Articles

    Financial panelists share their expertise on land ownership with TCF audience

    Roger Clark, senior vice president, Real Estate Division at Northern Trust, and Mary Jane Rozypal, senior vice president, Specialty Asset Regional Manager- Farm and Ranch Services, at Bank of America, N.A., have some 60 years of experience between them and they have gleaned a lot of knowledge in their dealings with land investors. The two shared their thoughts during a panel discussion with Mark Thorndyke, Chicago Farmers president, who served as moderator, at the February 11th meeting.

    Following is an overview of the discussion with Mark posing questions and Mary Jane and Roger responding:

    Mark: Why would one consider farmland as an investment?

    Roger: It offers good long-term appreciation. Farmland is an easy, simplified asset versus an apartment building or shopping center where such things as roofs and heating and air conditioning systems are concerns.

    Mary Jane: We have clients who are pure investors who are seeking a good, solid investment that brings diversity to their portfolio. Farmland has a good return. Investors use it to reduce volatility and hedge against inflation. There also are accounts that have been held a long time, “heartstring” or “legacy” assets. After a number of years, the landowner realizes that the property has increased in appreciation a great deal.

    Mark: What should a client consider when investing in farmland?

    Roger: I focus on the client’s overall need and what the personal family structure is. I have a number of successful clients who are seeking second, third and fourth generation investments for the long-term. The farmland ties up the money for the younger generation and still keeps working for them.

    Mary Jane: Purchases of farms should be considered long-term investments, at least a 10 year hold. The client has to understand that there are ups and downs in cash flow; it will follow the commodities market. Farmland is never worthless; there always is someone who will lease the land. People who want really big returns and no risk are not the right purchasers.

    Mark: Over the years, what changes have you seen in farms?

    Roger: Change is in all forms and it is fast. Farming is more complicated today and more sophisticated. These are not negatives, just factors. I am amazed at the level of financial and technical sophistication that the operators have today over those of 40 years ago.

    Mary Jane: I agree that the change in technology has been amazing. It has supported the collection of tremendous amounts of data that make farming more efficient and more productive.

    I am not seeing farmers buying as much farmland as they did in the past. They are more likely to lease land. Farmers can’t afford to buy a lot of land and still have money for equipment.

    Regarding ranches, the value of the ranchland has outpaced its productivity. Legacy ranchers are still doing the traditional things, but they are diversifying. They are using wind and solar where it is feasible. Many of the people are learning that a lot of money can be generated from having a hunting license for their property. Instead of doing things like the older generation, they are embracing ways to turn the ranch into a modern business.

    Mark: What are the biggest concerns that farm investors have today?

    Roger: They are concerned about unpredictability and government influence. In the 1980s, the Russian grain embargo played havoc with farms for years. Last summer, the China and soybean situation impacted farmers. If an event is on your radar, you can plan for it. Surprises are the biggest obstacles. They tend to be out of your control and have a significant impact on the operation.

    Mary Jane: The trade wars are a concern, but I believe the government will do what it can to resolve the situation. On the positive side, I think that farmers are getting more adept at dealing with their lenders. Also, technology is on the side of the farmers. They have to be able to produce more yields, get more off of less and less land. The world depends on the American farmer.

    Roger: I see more people trying to manage their risk portfolio by not being highly leveraged. You can weather a year or two of uncertainty when you are not highly leveraged.

    Mary Jane: The percentage of leveraged farmland is at a historic low. The age of the farmer is at a historic high. In instances where there is no family to take over the farm, farmers have taken a young person, often with a college degree in agriculture, under their wing, then turned the operation over to them when the farmer is ready to retire. This enables young farmers an opportunity to build a successful farming operation.

    Mark: What have you seen in succession planning?

    Roger: Some people use a trust instrument, but many use LLCs as ownership vehicles because they can put rules and formulas in the operating agreement and a plan for being bought out of the farm. When it is written into the LLC, it is easier to get out of the farmland and the angst and emotion are removed. One does not have to start a conversation about succession because it is detailed in the LLC.

    Mary Jane: Many people have gone away from trusts and have moved to LLCs, which can be a good choice if there are competent people to run them. A trust can hold shares of the LLC, so keep this in mind as well. If there is family drama, consider the worst things that can happen and plan for that. Be honest with your advisor and inform them of potential challenges.

    Roger: Have conversations with family members about the plans for succession and have a good advisor.

    Mark: When hiring a farm manager, what questions should be asked?

    Roger: Hiring a farm manager is like a job interview. Learn what the person’s track record is, their history, and ask about other properties they have taken care of. Ask questions; it’s your life and your assets.

    Mary Jane: Institutions like Northern Trust and Bank of America operate under a fiduciary platform. We have high standards that we have to abide by. We have to look out for your best interests whether managing assets as trustee or an agent. The people involved in financial institutions like ours have Ag backgrounds and experience and education in agriculture. When an asset manager leaves, we have someone that can step in and manage your asset, not always the case with a smaller farm asset management company. Consider the safety of the asset when selecting a farm manager.

    Roger C. Clark
    Senior Vice President | Real Estate Advisory Services | Wealth Management
    Northern Trust
    50 South LaSalle Street, M-7, Chicago, Illinois 60603 USA
    (312) 444-3353 | rc28@ntrs.com
    Mary Jane Rozypal
    Senior Vice President | Specialty Asset Regional Manager – Farm & Ranch | Investment Solutions Group
    Bank of America | Global Wealth & Investment Management 
    TX4-213-06-16, 700 Louisiana St., 6th Floor, Houston, TX 77002
    (713) 247-7504 | mary.rozypal@bankofamerica.com