Dale Reiner’s family has farmed the 260-acre Reiner Farm in Monroe, Washington, for generations. The farm’s rich agricultural soils have produced hay, diversified vegetables and berries, beef and Christmas trees over the past century. The land today is used to grow corn, hay and silage. Reiner had reached retirement age, and wanted his land to remain in agriculture, but he didn’t have a next generation of his family interested in taking over. In 2015, a friend of Reiner’s introduced him to the Washington Farmland Trust, and he and land trust staff began conversations about protecting his land’s conservation and agricultural values.
The mission of the Washington Farmland Trust (formerly the PCC Farmland Trust) is to conserve agricultural land across Washington state. Mirroring trends across the United States, 32 percent of farmland in Washington will be transferred to a new owner in the next 15 years. Over one-third of Washington farmers are 65 or older, and more than three-quarters of these farmers do not have a successor farmer identified. Western Washington’s agricultural land has particular development pressure due to the booming Seattle economy. Counties surrounding Seattle (including Snohomish County, where the Reiner Farm is) have the highest rate of population growth in the country. This pressure both puts farmland at risk of conversion and is driving the price of farmland far beyond what farmers can afford.
Through conversations with the state’s agricultural community, the Washington Farmland Trust knew that many retirement-age farmers sought to keep their farmland in active, sustainable agriculture. The Washington Farmland Trust launched a $26 million fundraising campaign to accelerate its work in the face of this development pressure and desire to keep prime agricultural land affordable for farmers.
Many retirement-age farmers sought to keep their farmland in active, sustainable agriculture.
The Washington Farmland Trust sought to develop an impact investing tool as a part of this philanthropic campaign. Some of the land trust’s donors communicated that they had contributed all they could philanthropically but had additional resources that they could provide as low-interest loans. With additional, internally controlled, low-cost capital, the land trust could grow its capacity to purchase land at immediate risk of development. Like many other land trusts operating in areas facing rapid development pressure and intense competition for land, Washington Farmland Trust often uses a "buy-protect-sell" strategy. It purchased land put up for sale and lease the land to a farmer to cover a portion of cost of capital until the trust and the farmer can each come up with the financing needed to permanently conserve and transfer the land. Washington Farmland Trust has long used philanthropic contributions and low-cost debt (primarily private capital) to fund land purchases, but with more retirement-age farmers ready to sell prime agricultural parcels, the land trust knew it would need additional funds.
The land trust convened a Creative Capital Task Force — composed of friends of the land trust, board members with professional impact investing experience, and community members — to advise on development of their impact investing strategy. It first considered creating a larger, 10-year farmland impact bond, similar to revolving loan funds at the Maine Coast Heritage Trust and The Conservation Fund, which could support multiple conservation projects. Through conversations with investment advisers and community stakeholders and some initial business planning, the trust decided to instead develop a smaller, project-specific impact investing note. The land trust worked with its Creative Capital Task Force to develop the structure of a note without a specifically identified project, so that it would be prepared when a suitable project with an immediate need for capital emerged.
The Reiner Farm was this project. By spring 2017, Dale Reiner was ready to exit farming. He couldn’t wait the years it would take to assemble funds for a typical conservation easement purchase, and then identify a suitable agricultural buyer. He and wife Charlene's 260 acres were a particular conservation priority due to their prime agricultural soils, valuable salmon and wildlife habitat, and the region’s development pressure. This parcel was one of the largest remaining agricultural parcels in Snohomish County. Reiner and the land trust agreed on a $3.4 million purchase price based on the farm’s most recent appraisal. The land trust and Reiner signed a purchase and sale agreement in March 2017. Between the quick timeline needed to secure funds and the land’s key conservation attributes, the Washington Farmland Trust decided this was the right project to trial an impact investment note. It began reaching out to donors about the investment opportunity immediately upon signing the purchase and sale agreement, and officially launched its Farmland Impact Note in June 2017.
The terms of the note
By January 2018, Washington Farmland Trust had fully subscribed the impact investment note. The final composition of investors was 1 foundation and 16 individuals. Most investors were prior supporters of the land trust. Some investors were the same people who had encouraged the land trust to develop this impact investing note, and one had served on the Creative Capital Task Force. Six of the 17 investors hadn’t previously donated to the land trust. Some new donors had prior relationships with the land trust, although not as donors, while others were introduced to the land trust by mutual friends. At least one donor was compelled specifically by the impact investing strategy, because they had resources they could loan but not grant.
At least 1 donor was compelled by the impact investing strategy, because they had resources they could loan but not grant.
The minimum investment amounts were $50,000 for individuals and $100,000 for institutions. The average investment was $100,000, and the largest was $600,000. The note was fully subscribed at $2.7 million. There was a gap in funds only 2 weeks before they were about to close, but the land trust was able to ask existing, committed donors to increase their investments in order to reach $2.7 million. All investments receive 2 percent annual interest, although some donors choose to return their interest as a philanthropic gift to the land trust. This is an unsecured loan, backed by the full faith and credit of the land trust (rather than just this specific project). The Washington Farmland Trust established a separate LLC to purchase the Reiner Farm and purchased the farm in March 2018.
Keys to success
The land trust had to assemble additional financial resources beyond the investments in the note. The Washington Farmland Trust applied for and received a capacity building grant from the Greater Tacoma Community Foundation. Although Reiner Farm is not in the foundation’s service area, the foundation wanted to support the land trust’s development of an impact investing strategy, in the hope that Washington Farmland Trust eventually could deploy this tool in their region. This grant covered many "soft costs" the land trust incurred in developing the note. Some of these expenses included: development of legal documents; escrow costs and fees; professional development costs for staff; and staff time to determine the terms of, market and work with donors to raise funds for the impact note.
Without this capacity building grant, the land trust would not have had the internal resources to make this project happen. Additionally, Melissa Campbell described this grant as important external validation, which built her board’s confidence to enter the impact investing space. Seeing that the foundation had confidence in the idea and was willing to invest in it and knowing that a grant would cover some necessary exploratory costs were critical for securing the board’s approval for the project.
The land trust also raised $700,000 in philanthropic gifts towards the balance of the land’s $3.4 million purchase price. Beyond the $3.4 million in land acquisition costs, the land trust incurred significant staff costs as part of the land purchase and conservation easement process. These costs were not unique to this project, but rather costs incurred in all conservation projects, such as staff time to work with the landowners, manage leases and relationships with partners, and stewardship costs. The land trust used general endowment funds to cover these expenses.
Paying investors back
The Washington Farmland Trust is working with a number of partners and funding sources in order to protect and sell the land, and thereby pay back investors. It plans to split the property into two parcels, each with a separate funding take-out plan tied to its conservation attributes.
Tenant farmers are leasing 160 acres of farmland, which compose the agricultural parcel. The Washington Farmland Trust is working with two public funding programs, the Washington Wildlife and Recreation Program (state) and Snohomish County Conservation Futures (county), to purchase the development rights. Once the land is conserved, the leasing farmers will purchase the land at its appraised agricultural value from the LLC.
Land trusts are a vehicle to bridge what farmers can afford before and after conservation.
About 100 acres of the parcel, along 2 miles of the Skyhomish River, will be sold to the Tulalip Tribe. The tribe has long worked to restore these traditional fishing grounds, first when Reiner owned the land and now with the land trust. The riparian habitat is prime Chinook salmon habitat, and the tribe conducts biological and restoration ecology research here. Washington Farmland Trust is working with the tribe to raise public and private funds (from the Salmon Recovery Funding Board and Pacific Northwest Resilient Landscapes Initiative of the Land Trust Alliance, respectively) so that the tribe can purchase the land from the LLC at appraised value.
Thus, there are three anticipated liquidity events to pay back investors: securing state and county conservation easement funds for the farmland; fee simple purchase of the farmland at agricultural value by the leasing farmers; and purchase of the riparian habitat by the Tulalip Tribe, with assistance from Washington Farmland Trust to secure LTA and public conservation funds.
Lessons learned
The advantage of developing an impact investment note specifically for the Reiner Farm project meant that Washington Farmland Trust could trial project finance on a relatively small scale. The land trust will incorporate the following lessons into future offerings: It will fundraise at the outset for both land acquisition and staff costs. For this first impact investing project, the land trust used general funds to cover most staff expenses on this project. In future projects, it will raise additional resources towards internal expenses. Land trusts should strategically consider how an impact investment project lines up with other, simultaneous philanthropic efforts. This project was one component of a $26 million philanthropic campaign. Asking for both philanthropic and impact investment funds created some messaging challenges. However, it also was synergistic and gave important context to the Reiner Farm project and land trust’s overall mission. Finally, Campbell advised against concluding impact investing campaigns early in the year, particularly if seeking foundation funds, because foundations typically aren’t able to make funding decisions then.
Campbell described land trusts as "a vehicle to bridge what farmers can afford before and after conservation." Land trusts, particularly those using a buy-protect-sell strategy, always will need access to low-cost capital. This project illustrated that conservation finance tools enable land trusts to protect land that otherwise might be a prime development target for reasons of geography, timing or both. Although its next impact note is likely a few years off, due to the internal resources required for these projects, Washington Farmland Trust plans to continue its impact investing work. It will develop future project finance notes or potentially a larger farmland conservation fund, depending on the projects that arise. "We have the tool now, and can bring it out as needed," Campbell said.
