The Impact of Vertical Farming on Commercial Real Estate

Editor’s Note: Today, we’re sharing an insight from income specialist and former real estate developer Brad Thomas. As Brad says, commercial real estate is in trouble. And these abandoned office buildings are looking for new tenants in a surprising place. Read on…

An empty office near you might soon turn into a farm.

Yes, that’s right. A farm.

As I’ve been sharing with my readers, it’s no secret that the office sector is struggling. Only about half of the offices in use before the pandemic are still occupied today.

That’s not enough to cover payments on the loans used to finance those buildings as interest rates rise.

So, office landlords have to make some difficult decisions.

Some are converting offices into apartments.

Others are getting more creative…

The owner of the Burnham Center in Chicago is reportedly negotiating a lease with the nonprofit organization Farm Zero. If a deal is struck, 70,000 square feet of empty office space could be used for vertical farming.

Vertical farming is the practice of growing crops in vertically stacked layers inside a building.

Today I want to show you why vertical farming is a technology that could completely change the way we grow food. I’ll also show you one way to own a vertical farm in your portfolio while collecting a safe high yield.

The Start of a Food Production Revolution

It may sound like science fiction. But it’s very real.

Vertical farms use artificial lights to help plants grow. That means that any place with a steady supply of electricity can be used to grow fruits and vegetables – an office building, a shipping container, or even an abandoned underground mine.

Since vertical farms don’t rely on the sun, they can grow a lot more plants in a small space by stacking them on top of one another.

A vertical farm can yield up to 350 times more than a traditional farm using the same amount of land. And it can do it while using 95% less water as well.

If vertical farms are located in major cities, they can cut down on transportation costs and deliver fresher food more quickly.

Plus, vertical farms can produce food year-round, no matter how bad the weather is.

And vertical farms don’t need to use chemicals to control pests and weeds, so their produce is cleaner.

Now to the many critics of vertical farming, it is a fair criticism to say that vertical farming is still a very new technology. It takes a lot of money to buy the equipment needed to start a vertical farm.

Not all types of crops can be grown in a vertical farm just yet. So far, vertical farms have been most successful in growing leafy vegetables and small fruits like tomatoes and strawberries.

And it takes a lot of electricity to keep the lights on to help the plants grow.

So while vertical farming has the potential to completely change the way we grow food, it’s still in its high-risk infancy stage.

But its potential to revolutionize the food industry and feed cities across the country with fresh produce has caught the attention of many well-known investors…

One Safe Way to Profit from the Vertical Farming Trend

The vertical farming company, Penty, now has the backing of well-known investors like Jeff Bezos and Softbank. And it has partnerships with big companies like Walmart, Whole Foods, and Driscoll’s.

Plenty is one of the leading companies in the vertical farming industry and hopes to take the technology to a profitable commercial business.

Source: CNBC

While this could prove to be monumentally successful, it is smart to note that vertical farming has not yet proven to remain profitable over the long term if energy costs increase.

But, there is a way to get involved with Plenty while hedging your bets and collecting a safe yield at the same time.

And it’s by investing in my favorite company: Realty Income (O).

Realty Income is a real estate company that’s traditionally known for owning buildings that produce reliable rental income, like grocery and convenience stores.

But earlier this year, Realty Income announced that it had entered a strategic alliance with Plenty to invest up to $1 billion in vertical farms.

I spoke with Jonathan Pong – who will be taking over as Realty Income’s Chief Financial Officer next year – to see how Realty Income will benefit from vertical farming.

He told me that Realty Income’s initial investment with Plenty is $42 million to develop a vertical farm in Richmond, Virginia. The farm will be able to grow 4 million pounds Driscoll’s strawberries each year, and the produce will be distributed to retailers across the Northeast.

As Plenty’s landlord, Realty Income will be collecting rent with a long-term lease contract. Though Pong was not allowed to share the yield they are getting on their investment, he assured me it was very attractive.

Realty Income will have the option to invest in a lot more vertical farms if Plenty is successful and continues expanding. Vertical farming is a small $6 billion dollar industry today. But it could quickly grow to a $50 billion industry over the coming years.

And if things don’t work out, Realty Income will still own a valuable industrial property located next to an Amazon distribution hub. That’s prime real estate that many tenants would want to lease.

Realty Income is known as “The Monthly Dividend Company.” It pays a dividend every month like clockwork. And it raises the dividend four times a year. It has kept its dividend growing for 30 years and currently yields 5%.

Realty Income shares currently trade at 15.2x Adjusted Funds from Operations. That’s a 14% discount right now from its historical average of 17.7x.

That means it’s a great time to invest in Realty Income. You’ll get a safe high yield that will keep growing and a stake in the lucrative vertical farming industry.

Realty Income is just one of the profitable plays in our Intelligent Income Investor portfolio.

While many investors pick companies that are directly impacted by potentially successful trends but not yet proven profits, at Wide Moat Research we invest in companies that will succeed no matter what happens over the long term.

To find out what our latest strategic play is, click here.

Remember, for all its potential monumental success, vertical farming is still in its infancy stage. Get in early but play it smart with companies like Realty Income that have proven to make a profit over the long term.

Happy SWAN (sleep well at night) investing,

Brad Thomas
Editor, Intelligent Income Daily