E66: Farm Lending with Robb Nelson

This podcast is brought to you by Ginzer Wealth. The information discussed today is meant to be general in nature and not tailored to your specific investing circumstances. This means that you should talk to your regular Ginzer Wealth advisor or your own advisor before acting on any information we discuss today. Nothing in this podcast is intended to be a solicitation, and past performance does not guarantee future returns. Today on this episode, We'll talk a lot about Canadian farmers. So I wanted to take a moment to thank all of our Canadian farmers for keeping food flowing and all you do for Canadians. Today on the Unlimited Podcast, we speak with Rob Nelson, CEO of Farm Lending Canada. We will explain what is farm lending and why it's needed, why farmers may be the best borrowers in Canada, and how and where farm lending might fit into an investor's portfolio. Let's go. Welcome everybody to, uh, another episode of the Unlimited Podcast. We are gonna take a tiny bit of a break from our Wealth Hard series of episodes where we've been talking about the non-investing aspects of the things that we do. Once in a while, we do have to talk investing, and I do love to bring to your ears some of the really interesting investments that we find, especially in the current environment that we find ourselves in. Always looking for investments that might be able to act a little bit differently than most of what is going on out in the world. So today we are going to be speaking, uh, on the topic of farm lending, lending to farmers, and very, very, uh, pleased and excited to have the CEO of Farm Lending Canada, Rob Nelson, with us.

So thank you for having me.

Thank you for joining. Um, as always, I'll give the, you know, the little bit of a bio, and then we'll ask Rob to actually tell us the real story. But what we're really going to try to do today is talk a little bit about what farm lending is. Sounds pretty straightforward just by saying those two words, but you know, there's a lot to it. Uh, why farmers might be the best borrowers in Canada, uh, where this sort of fits in for those borrowers relative to the banks. And of course, since we manage money for folks, uh, how does this fit into an investor's portfolio? So that's a little bit of the agenda. Let me introduce Rob. Uh, Rob is, uh, 35 years of experience, including 25 years in the private lending space. Specializing in agriculture, residential development, and residential homes. He's a practicing mortgage professional, co-founder and co-owner of AgriRoots Capital Management Inc., which is, uh, according to them, the leading alternative lender in Canada's agriculture sector. And in addition, he's the founding principal, broker of record, and CEO of FamilyLending.ca Inc., a mortgage brokerage providing residential, commercial, and agricultural mortgages. Founded in 2001. So agriculture is the theme there. Uh, thank you again for being here. And as, as I mentioned, uh, you know, we're going to talk about farm lending, and you've been doing this for many, many years. You've helped, you know, tens and tens, almost 100 probably, farm families. Uh, and I think you've done this without losing a penny over the course of, of that time. So exactly, we're going to be interested to to hear how you've done that. But can you maybe just give us a little bit about your background? How did you come to run this lending operation? And just give folks a little bit of color on who you are.

First of all, thanks for having us, Brian. We really appreciate the support of Kinsler. Yeah, my background is, is been private debt since '94. I've, my background's business and finance, you know, typical set, entrepreneurial based, have had and exited some very, very successful businesses, learned along the way. In 2001, we basically looked at the private debt space and we looked at a different few different sectors. All were related around the agricultural sector. So we did housing developments where we were taking agricultural land, bringing it inside urban boundaries and structuring it to build homes. So that was one part of our business. And the other part of our business was Private debt transitioning financing is what we call it. How do we take the farmer and transition them back to mainstream funding efficiently as possible? So very short-term loans. Average loan with us is 19 months. So then we looked at the market and said, how do, how is this going to be a national company versus a localized company in southwestern Ontario? And when is the need? And there were needs. Regulatory rules changed and we launched Farmland in Canada AgriRoots as the fund in 2019. And here we are today.

Okay. And what's the connection and background to the agriculture sector? There's some history there for you or your family or your firm or—

Our firm. So we have several farmers with inside of the firm, all finance backgrounds, all worked in the credit union system and/or banking system. It's basically, you know, being in southwestern Ontario, just Chatham-Kent alone has 2,000 farms. You know, it's almost a $4 billion industry just in Chatham. So not alone the size of what the Canadian market is, almost $1 trillion now. So we knew the needs of the farmers, of the Canadian farmers. And so well connected in the space, many farmers with inside of our organization and investors. So we've got a wealth of knowledge that circles us. And Sean Buston and myself looked at this market. He was CEO of a Main Street credit union, or a Unigasco, which became Main Street at the time. And we knew there was gonna be a space where the small credit unions who supported all small businesses rurally were exiting. What they used to do, we do today. Depository rules changed, regulatory rules changed. And so we stepped in the place of the small credit unions, the under $500 million AUM credit unions. So that was the trend change and that was the opportunity for us.

Yeah, because I was going to ask you sort of, yeah, exactly. What sort of presented itself that made you guys say, ah, this is the type of lending or this is the type of business we should operate?

Yeah. So the farmer would go locally to private lenders. They still do in Canada. but they would go to their local co-ops to get loans. So when they're offside in their borrowing covenants, they would look to localized capital. The problem with the localized capital, it's we've outgrown it. So if someone could lend $1 million or $500,000 to their friend or neighbor, or the co-op could, or a credit union, again, the small credit unions, which we all know merged and for reasons of, you know, to be competitive. That was the real reason is that the farmer didn't have access and truly didn't have access to knowledgeable capital. They had some access to capital, but they didn't— there was no exit strategy. There was no business function of how do I get back to mainstream funding? So they were stuck in private lending 6, 7, 8 years or having to sell the farm to exit where we structure, we underwrite to exit. So we are truly working with a business plan. We have a dedicated team that understands the commodity they're in. And how to get them out if they can get out. And sometimes it's just setting up for sale. And other times it's setting up for transition. So 40% of our portfolio is transition financing. So they're transitioning from an older generation to a newer generation, which is a whole other business in that the older generation has no debt, but the younger generation has to buy siblings out.

Right. Right.

So the older generations taught them how to farm, but not how to do finance. So we come in and we teach them how to get the business structured so it can manage some debt.

Okay. Got it. And we'll dive into that a lot more. One thing that I was hoping you could do, uh, and I actually asked this of our guest many years ago, Joelle Faulkner, uh, who runs Area One Farms and on the equity side of the farm investing, and she's a genius, by the way. And encourage people to listen to that episode. But as I said to her, and I'll say to you, I'm in this world over here. I don't know what it's like to be a farmer. I don't know what life is like. I don't know what they have to deal with. We obviously certainly appreciate them dramatically for providing food and whatnot to all of us, which is amazing. But can you just give me and our listeners a sense of what's life like for a farmer? Yes, as it relates to finances and stuff, but any color you can give just to allow our listeners to put themselves in that mindset. And then we're going to dive into it, you know. So what do you do and help them with?

I mean, it's a great question. Joelle runs an amazing business. We're very close to Joelle. We love her business model, by the way. Yeah. So a farmer is a completely different character when you're, when you're underwriting character in the 5 Cs of credit. I'll put the farmer as number one. And the reason for it is resilience to market and pride in ownership of the land, their stewardship. So if you look at the typical farmer, usually somewhere along the line, the family name's on the road where their farm is. So this is 150 years, 125 years. It's been in the family name. Unlike a residential or commercial building, it's a point in time. So the borrower isn't as attached or willing to pay like a farmer is. Farmers are, they do work 24 hours a day and they work for the least amount of pay that you can believe. You know, 3% return on an asset class is average. So they've got $10 million tied up and they got $300,000 revenue. And then they gotta pay their expenses and live off that net. I'm sorry, that's the net return. But still, they're very, very resilient people. They're very proud people and they take all of their earnings and all of their time to create generational lasting soil that can keep producing. And they're always looking at new technologies, new ways to improve the soil. So they're a different character. Resilience is the number one word that, you know, honesty, integrity. Like, I'm fortunate to have tons of friends that are farmers and they're just fun to hang out with. You know exactly what you're getting. There's no mysteries.

Amazing.

Amazing. Okay.

And so, you know, we're talking farming, we're talking agriculture. So let's talk a little bit, maybe the big picture of why why this is a great sector to either be in or lend against?

Number one, food. Food is, is your basic need.

Yeah.

You're always going to eat. So it has less correlation to anything else in the market than any other asset class. So the basic need is food. It'll be served first before housing, before anything else. Food, food is number one. And with a growing population, We have less arable land. So now the soil needs to be more productive and technology has to drive those, that production up.

Right.

So yeah.

And presumably the value of the land, value of land increases, keeps going up if there's less of it.

Exactly. And stay stable. So again, you know, we've seen inflation go up and down. We've only had one blip in the system and land values in the mid-'80s when I'm going to say there wasn't enough government resources to support land values and interest rate correlation to what's going to happen in the market. But safest asset, we've had no dips in value. We're kind of flat right now and that's okay.

As lenders, that's good for you too, I imagine.

That's okay.

Yeah. And we might cover this later in terms of managing risk, but if I'm not mistaken, doesn't the sector benefit from a whole bunch of government support programs, especially if things go ugly?

Yes, most definitely.

So what are those like? Maybe just so folks understand.

Yeah, there's, there's different programs, both provincially and federally. I won't get into the deepness of them, but just think of it like how we explain it. If you had an apartment building and you look back 5 years on your rent roll and you could guarantee your 3-year average, so you drop the lowest and drop the highest, but you could get a government guarantee on your rent roll. You can do that in farming by buying crop insurance. There's no other business that you can go invest in and say, geez, if I don't make up, if Mother Nature is offside or whatever happens, the commodity markets are offside and I couldn't get my, my, the right pricing on my commodities. There's different insurance programs that will satisfy the revenue. For the farmer if they apply for it.

Right.

Sometimes they don't apply for it because they, they self-insure and usually we'll see those clients.

Right. And I assume, and maybe I'm wrong, but when, before you lend to any of these farmers, do you make sure that they have that?

That's the business strategy.

Right. Right. Yeah. So I figured it's not risk management.

100%. Yeah.

Yeah. Got it. Well, that's good. I mean, and that is a very unique feature, I guess, of this, of this industry, but also as a borrower, it's a very unique— sorry, as a lender to have the borrower have that buffer or that support is probably, well, as you say, unbelievably rare. Probably doesn't exist in any other type of lending, as you know.

Not that I'm aware of.

No.

Right. No.

Amazing. And then, of course, the question becomes, and you've alluded to it a little bit, but you're not one of the big 5 banks lending at whatever the lowest rates in the market are at the time. So you, we call you like alternative capital, I guess. Why do the farmers need, I know you said the credit unions sort of have left or this and that, but why do the farmers need your capital versus again, just going to the banks and, you know, obviously you're going to lend at higher rates and that makes sense. Uh, anyways, you get the question, like why, why, why alternative versus than a regular bank?

So the main factor is covenant breaches. So their cash flow, so they didn't insure, so they lost $500,000 or $2 million depending on whatever their input costs. So you've got input costs, all your seed and fertilizer that goes in the ground, then you have your output values, which is very simple. And the marginal difference is only about 15 to 20%, depending on the commodity. You know, so that's, you know, they, if they, they spend $500,000 in inputs, they'll get $620,000 outputs, hopefully. But some years commodities change and they've planted, they didn't do their forwards because you can sell all your crops on forwards and futures. If they didn't do that right, they didn't do their margining right. You know, there's a lot of, a lot of scale that you have to do right to make money at times. That's when the bank gets nervous and says, You know, you can't debt service. And because we can only lend on performing loans, we have to have you go sit over here for a moment with our good friends over at Farmland in Canada, and they will take, we'll take the loan off their balance sheet, put it on our balance sheet, and on average of 19 months, we transition them back. So it's covenant breaches is number one. And then more importantly, It's the temperature of the big 5. We have 2 banks and I won't mention them because they're phenomenal. I won't say who's, who's really into it and who isn't into it.

Yeah.

Um, so they're geographically, their mandates change, um, depending on who's, who's running the helm. So they'll just look at their book of business and say, uh, we've got too much in South Saskatchewan. Um, we feel exposed. Here's the 40, 40% of the files or 30% of the files. Ask them all to leave. That happens in every commodity, which, or every asset class, but that's, that's just banks right-sizing their portfolios. So, um, we get those calls a lot. We have a lot of relationships with the banks. So we're, we're usually the first, first call from our introduction call.

And so if they're, uh, borrowing from you for on average, uh, I think you said on average 19 months, what are they doing to then allow them to go back to the regular banks, especially if some of the banks have decided, like you just described to exit or something. What happens in that magical 19 months that then the bank says, oh great, welcome back.

Usually it's, we're looking at deleveraging some of their assets. So they're carrying too much equipment or they don't have proper working capital. They again, didn't have right business structure. They weren't margining their sale of their commodities. So we put them in the right place. We look for a catalyst, but a catalyst isn't this. The weather's going to get better. Commodity prices are going to increase. Those aren't catalysts.

Those are not predictable.

No. We look at, okay, what's, how do we get the working capital on the balance sheet? Because we're truly balance sheet lenders and we look at the balance sheet and say, how are we going to get the working capital in place in order to sustain growth? Who are the people that we're going to engage you with? So we bring in a lot of ag advisors and say, you need fractional, you need a fractional CFO now. You need a fractional an ag advisor. You need these people around you. You're great at growing things, but it's kind of like saying, I'm in the rest lending in the restaurant business. They're phenomenal chefs, but maybe some shouldn't run the actual business part of it.

Right.

So, um, the businesses have gotten so big, they just need support now.

Right.

Yeah.

So it sounds like you're, you're more than just a lender. You're, it sounds like you're almost consultants and advisors.

We are, we are. We, we, yeah. So we, when we're underwriting, we're underwriting to truly exit. We're, you know, are, we look historically over the last 5 years, but we really look forward. So we look both the rearview and the windshield to say, you know, what got you here? And can that be modified to get you forward? And if it can't, we just don't do the deals, right? If the client's not in favor of some of our decisions with them, we're okay with that, right?

I have a note from some of our meetings where there's some some reason why being able to move quickly in this space is helpful to these farmers?

Oh, most definitely.

Maybe elaborate on that and why they would need something like that.

Usually what happens is in our industry, MLS is not usually where we see farms. There's no really, if it's gone on MLS, it's probably an overvalued asset or needs a lot of work. So what happens in the sale of farmlands, and I've owned farms and I usually make the call at noon and by 5 o'clock sold. So the asset can move very fast with willing buyers, willing sellers. So usually you lean over the fence to your neighbor and say, you know, I know you, you've, you've wanted to buy our family farm, or your family has for 100 years. It's for sale. And now the farmer has to go get financing for that, right? Sometimes they're overleveraged, or sometimes the, the banks will take They take about 6 months to approve a loan.

6 months in this specific space.

Yeah.

Wow.

Some credit unions are a little bit quicker, but if you go through the general process, because you're, you just went from a, say, a $10 million farm operation to a $20 million farm operation. So what infrastructure do you have in business and what business skill sets are there for you to double your size? The banks do it right. They go through the process. They say, well, who's now going to be a fractional CFO? Who's going to be, you know, who's, who do you have you surround around? So that's why it takes so long. But we look at them, we go, there's solid equity. There's, there's solid characters. Um, and it's usually the bank that refers those deals to us. Um, Farm Credit being one of them. And they say, if you guys go to Farm Lending Canada, they'll support you in this, in this transaction. Meanwhile, we're going to underwrite so you don't lose that sale. Be able to buy it. And then within 12 months, the bank, the credit union, or FCC takes us out.

So basically you come in, you do the loan very, very quickly, and then what? They actually then don't have to, even though it takes 6 months now, they're a little bit more relaxed, I guess, and can go through that full underwriting process. The bank will take it over.

We're just bridging, we're just bridging the gap.

Right.

Okay.

Okay. I got it. So you've already alluded to this, but I maybe will push on this a tiny bit more because I think you said it at the beginning or something close to it, that farmers are basically the best borrowers. So just to reiterate why farmers are the best borrowers, if it's not clear already, I know we've only been talking for 20 minutes, but I think I got it.

Yeah. They're tied to the, to the property that, you know, we're lending against. It's, it is a long history of family generation. In Canada, that's primarily our only generational asset that's been held. If you look at all of our, all the assets that we lend on, there's a few commercial buildings or a few buildings that's been in family wealth in some of the major cities, but nothing like farmland. Farmland is generational. So there's an immense amount of pride. The last thing a farmer wants to do is fail their family, the family name. And the heir to the soil. The farmer takes care of the soil. So difference between a condominium and an apartment building. Condominium owners take care of the condominiums. Apartments are rented. So the farmer kind of takes that same thing. I have to take care of this because I've got my kids that I'm going to generationally transfer this to. It is bred in them. It's It's who they are. It's in their DNA. And they also live on a lot less. If I showed you NOAs of farmers and you say, well, why do they have a $10 million asset or $20 million asset and their NOAs are $30,000? It's a different breed of people. It's not the same. It's not, I need this, I need that or whatever. I have to take care of this. I'm the guardian of this and I'm going to be the steward of this. I'm going to transition it. They're just amazing people. Puts a smile on my face with everybody I get to deal with. There's bad actors in every market. Don't get me wrong, but a lot less in the farming community.

Okay, good. So let's then dive in a little bit into, and you've given a high level of how you look at the character of the farmers and I mean, you know, you're experts so you can probably see this pretty quickly, but can we talk a little bit about underwriting and how you look at a potential borrower? Obviously the key is to make sure you avoid losses. Are there certain types of farms, farms or farmland you avoid? Are there certain regions you like? Any color around sort of your process for getting from start to yes, we will lend and make sure you feel good about it?

Certainly. First thing we look at is the input-output values of the land. And then we created an economic value on the land. So, you know, we see land values anywhere from $3,000 or $4,000 an acre to, you know, $200,000 and $300,000 an acre. The $200,000 and $300,000 an acre, we really stay away from those. It could be vineyards or there could be really specialty crops. That's not, you know, we want the generalized value. So $35,000 is kind of the tops. Well, we've done some dairy and $50,000. So that's unique. It has a whole other part to it, but in the quota system. So it has a different cash flow to it. Areas we look at, we lend all across Canada except for Quebec at the moment, but that may change in time. So we know the regions that have an average differential between input and output values. So that's really what we're looking at.

And what does that mean if you break that down a little bit for us low people here?

Yeah. So, so how much did it cost for all the inputs that went into the ground? So inputs are your fertilizers, your seeds, your water, your machinery. Like, what's it cost to plant everything? Yeah. And let's say that's a dollar. What's the output value? What do I sell it for? Everything that, that grew, you know, or I produced, what's it, what's the output value? So when we are underwriting, we're looking at soil maps, we're looking at irrigation systems, we're looking at how good is this soil and, and what's the differential between what it cost you to put your raw materials in and what'd you get out?

So that's, that's the factory on this.

That is the factory. So, and then what commodities are they in? And is there too much of that commodity at the moment? Is it not? You know, what are they growing?

Again, because I know nothing about this, are there certain commodities that are like, these are the types of things we really like to lend against and others that are too volatile? Or like if the farm came to you doing X or Y, you'd say, yeah, that's right in our sweet spot versus. Maybe not.

Sure. So anything, any grains, so wheats and barleys and canolas and soybeans and corn, you know, those, those are normal, you know, winter wheat, whatever. Those are all of our normal lookouts. That's an automatic. We're going to look at those markets. And because that soil can grow other things. Then we look at vegetable land. We love vegetable land as well. You know, we import too much in the vegetable world. Good vegetable land is very transferable to somebody else. It's a quick asset to sell if we need to exit. We wish they have specialty markets, ginseng, mushrooms. You know, there's some volatility in a few markets that we kind of go, ah, that's a specialty market. You know, tobacco, we don't go into cannabis. You know, there's a bunch of stuff that apolitically or it's very specialized and it's very small. Part of the market. So there's lenders that go into that space. So yeah, we look at realistic values. So we see a lot of deals in the GTA market, we'll say, oh, the land value for the farm is $200,000 an acre because I think it's going to be a development land in time. Well, right. That has nothing to do with farming. Yes, you're farming it, but it's worth $22,000 an acre as a farm. Right. And that's your focus. Yeah.

You're not there long enough to wait for something like that.

And we're not land speculators.

Right.

No, we're agricultural lenders.

How much time do you spend or how important is, and you've alluded to this already before, you know, farms that are ahead of the curve, maybe with a fractional CFO already or using technology again, from my discussion with Joel, I understand, and you mentioned already technology to make, you know, produce more and more productive or whatever you use technology for on the farms. How does that play into your evaluation?

So we embrace it because we know that they're heading in the right path. Technology, so, you know, like AI, for instance, does play into the farming community. So GIS systems say, based on soil maps, put this—

what's GIS?

So any of your satellite systems. Okay. So, basically what a satellite system will tell a tractor is that they'll grid the whole farm and say, you need so much fertilizer and so much seed per square inch. So it maps out the complete, using the soil maps and using satellites, it tells it how to plant. So that gets the highest, least cost of inputs, best output. Right. It plays a big role. And sometimes that's what we're funding is they may not have any current debt, but they may need some, some working capital to buy some of the systems to prove that it, that it will increase their, their output. So there's, there's sometimes that, you know, that's what we're funding. But I would say 50% of our portfolio we see come in, they've just engaged everybody and now they're looking and it's someone they've engaged has engaged us. So one of their front, one of their fractional CFO or, or a farm advisor saying, we've got to get you through this transition period. So yeah, we love seeing the farmers that have that professional group around them.

Okay, great. And then in terms of size of loans or size of farms, how does risk relate to size? And what I mean by that is if someone's coming to you to borrow $500,000 versus coming to you to borrow $4 million, and maybe you can share sort of maybe, you know, some typical loan sizes if you want, but does that play into underwriting and risk as well? How does that impact anything?

Yeah, most definitely. So the smaller loans usually, what we look at first and foremost is loan to value. So what's our security against the asset? And are we in that, you know, our average loan to value in our whole portfolio Is around 55%, even though, and when I say that, I want to define that 55% of the arable land in multipurpose buildings. So we could have security on all their crops. We can have security on all their equipment. We can have security on single-use purpose buildings like a hog operation. But we don't count that in our loan-to-value. We only say if you had to sell the farm Here's, here's the loan to value. So our true loan to value is around 40% with all that other security, right? We only, we only look at that part. So the $500,000 or $2.5 million or less to $500,000, usually they have a farm income. They're, they're not full-time farmers.

I see.

So just because that size of loan usually doesn't support the farming operation to have enough net income. They're in it. They're usually the least performing because their attention to the whole operation is good, but not great because they're working their full-time jobs plus they're being a farmer. And so they don't have the scalability at times. As soon as we get over $2.5, $3 million and up to, you know, tens, and much larger deal size, it's a full-time business. They have economy of scale. They have the prop— they can afford the fractional support around them. They're a better borrower.

And what's it— and so what does demand look like? Maybe I should have asked this before, or just to get the lay of the land, no pun intended. Is there demand for tons of smaller loans, demand for larger? In the equity investing world, you know, the small-cap managers, they always get, always becomes a challenge as they grow because they can't be too much of these small cap, uh, the float of the small cap stocks. So yeah, what's demand like in sort of size and how do you deal with that?

So there's, there's two, two markets and the mid-market is leading. So either the mid-market's coming down to smaller, so being broken up. So the smaller loans, so there is demand in that space. The big demand or really where the market's trending is the larger loans. So kind of that $10 to $20 million, um, these are huge operations. Yeah. Yeah. Um, and the reason for it is that the mid markets, um, so we'll say a $5 to $10 million farm operation, they're either being sold up or leased out their farm operations to much larger scaling operations, or you've got the hobby farm market. And, you know, we lend in the hobby farm market and we, we also have a prime product that we, that we manage in the hobby farm market in Canada. We're seeing the mid-market disappear. So that's, that's really where the demand is. And StatsCan, the current amount of private debt's about $20 billion in Canada on $1 trillion of assets.

$20 billion of debt to farmers?

Private debt.

Or just private debt?

Private debt.

Okay.

Yeah. So private, private secured debt, unsecured debt is about $20 billion.

Yeah.

It's doubled in the last 8 years. So the demand is high. Most of the debt out there though is not organized debt. There's no transition period of how do I get out of it? And that's really what we're focusing in on is how fluid can we be with the farmers? Usually you're not in the business to get rid of clients, but we are. Yeah.

I was going to say you've made that clear throughout and that's an interesting way to think about it and interesting approach.

We're here to help. And, you know, 25 years ago, I saw a lot of predatory lending in this space. And that was part of our mandate to say, you know, we're here to help the farmer. We're here to help them get through a transition period. There will always be this private lending space because what happens is in the cycle, you have 3 really good years of farming where, you know, every, Every star is aligned and everything's perfect. You have kind of 4 flat years and you get 3 bad years, right? There's always 3 bad years. And then depending how much working capital you put aside to get through those bad years, either you're going to see us or you're not, you know. So that's, that's just part of the world, you know.

So it sounds like there's always opportunities for you is what it sounds like. Yeah. And maybe it sounds like the opportunities are getting larger per opportunity if there's just big demand for the larger loans too.

Yeah. And they're more sophisticated borrowers, which we love. Right. I mean, that's, it's, it's, it's, that's part of it. And then the next market that we're refocusing on is transitional succession planning. So succession planning and getting the farms in proper financial shape to transition to the, to the younger audiences is, as we mentioned before, Farm Credit has suggested in the next 7, 8 years, that's a $50 billion case. I've seen numbers as high as $600 billion, but due to the aging population of farmers, you know, and it's a transition that's happening with all assets.

This happens to be farmland in your specific case.

Yeah.

You mentioned Farm Credit. What's Farm Credit or who is Farm Credit and what do they do and what's your sort of involvement with them?

Yeah. Yeah. So Farm Credit Canada is the primary lender and it's federal government. That lends to the Canadian farm operations. They have specific mandates of what they do. So they would have approximately 30% of the total debt in farm on their book of business. You know, so you're, they're the primary resource. They are a strong resource center for us. So we gather a lot of data through Farm Credit Canada and the government agencies. So, you know, we rely on all that. When we're underwriting. So, and it's amazing data sets, but they're also have joined us and we've partnered with them. So they see the need to support Canadian ag. They see how do we bring in other investors into this space? And that's what they're suggesting and saying, this is a great safe space to invest in. And these are really good people at Farmland in Canada. We've done our due diligence for years on them. This didn't happen overnight.

Yeah.

Um, and, uh, they trust us and we trust them. So we look to be strong partners with Farm Credit Canada in going forward.

That's amazing. Well, congrats on that. I guess the question is, um, if you said they're, they're major lenders to the space, what, and not taking anything away from you, of course, but why couldn't they just do this on their own? What do they need to partner up with you for? Which again, I reiterate is a great thing, obviously, but I'm just curious.

So a couple of reasons. So the primary reason is when Farm Credit started in, you know, 45, 40-plus years ago, I guess they did this space. This is what they did is support farmers during the crisis of the '80s. That was part of the original design. And, you know, and then let's just suggest that the FI said, hold on now, you're doing this part, plus you're doing the prime spot part, plus now you're disrupting the credit union world, you're the federal government, you're supposed to support us all.

Right.

Right. So they, you know, it's better to get their version of it. But what we saw is that Farm Credit partnered with credit unions first and banks and said, let's do it. Let's do this together. So they have already done the partnerships with the credit unions and banks, and they are really under the true AA, AAA financing. Models. That's what they do. The alternative side, they're investing in folks like us and saying, we're here to support you to do shoulder-to-shoulder lending or invest in your fund and also attract other assets. And how can we attract other Canadian assets into your fund? So they've put a mandate out alongside of RBC is to create awareness and raise $5 billion into the alternative asset market. So we're one of those, that part of that $5 billion.

Amazing. And the government from any agency or whatever, they don't, you know, almost like the banks, they don't move super quick. They must have spent a ton of time getting to know you and, you know, due diligence like crazy, I guess.

Yeah, it just— we've had a long relationship with them. We've had a 25-plus-year relationship with them because— and they've seen what we've done as a brokerage and lending in this space. Than when we became a fund. Yeah, the last couple of years have been, we've answered a lot of questions in a good way and it helped us learn and structure the funds even better and tighter. And, you know, so yeah, it's been a great relationship so far. We're about to kick it off and here we go.

Good. Amazing. So we've talked a lot about why this is, you know, a good space to be in, why the farmers are great borrowers, low loan to values. You know, the protection from the government, that, you know, insurance, I guess, if there's some bad years. So all sounds good, but surely throughout all your years doing this, things have not always gone perfectly. Like, what would cause the stress or cause a problem in one or more of your loans? And how do you work through that?

Certainly.

So maybe some examples or something like that. Yeah.

So there's different workup based on who the regulatory province is and/or federally. So there's different agencies that we have to deal with when loans are in default. So it's not quite the same as if you're dealing with a residential or commercial application or industrial building. You're working with federal agencies that protect food security. So we're very close to either the provincial and/or federal agencies. Farm debt mediation is the primary one, but then, you know, Saskatchewan has theirs, Nova Scotia has theirs, everybody has, you know, different different agencies. We look at what's the best solution for the farmer. We always want the farmer to sell the land if that's going to be the case. We have done lots of workouts, you know, we've, you know, the fund's maybe done 150 loans, but you know, I've been doing loans for 25 years pre the fund. And it's creating that communication with the farmer. We have to right-size your business operation. We have to make sure you've got the right assets on the balance sheet. That are working assets, not just equity assets, you know? So we've worked out lots of farms.

And do many lead to the selling of the farm? Because you've sort of alluded in the last whole bunch that that's the last thing the farm is going to do.

Yeah. One. One.

One.

One.

Okay.

Closed today, actually.

Come on. Really?

But the, you know, the one we had to force the sale. But the, the nice part about it, because we had a buyer for it and then he, what he did is he circled back, found an equity firm to buy his land. So he's, he ends up owning it anyways.

Right.

So he's still going to live on it. So it was a perfect story. Yeah. That's, that's us forcing sales, going to forbearance agreements, going to workouts. Yeah. That, that's normal. And I'd rather say that I've been in that part of the business first and worked through all those because that's really what 2000 was all you know, up to, especially after 2008, there was a lot of workouts. And so we've got a strong skillset on how to manage that.

Yeah. Okay, good. Let's maybe turn then to, I mean, we're talking to you from an investment perspective. So how would you describe this to investors? What's the case for investors that they should think about, you know, partnering with you, let's just say.

Sure. Preservation of capital is number one. Income return is number two. What's your threshold for income? Not that you pull on the heartstrings of investors, but it's a good news story. You're doing, you know, it's, we're doing the right things for farmers and supporting the Canada food security. But yeah, it's a part of your portfolio that is an income approach and preservation of capital. No, it's, it's no, we're not the shiny star. We're not the ones that blow up and blow down. And, you know, we're not that, that part of the industry. We're just a steady turtle that wins a race. We just kind of plod along and you'll get a nice high-digit, low-digit, you know, double-digit return on a really good asset. And the asset really won't blow up because if farm farm values drop 20, 30% like some other industries could. There's far more problems in the world. The rest of the world is blown up. So, you know, this is going to be the last thing. Right.

So, yeah, as we sit here today in early March, this will come out in a number of weeks, but we're here in early March. I mean, I could say this probably at any point in time. There's always something going on in the world. And before we hit record, you and I were chatting. So unfortunately, there's a war right now in the Middle East, I guess. And my question to you was, Does that impact this? Uh, we're in the middle of AI is amazing. AI is a boom. AI is going to save the world. AI is going to kill us all. And so the markets are going up and down. Does that impact your fund? Maybe I've just thrown two things out at you. You don't have to address those two specifically necessarily, but what do you, what would you say to investors as they watch all this other stuff go on in the world? And then as they watch, say, your, what you do. How might it be different?

Safe and secure. So, you know, you're dealing with an asset class. Again, I'm just going to say that that has no correlation to all the other events, very little correlation. Only correlation would be in energy that, you know, corn is used for ethanol. So if there's a byproduct that will increase in value, so they'll get a premium for their corn. For a period of time if oil prices are changing. So there's, there's certain metrics there that, uh, yeah, that certain commodities will, will jump up. But while the world's in chaos, I, I, this stays, this is just steady. We, we all eat so many times a day. Uh, we all, you know, that, that is a given. And when there's war times, it's again, more processed and more foods, more grains, more, more energy has to be sent.

Right.

So it's safe.

Okay.

It's a safe spot.

Now, not sexy. Just to be clear to my listeners and the regulators, I'm not saying it's safe. Rock Rob is, and he's our guest. You know, I was going to be careful.

Yes, I agree.

Nothing is, nothing is, nothing's guaranteed. Um, okay. So that's a nice way to, to end the meat of the discussion again, no pun intended. Sorry. I don't mean to do this. I've already said that 3 times. Let me ask you the last question that we ask every listener, every listener that we ask every guest, I should say. Our tagline here is your wealth unlimited. Why? Because we help families with sort of whatever they need on the wealth side. We're a multifamily office. That's our wealth hard theme that we've been talking about. We look at any types of investments, hence why we're investing with you. Full disclosure, if that wasn't clear already. And most others are really just focused on traditional stuff. I'm not saying that's bad. I'm just saying we do different things and we'll look at anything and help clients in any way, unlimited. So I always say to our guests, well, the world's unlimited. You could have been doing and can be doing anything else in the world that you aren't doing at this moment. You've chosen your path. But if there was something else you could be doing, any passion, anything that you would be doing instead of lending to farmers at this moment.

No.

Okay. So I, I, 50% of our guests say the same thing, by the way.

So, so I, I've had a very, uh, good career in entrepreneurship and, uh, I've owned large housing companies, land development, uh, companies and telecommunications. Uh, I've been in some different fields. Um, but the last 30 years, uh, I've primarily been in private credit. Um, and this is what I enjoy because you're helping people. You can see that you're transitioning somebody from a space that they need to get out of to a space where that puts a smile on the whole family and/or corporation's face. That is the mandate that we like to do. Yeah. Have I had lots of other opportunities? I can go do this, I can go do that. Yeah. But private debt is very fulfilling to myself anyways and our team.

Amazing. Rob, I wish you and your team the best of luck. We'll benefit if you continue to have great luck, which I know is not luck, it's, it's the byproduct of hard work.

Yes.

And thank you very much for joining me today. Wish you all the best.

Thanks, Brian. Really appreciate you having us. Thanks. Okay. Is hosted and produced by Brian Gensler and is edited and mixed by myself, David McMillan. This podcast is not to be taken as investment advice. If you like what you heard, don't forget to rate the podcast and follow us on social media @GenslerWealth. Thanks for listening and see you next time. Hey, so I'm still here.

Don't know if anyone is still listening after the credits, but as folks know, I'm a big Beatles fan. And since we are talking about farms and farming here, it reminded me of the song Good Morning, Good Morning. The third last song on the Beatles' Sgt. Pepper's Lonely Hearts Club Band, one of the greatest albums ever made. And if you know this song, or if you don't, you should go listen to it. I can't put it here because of copyright, as you know. The ending of Good Morning, Good Morning, actually it starts with a rooster crowing, and then at the end there's this whole sequence of animals. And George Emmerich and producer George Martin have said that the sequence of animals is basically like a predator scare chain or a, you know, what one could eat the other in some cases. So it starts with a rooster crowing, then birds chirping, cat meowing, dog barking, horse neighing, sheep doing what sheep do, cow mooing. Then there's this fox hunt sequence with, you know, the bloodhounds barking and horses galloping and etc. And then it gets— the last thing is a chicken clucking, and the final chicken cluck basically leads right into the guitar of the next song, Sgt. Pepper's Lonely Hearts Club Band, which itself leads into the last song, my favorite Beatles song, A Day in the Life. So just to, you know, since we're talking— as I say, since we're talking farm and farming, go listen to Good Morning, Good Morning, and you can hear The genius of the Beatles at work. Who would've thought to put pet sounds into, uh, or animal sounds into a song? I gave the clue it was the Beach Boys too, but we'll leave that for another podcast. Bye-bye.