A real estate investor’s guide to investing in agricultural land

Josh Ziegelbaum currently serves as Director of Investor Relations at Legacy Group and is based in Fort Lauderdale, Florida. He is responsible for managing investor communications, onboarding, individual and commercial clients, as well as overall support of company initiatives. The dynamic work experience Josh has gained throughout his career gives him a unique perspective on both sales and operations. Prior to joining Legacy Group, Josh worked as Vice President of Business Development for Lifeafar Capital, a boutique private equity and asset management firm where he led his team’s capital-raising efforts. Before that, he was a Private Banker for Wells Fargo with a focus on complex credit needs and investments in public securities. During his time at Wells Fargo, Josh climbed through the ranks and received multiple internal recognitions and awards for his efforts. He most recently managed a book of business for high-net worth individuals and business owners in Miami Beach. Today, Josh shares about investing in ag land outside of the US and specifically in Colombia with a coffee company. Episode Links: https://legacy-group.co/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. Today with me I have Josh Ziegelbaum, the director of Investor Relations at the legacy group and Josh is going to be talking to us today about investments in ag land outside of the US and specifically in Colombia with a coffee company. So let's get into it.   Before we jump in today's episode, I just want to speak really briefly about Roofstock Academy which is Rootstocks one stop shop for Investor Education, independent of where you are in your investing journey, whether you're just getting started or already have a sizable portfolio, we have something for you. Over 50 hours of on demand lecture access to private slack forums, one on one coaching as well as mastermind groups, depending on which program you end up enrolling in. We definitely want encourage you to come check us out. I look forward to seeing you there. Happy investing.   Josh, what's going on, man. Welcome to the Remote Real Estate Investor. Thanks for hanging out with me.   Josh: Hey, Michael, I'm happy to be here.   Michael: Awesome, so before we hit record here, we were chatting a little bit about your background. But for those people who weren't privy to that conversation, give us a quick and dirty who you are, where do you come from and what is it that you do in real estate today?   Josh: Sure, happy to dive into that. So my name is Josh Ziegelbaum. I'm the director of Investor Relations for legacy group. We're an alternative asset manager focused on real assets in Latin America, our niche in the real estate space will be agriculture. Our portfolio company Green Coffee Company is the second largest coffee producer in Colombia. Today, we have the business on track to be the largest this year. So that's the niche in which we're in. It's certainly different than the typical space that most guys invest in. But we love the alternative investment space. I've been working in this industry for the last few years, but in financial services for more than the last decade. Prior to doing this, I was a private banker with Wells Fargo, in New Jersey, and then in Miami Beach and I currently sit in Fort Lauderdale and support our teams capital raising efforts and investor relations across our portfolio companies.   Michael: Right on, so taking a step back, I mean, you mentioned is an alternative asset company or company focused on alternative asset, what's an alternative asset for someone that might not be familiar?   Josh: Sure, it's anything that falls out of your scope of traditional investments. So traditional assets would be stocks, bonds, cash and equivalents. So typical investor portfolio, you may have heard the 60-40 approach that 60% bonds, or sorry, 60% stocks, 40% bonds, depends on the age, of course and those are what's traditional. So a financial advisor in the traditional space will say, all right, based on your age, and risk tolerance, you should have X amount stock in your portfolio, X amount of bonds and this much cash alternatives would be things like gold, real estate, cryptocurrencies, private equity, anything that falls out of the scope of traditional asset classes, and they're a great, I'm not saying anything bad about traditional investments, but alternatives are a great way to diversify portfolios and most of our investors, you know, they have stocks and bonds and cash in their portfolio, and we're looking to complement that.   Michael: So Josh, why is it important, in your opinion, taking, you know, putting on your kind of financial hat for a minute, just from a personal standpoint, why is it important to have alternative assets? I mean, Why can't someone just go into the stock and bond and cash world? What attracted you?   Josh: Yeah, I mean, coming from that industry of traditional investments, portfolio management, kind of selling ETFs, mutual funds, individual securities, that everything's somewhat cut and dry and there's similar offerings across the board at all banks, right and, I mean, you could, you know, no matter what you do in your portfolio, if you have all stocks, months, like April, everything's going down, right. So I mean, stocks perform well, in the long term, but it's important to have parts of your portfolio that are entirely uncorrelated, and that could weather a recession and that can weather inflation, right. So if you look at the inflation rate today, I mean, we're clocking over 8% a year right now. So even the historical return of a stock portfolio, it's, it's basically at or below inflation, you can go in yeah, you want to add assets to your portfolio that are uncorrelated and that can also you know, beat that. So I was attracted to the industry by the high returns, the interesting offerings, you know, early stage investing is sexy. It's something cool and suddenly you can't get in a bank. So, you know, I was I was attracted by the projects and social and environmental impact of the projects and really, you know, bringing something unique and interesting to a client base that they otherwise wouldn't have access to.   Michael: Right on, and let's talk about you mentioned, uncorrelated for someone that might not be familiar with what correlation is, or how to be thinking about that, in terms of portfolio theory, making give us a quick rundown of how people should be thinking about that and really what correlation means.   Josh: Correlation essentially means that assets move in tandem with one another. So there's certain assets called risk assets, stocks that usually move in tandem. So when there's, you've heard, everyone's probably heard of the S&P 500, or the Dow Jones Industrial Average. So this tracks the movements of a basket of securities. However, if you actually look granularly, at each one of the securities that makes up the Dow Jones or the S&P and you look at it during a trading day, they somewhat move together. So I mean, while we're recording this markets recovering post lunch, and looking, if you look at the stocks that make up an index, almost all of them are recovering at the same time. So that's correlation, so you want to have assets that move in opposite directions, and that aren't all tied to one another. Another term for this in the industry would be beta. So a beta of one means that if the S&P goes up 1%, the underlying security in reference also goes up 1%. So a younger growth investor looks for high beta names. But at the same time, when the market goes down, all the high beta names go down at the same time. So look at taking a step back, and kind of looking at a typical portfolio of stocks and bonds, people are now starting to add other assets there. So maybe that's real estate that they own personally, real estate that they own in a syndicated manner, whether that be apartment buildings, or something similar to that. cryptocurrency is one, I mean, we're hearing from a lot of professionals, two to 5% of your portfolio should be in crypto assets. So that's one that wasn't really taught when I when I was studying finance, but that's emerged, right. So we're seeing this emergence of alternative investments, and it's becoming more widely accepted that they should be a part of an investor's portfolio in order to mitigate risk. hedge against inflation and increased upside potential.   Michael: Okay, right on. So and that's kind of where the legacy group comes in. That's an offering that you all have for investors and specifically, you said, in Latin America, ag land is that the main focus in Colombia, of course.   Josh: That is right now. So we're an asset manager, we're focusing on early stage investment opportunities in operating businesses. So the Green Coffee Company, our flagship portfolio company, is an operating business in the agricultural space. So we founded the company about five years ago, we've gone through several funding rounds brought in over $25 million of equity capital primarily from the US and we're deploying that and buying up real assets farmland in Sagar Colombia, it's two to three hours outside of managing and we're consolidating infrastructure and building a world class operation. It's collateralized like it like a real estate play, but our investors get the upside of an operating business, our goal is to continue to acquire farmland and grow and establish ourselves to be in a position to exit through a sale or an IPO. For our investor base.   Michael: What a cool kind of approach.   Josh: Yeah, it's a bit of a hybrid. So it's like different than, you know, a traditional agricultural investment where, well, it's kind of hard to describe a traditional because it's hard to access. But if you bought a plot of land, you have access to the, you know, the cash flow that's produced on that particular plot of land. In our model, we, our investors own a slice of a large, very large plot of land, you know, over 5000 acres right now is what we control and but they have higher upside than just the cash flow. So we're building out mechanisms in which we can use coffee byproduct to create possibly a liquor or southern other alternative. We're building out processing facilities, roasting channels are on the horizon. So investors not only own the land of the underlying business, but they have the left side of the operations and we think that markets will reward this type of business in the years to come for the reasons I mentioned, and also because of the impact, you know, we're doing a lot of things to lift up the community in which we operate. something really special, and I can attest to the fact that it's something really unique that I haven't seen in any other offering.   Michael: Interesting, so there's some wisdom out there that says don't invest in anything you don't understand, or you can't explain and so if someone doesn't have a clue about the club, be in coffee market or ag land in general, how should they get educated before making an investment like this?   Josh: Yeah, so I would encourage you to follow us on social subscribe to our newsletter, it takes time to get comfortable with the asset manager that you're working with and we put out regular content that educates you on the coffee industry shows us videos and footage from the farms. In terms of our management team. You know, we have world class operators on the ground in Colombia. We've hired a 25 year veteran of the Colombian agriculture industry, Boris Molnar, to head up the Green Coffee Company has it CEO, we have our chief agronomist, as the former agronomist for Starbucks in Colombia, we have a really strong team and within our investment materials, there's more details on the management team and more of an explanation of the process and, and in the model. So in order to get comfortable, I would subscribe to us request our offering docs hop on a call with me happy to address questions individually, but definitely it takes a bit of time, of course.   Michael: Okay, cool and you were talking about the return profile, potentially out beating are outpacing inflation and having a really attractive return compared to your traditional investments. What are you seeing in terms of returns to your investors over the last couple of years with Green Coffee Company?   Josh: Sure, we're about to launch our Series C funding round, we're expecting to launch that and in July, and our expectation is to do that, at $1,000 a share up from 700 a share in our series B round and we're currently forecasting 8x net returns for our investors or in terms of an IRR or internal rate of return 53% annualized through a 2026 exit. The value that we've delivered to date is up rounds for all of our earlier investors. The seed round was at $500 a share and most recently, our B was at 700. So we've delivered significant value for our investors through capital appreciation. But from here, there's even more upside, like I said at the current are what we're expecting to be the next funding round. We're forecasting 8x net returns way higher than the inflation rate in the US and forecasting right now.   Michael: That's awesome and so should investors expect a cash flow dividend or payment on any kind of regular frequency or not until the exit of the company are they IPO?   Josh: Yeah, that's a great question, Michael. So we are modeling in dividends and cashflow on an annual basis. In our investor presentation it's forecasted to begin in 2023 for the 2022 operating year, and to continuously pay dividends each year of throughout operations until we exit. It's mostly a growth investment. So the bulk of the return is going to be realized when we sell the business or we IPO. But there's definitely a cashflow component that that we're modeling in here.   Michael: Interesting, so in a syndication play, a lot of syndicators will give investors the opportunity at the exit to 1031 their money, keep their money with the operator, we're gonna go invest it into a new property, you're not going to pay any capital gains tax. How does it work with this because it's really a business more so than a real estate asset in the US specifically, because it's international, so how does that all work?   Josh: That's a great question, Michael. So we've structured the investment to be in the US. So our investors are receiving common equity in Green Coffee Company holdings and it's a US based investment for all intents and purposes, the assets are primarily in Colombia, but the structure of the business is here in the States. Now, once we exit, whether that if it's through an IPO, we would classify that as a liquidity event, investors would be able to sell their shares without a lockup period. But you're not forced to sell in the event of an IPO. Similar, like if someone comparatively if we're exiting a commercial real estate deal, you have to take your money out and like if they're selling or the refinancing, they're gonna give you your money out. But if we go public, there's optionality there, you could sell a portion you could sell all you could sell none, it's actually the investor could not realize any capital gains if they wanted to. Now, there's no ability to 1031 stocks, right. So even though there's underlying real estate, and it's a US based investment, there's no ability to do a 1031 exchange with this type of product. However, investors can invest in a tax deferred manner. We have people who invest in retirement accounts, traditional IRAs or Roth IRAs, so that they could essentially accomplish what you're saying, but within a retirement account, that's a way in which people could do it. I didn't mention this, but it's a it's open for accredited investors only. So it's a 506 C offering minimum investments 100,000 so most of our investors are high net worth or ultra are high net worth and it's a means in which to complement their current portfolio, but um, no ability on the 1031. But there's there are other tax advantages through an IRA that can be achieved.   Michael: Okay, interesting. Have you ever looked into qualified opportunity zones?   Josh: We have, so I have experience in that through another portfolio company of ours, we were developing opportunity's own projects in in Puerto Rico, which is a US territory. Now, the business as it relates to coffee, the coffee business, it's in the US, but the assets, the farmland, it's all in Colombia. So there's no the opportunity's own legislation is specific to the US and its territories. So that we unfortunately, we don't have ability to use utilize the opportunity's own legislation for this project.   Michael: But I'm wondering about actually going the other way with it. So if it's considered a stock and someone sells shares of their stock and has a capital gain, if they invest those gains into a fund, I think that there might be opportunity there as well.   Josh: That's right on the back end, if an investor I mean, assuming that the opportunity zone legislation remains intact, at the exit, right. When an investor gets a distribution, they could, like you said, theoretically identify and opportunities on investment to roll their capital gain into to relieve to alleviate some of the tax burden.   Michael: Yeah, but definitely talk to a tax professional before doing any of this stuff, because we're not tax advisers. It's really interesting. So I'm curious, Josh, I think a lot of investors, especially in the states understand some of the risks and the downside associated with real estate investing, specifically with regard to single family homes. That's why they have insurance, that sort of thing. What kind of risks and downsides are you seeing as potentials that people should be aware of in the coffee industry down in Colombia?   Josh: Yeah, I think the main one is weather. So you know, in agriculture, whether it's Columbia us, I mean, weather is something that needs to be mitigated. It's just the main risk when it comes to agriculture. Last year, the harvest in Colombia, it was lighter than expected across the board. There was also some adverse weather patterns in Brazil and other parts of the world. This pushed up coffee commodity prices dramatically, however, it lowered production of the farmland, so a bit of a double edged sword, we were able to benefit from the increase in prices. But there is some uncertainty as it relates to weather and we have to mitigate it. We use methods in which to monitor soil weather patterns and we have some world class technology on the farms in order to monitor and mitigate on the weather side and be proactive. But I would say that's a risk that investors need to be aware of, in the end.   Michael: It was great to know and you mentioned social and environmental impacts. Can you talk to that a little bit?   Josh: Sure, on the social side, it's my favorite one. So we're the largest start there. We're the largest employer in Sagar. It's a town in which we operate. We have great relationship with the mayor and the local officials there. We recently inaugurated a processing facility at the end of last year, we had the America mount the chief of police, the head of the Council of American enterprises doing business in the country and what we're doing in the community is something really special, we're providing fair and equal employment with above average wages, paid time off, fringe and benefits in an industry that does not have benefits, and that pays its employees with cash. So we're taking an industry that's done in this informal manner, and we're formalizing it and we're more really lifting up the community and you could see it when you're there. There's so much passion behind the work that's done by the employees. It's something it's really special to me, and we're employing several 100 people and growing and, yeah, we have an entire presentation on social and environmental impact. On the environmental side of some things that we're doing, we're planting the coffee with through a system called an Ella pod. It allows us to plant biodegradable pods for the new trees instead of coffee, but instead of plastic bags, so we're removing tons and tons of waste from the environment with our planting methods. On fertilizers, we're spraying the trees at the base. So we're reducing the amount of fertilizer that's used and we're also preventing harm to the surrounding area. We do reforestation and a lot of different things and we're working on a solar project. Now that's in the works. So a lot of things on the environmental side as well, I would say.   Michael: Very, very cool. So Josh, this has been super fun, man. Where can people learn more about you and learn more about Green Coffee Company get in touch with folks at Legacy group? How, you know, how should they go about doing that?   Josh: Yeah, definitely go to our website. That's legacy/group.co. Maybe we could put a link to that in the show notes, then our email address investor.relations@legacy/group.co and you can find us on social media through LinkedIn, Instagram, but definitely check out our website, subscribe to our newsletter. I think that's the best way to get in touch with us and always happy to connect for a call or through email as well.   Michael: Perfect, Josh, thank you so much. I really appreciate it and can't wait to stay in touch. see where this goes.   Josh: Thanks, Michael. Appreciate your time as well.   Michael: Hey, you got it, take care. So that was episode everyone a big thank you to Josh for coming on super interesting business model with that hybrid approach of kind of stock company private equity as well as the real estate side of things. So definitely go give their company website at checkout. As always, if you liked the episode, please feel free to leave us a rating or review wherever you get your podcasts these are really, really, really helpful for us, and we look forward to seeing our next one. Happy investing…