David Baker on Off-Market Acreage Deals: Land Value Alpha Fund, Wells, Roads & Investor Income Streams

DAVID N. BAKER (00:00)

From an asset standpoint, we have a very high goal. We want to eventually raise a billion dollars. might take 10 years, but we want to raise a billion dollars for the fund. There’s plenty of capacity, so there’s plenty of land to buy. And most of our purchases happen to be, will happen to be, you know, off market because of our relationships, which are the best opportunities, but there’s plenty of land to buy.

Michelle Kesil (01:55)

Hey everybody, welcome to the Investor Fuel Podcast. I’m your host, Michelle Kesil and today I’m joined by someone that I’m looking forward to chatting with, David Baker, who has started the Land Value Alpha Fund, buying land and conducting infrastructure on the land. So excited to have you on the show today, David, to share everything that you’re working on.

DAVID N. BAKER (02:21)

Thank you, Michelle. Thank you for having me.

Michelle Kesil (02:22)

Of course, think our listeners are really going to take something away from how you’re approaching generating returns through your land solutions. So let’s dive in. First off, for those not yet familiar with your world, can you give the short version of what your main focus is?

DAVID N. BAKER (02:43)

Sure. Our fund, Land Value Alpha Fund, is focused on purchasing land in Northwest Montana and other tertiary markets in the Northwest. We buy the land, we conduct infrastructure on the land, such as building roads, pulling power, installing water wells, and then we hold the land for about an eight-year period, and then in year eight, we begin marketing the land for sale.

Michelle Kesil (03:07)

Awesome. How did you get started with this business?

DAVID N. BAKER (03:11)

Well, originally I was in other real estate such as self storage, buying facilities and fixing them up, doing everything that it takes to take, let’s say a broken down facility to at least a B, B plus class facility. Also did some home flipping many, many years ago and then started doing some development work on a personal ranch that I owned about 13 years ago.

And then started looking for myself for land in a resort community within the United States, mainly in the West, identified Montana, specifically the Northwest and the Kalispell area. And I met somebody who became my mentor about five years ago and started showing me how he conducted infrastructure and developed water rights on the land and began studying it both.

through research and reading and that sort of thing, and then practically watching what this mentor of mine was doing and studying the return profiles. And after five years, I decided, which was about six months ago, to launch Land Value Alpha Fund. And what struck me as incredible is that the returns are very, very high and the volatility is extremely low. And so that’s what compelled me to start the fund and how I got into it by having a mentor, being lucky enough to find

a very large land owner here in Northwest Montana who was successfully doing it himself, not in a fund structure, just by himself, and then also meeting a few other people like one of the largest land brokers in all of Montana, if not the largest. So I was fortunate to get that education, meet those people, establish those relationships, and that’s how I got into this.

Michelle Kesil (04:53)

Awesome, that’s so exciting and such a unique opportunity that you were able to dive into.

DAVID N. BAKER (05:47)

Definitely, I’m grateful for the opportunity and it’s super exciting.

Michelle Kesil (05:51)

Yeah, what have been some of the main keys that have allowed this business to run smoothly and operate successfully?

DAVID N. BAKER (06:01)

We just, we’re just launching the fund now. And I would say that there has to be a real understanding of all the component parts. So for example, you have to be very capable at financial modeling for, because if you not good at that, don’t have those quantitative skills, you could end up over-investing in the land and lowering the return profile. You have to understand project management. You literally have to understand.

What is a good road? What should the excavator be doing? What should the grater be doing? What should the roller be doing? You have to understand trenching and how that works and what type of conduit to use. So you really have to understand things like financial modeling, how to actually do the infrastructure properly. Same thing with water. You have to understand what sort of equipment the driller needs to bring to bear depending upon the location.

what’s going well, what’s not going well. So the combination of quantitative analytical skills and understanding really inside and out infrastructure and supplies, et cetera, is critical.

Michelle Kesil (07:09)

Yeah, absolutely. So how do you work with investors on this project?

DAVID N. BAKER (07:16)

So we’re a fund, we’re an evergreen fund. There’s no termination date. There’s no fund one, two, three, four. We’re one fund. And investors make an investment. They must be accredited investors. There’s a $100,000 minimum investment. They invest in the fund. They’re committed for 10 years. And then what happens is that we do valuations on a generally semi-annual basis. And depending upon the use of the property,

there may be an income stream that comes from the property during the 10-year commitment period. Alternatively, it may be all capital appreciation, but usually there’s some income component during the 10 years as well as capital appreciation. And I can describe that if you want to know more about that.

Michelle Kesil (08:06)

Yeah, absolutely. Go ahead.

DAVID N. BAKER (08:07)

So income sources are very varied. They could be things like leasing the land during the infrastructure and water rights creation period. Could be hunting leases. There’s carbon credits that we can acquire pretty much for all of our properties. So we can acquire carbon credits. There’s also wildlife subsidies and other subsidies grants.

credits and it depends upon how we’re using the land during the time that we own it. So there’s many, many income sources and we tend not to use all of the land. We’re not trying to build tract homes or a subdivision. What we’re trying to do is create absolutely the most value for the land with the least impact. And we don’t take any construction risk or mining risk.

So for example, there’s one property we’re looking at now and it has a lot of rock that’s really aesthetic rock that can be used for yards and homes and this and that. There’s no mining or anything. We just bring trucks in, load up the rock, move it out and sell it. That’s just an example. But there’s often many ways to realize income on the property during the whole period beside the strong capital appreciation.

Michelle Kesil (09:26)

Awesome. Are you currently working with investors that are local to Montana or how does it work outreaching to the ones that you’re looking for?

DAVID N. BAKER (10:11)

So we’ll formally launch the fund in the next few weeks when our website is launched. We’ve been working on everything for the last six months. Our offering is under SEC ⁓ 506C, so we’re allowed to do general solicitation. And we’re targeting investors, not just in Montana, but throughout the country because very few people have access to this type of an investment.

In fact, when we’ve done research and looked at the entire industry, we can’t find one other fund in the United States. There may be, we’re just not aware of it, that does this kind of thing. Purchase land, conduct material infrastructure, develop water rights, and then sell the land. So there’s not too many funds out there like us, but we are offering our fund to investors nationally.

Michelle Kesil (11:01)

Amazing. What are some of the main kind of modalities? I know you mentioned like the electricity and the water, but yeah, how do you like prepare this land and what does that process look like?

DAVID N. BAKER (11:15)

Great question, Michelle. So the first thing that we usually do, could be during escrow or it could be after, is usually it’s after, but there are some reasons before. First thing we do is we will do a survey of the land. doing a survey of the land is critical because it’s not just your corner pins and your boundaries around your property, but it also explains two other main things. One,

are there multiple legal parcels within the property itself? We’ve had one opportunity we’re looking at where it turned out there were six parcels in this one piece of land. So that’s very helpful. The other thing that it determines is what is your method of division? So if you want to divide the land up for various reasons such as a different use for different parcels within this property, you can understand your method of division.

by doing the survey. So those are some of the things that we first do. And then once we figure that out, then we ⁓ determine the use of the land. So what are we gonna use it for? Let’s say there’s one property and six parcels, maybe one can be an RV park, which makes a lot of sense when you’re putting in power and roads, et cetera. Another section may be,

for home sites, let’s say as an example, there’ll be one 160 acre parcel for a large estate, and then there may be multiple smaller parcels, 20 and 40 acres. So we plan out what we’re gonna do with the land after the survey, and then after that, then we figure out the chronology of things. Are we gonna use a brush or to clear out brush? What are we gonna do first?

and figure out the entire plan for the property. And then we need to divide it up into years of development because again, there’s seasonality here. So we plan everything during winter and we conduct infrastructure and water rights creation through wells, et cetera, during spring, summer and fall. When we’ve got our plan.

We start conducting the infrastructure over the years and then it’s a ⁓ matter of managing it each of the years for the infrastructure and the water rights. And then in year eight, we then start marketing the land for sale. If we sell the land earlier than year 10, that’s great. But the reason we start selling in year eight is we think that’s an optimal period. We can get through any downturn in a secular cycle and get investors back liquidity.

with their capital if they so desire and they don’t want to keep it in the fund to continue.

Michelle Kesil (13:57)

Awesome, sounds like you have a nailed down process and yeah, method to get this going.

DAVID N. BAKER (14:47)

I’ve had good mentors and learned a lot over the last several years. And we’ve done our first, our own first project as well, which has gone very, very well.

Michelle Kesil (14:52)

Yeah, that’s it.

Yeah, do you want to expand on what that looks like?

DAVID N. BAKER (14:59)

Sure. So we identified in 2000, mid 2023, we identified 148.5 acre parcel within the Kalispell zip code. And it happened to be the most valuable type of land, which is unzoned land. So you can do whatever you want. There’s no height restrictions for whatever you might want to do. There’s no setbacks from property boundary lines.

And that’s really, really critical to have the most latitude to do what you want on the land. It also has 55, 60 mile views to the north and south. So you can see 110 miles and it’s about a 200, 200 degree view. And so those are all very strong things. And then it has proximity to Kalispell. So it’s about an eight minute.

It’s a 12 minute drive down into the city. So it’s very rare to find a large parcel of land, unzoned, close to the city, incredible views, and it was all forested. So that’s what we found. And then we started the process, as I’ve described earlier, during our podcast here of figuring out what we’re gonna do, surveying it, and we decided to put in a certain road system and power.

and drill water wells. It turned out to be about a mile and a half of road and a mile and a half of power. And then drilling this well at the top of the mountain. And we went 1,700 feet deep, the second deepest well in Flathead County, and we were able to achieve 12 to 15 gallons a minute of water, which is plenty for the purposes of this land. And then there are five or six more home sites throughout the property, which we’re also developing some of those. So, and then

Usually when we do projects, we do them in a complete way. In other words, some people they’ll buy land and sell land or buy land and sell land with a well. We take things all the way. So we are doing on this project, we’re not only pulling the power, but we’re putting in 600 amp panels at the home sites, which is a lot of power. And so everything is plugged in place. So by the time we sell the land,

A prospective buyer could literally take their hairdryer or a power tool and plug it in at the top of the mountain and use the power. And they’d have water as well, not only the well, but they’ll have the well pump. So they’ve really got everything. Everything, so all they need to do is build.

Michelle Kesil (17:27)

Amazing, that definitely makes things a lot simpler for people.

DAVID N. BAKER (17:31)

Yeah, most people don’t want to deal with infrastructure and the complexity of it. And it’s just like anything in life, you have to really understand it to feel confident, which makes sense. And we take that headache away from prospective buyers because we’re really doing everything for them.

Michelle Kesil (17:49)

Absolutely, that makes sense. How are you looking to scale this business? What are the goals that you have for where it’s going?

DAVID N. BAKER (17:56)

From an asset standpoint, we have a very high goal. We want to eventually raise a billion dollars. might take 10 years, but we want to raise a billion dollars for the fund. There’s plenty of capacity, so there’s plenty of land to buy. And most of our purchases happen to be, will happen to be, you know, off market because of our relationships, which are the best opportunities, but there’s plenty of land to buy.

And,

That may not always be the case in 25 or 30 years, but right now there’s plenty of land to buy. And if you go to Zillow, for example, and you look at 10 acre parcels or 20 or 50 acre parcels or even 100, what you’ll see is that there’s less and less and less of those parcels available. And we’ve seen that over the last three years, but yet from an off-market standpoint, if you have the relationships, you can find literally 600 acre parcels

and 3,000 acre parcels to purchase. So we have a lot of capacity and the returns again are we believe are know incredibly high with very low volatility and that’s why you see you know Bill Gates and Jeff Bezos and others buying constantly buying land whether it’s forest land, agriculture land and there’s nothing really more valuable in our opinion than water rights but water on the land.

And so our goal is to take advantage of that capacity and raise enough capital to buy as much land as we’re capable of as the fund grows. In terms of, you’d also ask another part of the question in terms of it seems like scaling our business. So we’ll be hiring analysts as we need them. We’ll be hiring project managers as we need them. We’ll be hiring more marketing people.

For now, we have a team of about seven people, both marketing, analyst, investor relations, development people, and I’m sure we’ll be growing from there.

Michelle Kesil (19:52)

Amazing, that’s so exciting. Are you currently only doing this in Montana? Are you gonna expand to other regions as well?

DAVID N. BAKER (20:00)

Well, we’re starting in Montana because we feel it’s where the values are going to be driven the highest in terms of the return profile. know, nature, most beautiful, most peaceful, fastest growing micro city in the U.S. with Kalispell, 40 minutes away, 45 minutes from Glacier National Park. We have Flathead Lake, which is the largest freshwater lake in the Western United States.

We have two ski resorts. So we’re starting here for now because the opportunity is incredible. Over time, we’ll be expanding as we need to to places like Idaho, Washington, perhaps Northwestern Wyoming and Northern Utah. But we’ve got plenty of opportunity here. And so we’ll be here for a while.

Michelle Kesil (20:50)

Amazing, so exciting. So before we wrap up here, if someone wants to reach out, connect, learn more, where can people find you?

DAVID N. BAKER (20:58)

So our website is landvaluealpha.com and the main site will be opening up in about two weeks. In the interim, if they go to landvaluealpha.com, they can put in their email address and start receiving our monthly newsletter and we’ll be providing updates as well.

Michelle Kesil (21:17)

Perfect. Well, I appreciate your time, your story, and your perspective. Thank you for being here.

DAVID N. BAKER (21:22)

Thank you for having me, Michelle. Really appreciate it.

Michelle Kesil (21:25)

And for the listeners tuning in, you got value from this, make sure you’ve subscribed. We have more conversations with operators just like David, who are building real businesses. And we’ll see you on the next