal experience and a market gap: trillions in farmland value but little efficient access for everyday investors.

Key Arguments: Farmland has historically delivered roughly 11-12% annual returns, combining yield and appreciation, with much lower volatility than many other high-return assets. The asset’s thesis is rooted in basic supply and demand: more mouths to feed and less usable land, with U.S. farmland acreage shrinking over time. Leverage is the key risk factor in farmland cycles; the early 1980s bust was worsened by high debt, high interest rates, and forced selling. Even in weak periods, farmland’s yield can cushion nominal losses, making it resilient relative to many assets. Farmland is operationally simpler for investors than other real estate because rent is typically collected once a year and vacancy/default are near zero. AcreTrader’s mission is to professionalize farmland investing by increasing transparency, liquidity, and access to high-quality assets. The platform is designed to let investors gain farmland exposure without needing to personally operate land or source farms directly. Malloy views farmland as a strong portfolio diversifier and potential inflation hedge, akin to gold but with cash yield. The biggest operational advantage is disciplined sourcing: AcreTrader rejects most farms and only lists a small number that pass due diligence. The company believes there is major unmet demand from individuals, family offices, RIAs, and institutions for smaller, more accessible farmland allocations.

Data Points: Historical farmland total return: 11-12% annually - Malloy cites long-run farmland returns from yield plus appreciation. Yield vs. appreciation: Roughly 50/50 historically - He says farmland returns have historically been split evenly between income and price appreciation. U.S. farmland acreage loss: 3 acres per minute - Used to illustrate physical scarcity and long-term supply constraints. Professional farmland capital: $30 billion - Malloy estimates the size of professional farmland investment funds in the U.S. Total U.S. farmland value: Over $3 trillion - He contrasts the enormous underlying asset base with the small amount of professional capital. Professionalized share of farmland: Less than 1% - He argues farmland remains largely inaccessible to regular investors. 1980s farm leverage: High 20s to low 30% debt-to-equity - Describes leverage levels during the early-1980s farmland bust. Current farm leverage: Low teens debt-to-equity - He says today’s farm system is much less leveraged than in the 1980s. Nebraska farmland decline: About 13% over 4-5 years - He cites a regional bear market in western Nebraska due to water stress. Nebraska income in downturn: 4% cap rate - Even with price declines, owners still collected income during the bear market. AcreTrader fee: 75 basis points annually - Management fee charged by AcreTrader to investors. Typical farm deal size: A couple hundred thousand to a couple million dollars - He describes the usual scale of listed farms. Example larger deal: About $3 million - He mentions an almond farm currently being worked on. Typical investor minimum: Around $10,000 - He says investors usually start at this level. Initial company funding: About $3 million - He says AcreTrader raised a sizable round from individuals and institutions. Current pipeline: About $300 million - He says the company is actively looking at roughly this amount of farmland. Team size: A couple dozen people - He notes AcreTrader has grown to a small team plus interns.

Pivotal Quotes: "the destroyer of wealth. Is leverage" — Meh/Faber (paraphrased in transcript by host): Used to frame the discussion on why leverage drives farmland and real estate losses. "you've got gold with yield" — Carter Malloy: He compares farmland favorably to gold as an inflation hedge and diversifier. "this isn't a, you're going to make a 15% or 20% IRR if you do great" — Carter Malloy: He clarifies AcreTrader is positioning farmland as a steady wealth-preservation asset, not a get-rich-quick trade.

Implications: Farmland may deserve a larger role in diversified portfolios, especially for investors seeking inflation protection and lower correlation. AcreTrader’s model could broaden access, deepen transparency, and help turn a fragmented, inefficient market into a more institutional asset class.