Urban Farming: A Budding Investment Opportunity in Real Estate

By: , Contributor

Published on: Jan 14, 2020

Urban farming may be the new big investment opportunity for commercial real estate investors.

As the demand for sustainable and locally sourced produce in urban areas increases, so does the chance to be a part of the solution. Urban farming, a new development in real estate, brings an opportunity for investors to profit by transforming commercial real estate into urban gardens.

The growing demand for urban farms

Environmentally aware consumers are becoming increasingly concerned about where their food is coming from and the impact our current food production system has on the earth.

On average, food travels 1,000 to 2,000 miles before reaching supermarket shelves, resulting in about 20 to 30 percent of food loss occurring during the transportation process.

According to the Natural Defense Resource Council, the average American meal is sourced from five foreign countries using multiple methods of transportation -- resulting in food with lower nutritional value and more carbon emissions being released into the atmosphere.

With heightened consumer awareness of these facts, especially in urban areas, buyers are increasingly seeking local produce grown in a more sustainable, eco-friendly way.

What is urban farming?

Urban farming, often referred to as urban agriculture or urban gardening, is the practice of growing, harvesting, and distributing food in an urban area at a localized level. Urban farm operations could be:

  • Community gardens
  • Rooftop gardens
  • Indoor gardens

These operations create controlled environments that focus on increasing food production using various farming methods, such as:

  • Aquaponics, which grows plants in tanks of water fertilized by aquatic animals such as snails, fish, crayfish, or prawns.
  • Aeroponics, which utilizes an air or mist environment to grow plants, eliminating the use of soil.
  • Hydroponics, which grows plants in nutrient-rich water without the use of soil.
  • Vertical gardening, a method of growing plants upward using various growing support systems, reducing soil and water consumption.
  • Traditional farming practices.

Urban farms:

  • Increase food production
  • Minimize air, water, and climate pollution
  • Generate more nutritional food
  • Use less water compared to industrial agricultural practices
  • Reduce food loss by cutting out excessive transportation timelines
  • Decrease the cost of food because it's grown and distributed locally

Investing in urban farming

The urban farming movement has grown over 30% in the past 30 years, and developers are noticing. The city of Detroit has over 1,400 urban farms, with cities like Boston, Cincinnati, New York City, and Chicago, following suit.

To meet consumer demand, real estate developers are starting to incorporate urban farms into their commercial real estate development projects, adding rooftop farms or community gardens at the tops of apartment buildings, office spaces, or restaurants. Residents have the option to maintain their plots or a designated urban farmer maintains the garden for the community to ensure viability and productivity.

Vacant, blighted commercial buildings are being repurposed for the use of indoor farming with a large focus on producing leafy greens, which lose their nutritional value the fastest, with spinach losing as much as 90% of its nutritional value within the first 24 hours after harvest. Leafy greens can be grown quickly and require very little space or water, especially in an indoor farm that utilizes vertical farming practices.

Active investors and developers aren't the only ones getting in on the action. Several Real estate investment trusts (REITs) and crowdfunding platforms have surfaced in recent years with a sole focus on investing in or financing farms in urban settings. Below are a few of the businesses that have sprung out of this movement:

  • Dan Miller, the co-founder of Fundrise, recently founded Steward, the first-ever "crowdfarming" platform, which offers loans to farms utilizing sustainable agricultural practices, often in urban settings, with investment options starting as low as $100 for investors in every state except Florida and Nevada.
  • Harvest Returns is another investment fund with offerings for both accredited and non-accredited investors in the sustainable and urban farming movement that range from hemp farms to sustainable agriculture farms in opportunity zones, hydroponic vertical farms, and more.
  • Iroquois Valley Farmland REIT, a privately traded REIT, provides leases and mortgages to organic farmers, and Farmland LP, another private fund, purchases conventional farmland and converts it to organic farmland utilizing sustainable regenerative farming practices such as pasture and crop rotation.
  • FarmTogether and AcreTrader are two additional crowdfunding platforms that offer investment opportunities in traditional agricultural farmland growing crops like soybeans, corn, almonds, or wheat. While outside of the urban farming movement, and far less sustainable or eco-friendly, these farming investments have the potential to provide stable returns to participating accredited investors.

Investors and developers who want to partake in the urban farming movement should conduct their own due diligence on the process, especially when repurposing an existing building.

Indoor facilities or urban farms in closed environments are considered Controlled Environment Agriculture (CEA) and may need to comply with the Food Safety Modernization Act (FSMA). Its requirements include:

  • Temperature and humidity control
  • Air filtration systems
  • A certified food processing facility

Seeking the expertise of a real estate advisor is suggested. They can help you navigate local building or zoning restrictions and determine whether the building's systems and characteristics can accommodate the high energy needs of urban farming.

The bottom line

The success of this venture is largely up to the investors, developers, and urban farmers working together. If you are interested in investing in an urban farm development, conduct your own due diligence on the process, requirements, and demand in your local area.

It's unlikely this growing trend will slow anytime soon. There's a high probability that new investment funds, trusts, and crowdfunding platforms will arise in the coming years. As always, do your homework on the company, the farmers, and the market before investing, and weigh the risks to rewards before diving in.

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