Local Action for a Sustainable Tomorrow

Farmland Investment Trust idea

Proposal for creation of a farmland preservation real estate investment trust:

In a nutshell: the trust (or limited partnership or some other investment vehicle) would purchase farmland about to convert, with the purpose of putting cluster development on it and saving the maximum amount of farmland. It would sell the house lots and take out an agricultural easement on the farmland but retain title to it. (BTW, this idea could work with timberland just as well.) It would aim for a modest return for investors and reinvest profits into further farmland cluster developments.

Implementation of the plan: The marketing package for the investment group could be something like “The Clallam 500 for Farmland”. With a goal of 500 investors and a minimum investment share of $5000, the goal would be to create an initial bankroll of perhaps $5 million (i.e., average investment of $10,000), to enable the financing that would be required for an initial major development on a significant chunk of land. The cachet of being a charter member of a visionary yet practical group would hopefully draw the investors in. Someone prominent would be needed to champion this idea and attract investors, and someone very skilled would be needed for CEO, with a board of directors also actively involved.

Virtues:

1. There is a lot of investment money in this county, particularly in Sequim. Half of Sequim voted for the Farmland Real Estate Excise Tax in 2005, indicating strong support for farmland there. And a local investment opportunity might offer attractive diversity in portfolios heavy on Wall Street investments. So there is a possibility of raising adequate capital to undertake a significant initial project. Once the first project has garnered adequate return, financing would be put together for the next project.

2. Local money would help to drive local economic development and keep the money recirculating in our community.

3. Because of its benevolent development practices, the trust could seek a discount on purchase price of the farmland from farm families who place a value on farmland preservation--as many do. (Or the trust could offer shares in the trust as part of the payment package.) Such a discount would constitute a competitive advantage over the rest of the development community.

4. A further competitive advantage could be lower infrastructure costs on a cluster development.

5. The trust could maintain ownership of the water and sewer systems and charge a maintenance fee to the residents, so there are no squabbles or breakdowns. This would provide some continuing income to the trust.

6. A further competitive advantage would be the clustering bonus available in many cases under the County zoning code.

7. People attracted to such a development would presumably be ones who put a premium on social values and like the idea of preserving farmland. (Cluster developers in the Seattle outskirts are using such values as a selling point.) Folks like this would bring a progressive mindset to our community.

8. The farmland itself will constitute a speculative investment, even though the primary profit has already been made from the cluster development. If local farmland becomes much more valuable as oil becomes more expensive, this investment may pay off handsomely in the long run. (Perhaps separate shares could be created for the farmland owned, and these could constitute a sort of "futures market" which could be traded.)

Obstacles:

1. As stated above, highly motivated people would be needed for marketing and management, and a good deal of risk would be involved. Would the right people emerge to take the challenge?

2. Real estate is expensive, the housing market is generally down, and Sequim may be overbuilt for the next several years. But perhaps the clustering would result in more affordable housing.

3. Water rights are a problem, because current water law forbids new community water systems, though it permits so-called “exempt wells” that can serve up to 6 homes. This provision makes no sense in the context of an environmentally-friendly idea such as this, but reform might have to come at the level of the state legislature. Hugh Haffner, an attorney and local PUD commissioner, is convinced that this peculiar policy can be changed, particularly in light of the fact that clustered housing would use less irrigation water than standard lots. Additionally, the stormwater from the clustered houses and other impervious surfaces could link to farm irrigation ponds, which would further allay water shortages. This is just the kind of development that the state should be encouraging. Various state officials are concerned about this problem, so an effective lobbying effort might make a difference. Support from local bodies such as watershed planning groups, tribes, local governments, and water utilities would be essential, and it would probably be forthcoming with adequate communication.

Further opportunity: If the County had a functional Transfer of Development Rights (TDR) program, no development would need to happen on the farmland at all; rather, the development rights on the farmland could be retired, and bonus rights could be redeemed within Sequim’s Urban Growth Area (UGA). Such an instrument would give greater flexibility to the Trust to respond to market conditions and opportunities.

Feedback and suggestions on the above ideas would be greatly appreciated!

Ed Chadd
Port Angeles, Washington