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John Heneghan is a self-professed “bean counter.” It’s in his DNA. His dad was an accountant. “A bean counter,” Heneghan admiringly said of his father. John had a brother named Tom who was also an accountant, a.k.a. “bean counter.”
Tom ended up working for a man Heneghan considers a numbers and visionary genius, Sam Zell. Those two family members and Zell’s financial foresight now guide Heneghan’s focus on rural America’s future.
Zell was a billionaire real estate investor and philanthropist, who spent much of his career developing apartment complexes and mobile home communities, while also buying financially distressed companies. For a short time, he also owned the Chicago Cubs Major League Baseball team and Tribune Media.
RELATED: About three months before he died last year, Sam Zell did an interview with CNBC where he expressed doubts that the country’s economy would recover as quickly as optimists hope, and he also criticized the Fed for not raising interest rates sooner after COVID-19 limited various industries. Watch that interview here.
ALSO RELATED: Bloomberg profiled Sam Zell following his death at the age of 81. See that video here.
“Foresight. He saw trends in advance,” Heneghan told American Farmland Owner about Zell’s legacy.
Tom Heneghan saw that foresight in person first. And then when Tom wanted a new role with Zell’s company, the boss first wanted Tom to suggest a successor. “Sam said, ‘fine, just get somebody to take your seat,’” John Heneghan said as he relayed the conversation.
Tom recommended John. Zell hired John. More than a decade later, John now practices what Zell taught him.
“Great investor. I got to learn the investment process from one of the greats.”
Heneghan…the numbers guy, the bean counter… now has his own investment vision for America’s farmland. Over the past few decades, the numbers haven’t always been adding up for some of those communities as much as they deserve in Heneghan’s mind.
Populations in rural areas have been on the decline. The pool of available workers drops. So does the potential of local investment.
That’s why the Promised Land Opportunity Zone Fund exists, to bring economic expansion and development.
And, in a way, the fund follows another lesson from Zell. Heneghan said, “He (Zell) may not be the first to figure it out. They call him the ‘grandfather of the REIT (Real Estate Investment Trust).’ He didn’t create it. But like he says, he made it sing. He listed three REITs…an office REIT, apartment REIT, and an equity lifestyle. And he created this institutional asset class, at least in the U.S. To him liquidity was value, created value for society, for investors.”
Zell didn’t create REITs, but he mastered them. Heneghan didn’t invent Opportunity Zones. But he hopes to use them to bring much-needed investment to small communities, while also delivering value to investors.
The U.S. Department of Housing and Urban Development defines Opportunity Zones like this:
“Qualified Opportunity Zones were created by the 2017 Tax Cuts and Jobs Act. These zones are designed to spur economic development and job creation in distressed communities throughout all 50 states, the District of Columbia, and the five U.S. territories by providing tax benefits to investors who invest eligible capital into these communities.”
RELATED: The Internal Revenue Service provides a video that explains opportunity zones. Watch that here.
Heneghan focuses his work with Opportunity Zones in the farmland space. And in that area, he sees a trend. It could sound a bit harsh for the iconic image of the small-town American farmer. But Heneghan doesn’t share it to be harsh. He shares it as a more efficient version of American farmland’s future.
For farmers -- whether they be hopeful newbies or multi-generational devotees – the odds and expenses can be enormous to survive and thrive. Heneghan believes that investors can reduce the financial pressures on farmers by providing some of the capital resources so the farmers can use their expertise and energy to operate the daily operations of the farm.
“There’s a lot of people waking up to the farmland asset class,” Heneghan said. “It’s a three trillion-dollar market…just in the U.S.”
And here again is where Heneghan relies on some of what he learned from Zell as he looks at the future of farmland ownership. “It’s a non-institutional asset class that Sam Zell would teach you is going to institutionalize over time. It’s more efficient for institutions to hold the farmland and rent it out than for multi-generational farming families.”
This is how Heneghan makes his case for transitioning to investor-driven ownership, aided by efforts like his Promised Land Opportunity Zone Fund: “You got two brothers and two sisters, and they split. Who farms the farmland? I think the solution is let somebody else own it…institutionalize it over time and then you become more efficient. And you’ll be able to feed a growing population.”
The growing population is part of the impetus for Opportunity Zones. The amount of active farmland shrinks each year in the United States as the population expands the need for additional homes, infrastructure, and businesses.
Opportunity Zones can preserve the land as farmland, as well as enhance its economic potential with the additional outside investments.
Investors aid in capital improvement on the farm in areas like irrigation, drainage, and storage. They can bring significant improvements. “It tends to be 10 to 30 percent of the value of the farmland you have to do,” Heneghan said.
In return, investors get capital gains benefits.
The Internal Revenue Service provides guidance on the tax advantages for investors in Qualified Opportunity Funds (QOF). “Investors can defer tax on the invested gain amounts until there is an event that reduces or terminates the qualifying investment in the QOF (an "inclusion event"), or December 31, 2026, whichever is earlier.”
The IRS adds this additional information regarding the increased benefits the longer the investor is involved:
The length of time the taxpayer holds the QOF investment determines the tax benefits they receive.
If the investor holds the QOF investment for at least five years, the basis of the QOF investment increases to 10% of the deferred gain.
If the investor holds the QOF investment for at least seven years, the basis of the QOF investment increases to 15% of the deferred gain.
If the investor holds the investment in the QOF for at least 10 years, the investor is eligible to elect to adjust the basis of the QOF investment to its fair market value on the date that the QOF investment is sold or exchanged.
RELATED: A corn, soybean, and wheat operation in North Carolina is expanding following the involvement of the Promised Land Opportunity Zone Fund. Yahoo Finance details the project here.
Investments and technology, Heneghan, feels will be keys to farmland’s future success in the challenging goal of feeding more people with less land.
“Technology is going to be a boon for farmland and farmland production. We’ve got fewer acres of farmland, and we’ve got more people to feed. But I think human society has proven that we can figure it out. There’s no need to encourage people to meet their maker! We’ll figure it out…if there’s enough ingenuity…the U.S. farmer and farm industry will figure out how to feed the millions and billions of people.”
