MIP6 PEOPLES COMPANY
[P1-DROP] MIP6 Application: Peoples Company DROP: US Agricultural Real Estate
This MIP6 Proposal will finance an special purpose vehicle (“SPV”) established by Peoples Company or owners or affiliates thereof (the “Issuer”) to acquire U.S. farm properties. Upon acquisition of a farm property, the Issuer will be the legal owner of the farm property and will hold the title to each farm property.
This is the sixth MIP6 application to use Centrifuge’s model.
1. Who is the interested party for this collateral application?
The Issuer will source and manage farm properties. It will create and own non-fungible tokens (“NFTs”) that represent each farm property title. It will lock their NFT’s into the Tinlake protocol to serve as collateral. The Issuer will pool its assets and offer ERC-20 tokens to investors, specifically DROP Tokens and TIN Tokens.
Centrifuge: will provide the technology and framework for bringing real-world assets to MCD. The main contact on Tinlake for the application is Jason Jones (@Jason, [email protected]) as well as Lucas Vogelsang (@spin, [email protected]) of Centrifuge.
2. Provide a brief high-level overview of the project, with a focus on the applying collateral token
Peoples Company farmland real estate is part of Centrifuge’s real-world assets series. The Issuer will utilize MCD as a revolving line of credit to purchase new farmland. The Issuer expects to draw Dai up to its assigned debt ceiling in roughly six to nine months and will seek an increase to its debt ceiling once 75% of the initial line amount is disbursed.
Farm land assets have the following characteristics:
US Farmland offers several investment benefits including portfolio diversification, low to negative correlation with public equities and positive correlation with inflation. There is more than $3 trillion worth of farm real estate in the US and close to 400 million acres of cropland. The farmland asset class has been one of the best performing asset classes over the past twenty years.
The following describes an exemplary use case
In January 2020, SPV Larsen Farm, LLLP (the “Farm”), an affiliate of Peoples Company, acquired an 80-acre property located in South Central Iowa just outside of the Des Moines Metro area for approximately $320,000. The asset includes 70 acres of land suitable for transition to tillable farmland and a 5-acre building site. The Farm is eligible to receive USDA organic certification to produce organic fees grain products. Peoples Company owns and manages the farmland.
Located in Madison Country, Iowa, the Farm was enrolled in a Conservation Reserve Program (CRP) through the Farm Service Agency in 2009. Due to there being no application of synthetic chemicals or fertilizer on the Farm throughout the ten-year duration of enrollment, the Farm became eligible for organic production immediately after exiting the program in October 2019. The Farm is eligible to grow organically certified corn, soybeans, oats, and edible beans. Organic certification is actively being pursued by the Farm through International Certification Services, Inc.
Being in the heart of the Corn Belt and just outside of the Des Moines Metro, the Farm is highly sought after by farm operators. This location is associated with strong agricultural production and therefore experiences consistent tenant occupancy.
The Farm has been transitioned to tillable farmland through a ground preparation process that entailed controlled burning, clearing trees and brush, and discing the land to prepare for planting, while improving soil health and stimulating growth. Opportunities exist for yield optimization through soil drainage improvements that will improve crop health and provide better condition for completing field operations.
This collateral application uses the Centrifuge model and proposes the DROP token [P1-DROP] of Peoples Company’s asset pool as collateral. A detailed overview of Centrifuge’s technology stack can be found here.
While the specific details of the legal setup are forthcoming, at a high level Peoples Company will form its own SPV for the acquisition of farm properties. The SPV will enter into a service agreement with Centrifuge to get support from Centrifuge while using Centrifuge’s open and decentralized infrastructure. The SPV will tokenize the titles of each of its farm properties into NFTs and will add those NFTs to Tinlake as collateral. The SPV will utilize Tinlake to issue P1-DROP and P1-TIN backed by the pool of NFTs that are locked in Tinlake. Peoples Company will purchase the P1-TIN tokens and will lock the P1-DROP tokens into a MakerDAO Vault. Find the documentation to the two-tranche structure here.
3. Provide a brief history of the project
About Peoples Company
Peoples Company’s history began in the 1960s and was established in the farm management department of Peoples Trust and Savings Bank in Indianola, Iowa.
In 1972, the farm management department and real estate brokerage separated from the bank into what is now known as Peoples Company. In 2002, the current ownership team acquired the majority interest of the company.
Peoples Company operates one of the leading farm land brokerages in the country, with annual transaction volume of over $400 million. Peoples Company offers land brokerage, land management, land investment, and appraisal services in 26 states throughout the US. The company has consistently been named a “Top Brokerage in America” and a “Top 30 Auction House” by the Land Report, an industry-leading publication targeted toward the American landowner.
Centrifuge has built a technology solution for businesses such as Peoples Company to use their assets as collateral, turn them into fungible ERC20 tokens and borrow money against them through DeFi protocols. With Tinlake Centrifuge has over 1M DAI locked in a number of different asset pools since the launch of v3 end of October and deployed capital from over 100 real people around the world.
Over the past months we have worked closely with the different domain teams to onboard the first two of our partners, New Silver and ConsolFreight shortly. This MIP6 application is the sixth MIP6 application to use Centrifuge (see previous applications: NS-DROP, CF-DROP, HTC-DROP, PC-DROP, KF-DROP) and there are more in the pipeline. We intend to grow DeFi massively and generate DAI from many different uncorrelated asset originators. Our goal is that Maker will be backed 30% by real word assets by the end of 2021.
4. Link the whitepaper, documentation portals, and source code for the system(s) that interact with the proposed collateral, and all relevant Ethereum addresses. If the system is complex, schematic(s) are especially appreciated.
Peoples Company mainnet deployment will be accessible via tinlake.centrifuge.io
5. Link any available audits of the project. Both procedural and smart contract focused audits.
Centrifuge has conducted several audits of its technology stack. The audits can be found here:
6. Link to any active communities relating to your project.
7. How is the applying collateral type currently used?
The SPV will be financed by issuing DROP Tokens for 90% of the net asset value of the pool of NFTs plus cash on hand (collectively “Pool Valuation”) and TIN Tokens for 10% of the Pool Valuation.
The Issuer expects to launch with 10 million Dai increasing to 20 million Dai when 75% of the initial line amount is disbursed. It will initially seek 9 million Dai from MakerDAO, increasing to 18 million.
The Issuer expects to invest in farmlands that have an average value of $500,000 to $1,000,000 and expects to hold farmland over the long period of time, potentially up to 30 years. Upon the sale of a farm property, the Issuer will repay the outstanding balance drawn against the farm property NFT and accrued interest thereon. All of the farms in the pool will have similar risk characteristics including high quality soil productivity, soil profile, slope characteristics, water availability and weather conditions.
The Issuer will provide MakerDAO with a put option, which it can utilize if it ever needs to liquidate. After the first 6 months, MakerDAO will have the right, but not the obligation to sell its ownership of DROP tokens to the Issuer, in whole or in part, upon 90 days notice. The Issuer will work in good faith on a best efforts basis to find one or more buyers for farm properties and will only purchase the DROP tokens from MakerDAO if it successfully sells farm properties to a new buyer. If the farm properties are not sold within 90 days, then the Issuer will have another 90 days to sell the farm properties. This process will continue until the Issuer has fulfilled the MakerDAO’s sell request. The Issuer has a proven long term track record of selling farm properties. Peoples Company completes about $400 million in farm auctions per year, which is about 400 transactions per year. Peoples Company average time to sell a farm is 90 days.
The Issuer is able to obtain bank financing for a revolving line of credit at about 3.26% fixed with an 80% loan-to-value or 2.67% fixed with a 50% loan-to-value (as of November 2020). The Issuer will seek a lower Stability Fee from MakerDAO because 1) the Stability Fee is variable versus the bank rates, which are fixed rates, 2) MakerDAO has a put option, and 3) the Issuer will be taking early stage risk versus taking a loan from the bank.
8. Does one organization bear legal responsibility for the collateral? What jurisdiction does that organization reside in?
Peoples Company will bear legal responsibility for the collateral.
This SPV structure creates a bankruptcy-remote entity whereby owners, debt holders or interested parties of this newly created SPV are left unaffected by the parent’s financial, operational and/or legal health.
9. Where does exchange for the asset occur?
The SPV enters into a subscription agreement with lenders who receive DROP from the SPV in turn for providing DAI. The DROP token can be redeemed against the cash flows of the underlying collateral directly from the SPV by any DROP holder. This is ensured by the Tinlake smart contracts and the primary way for interacting with these tokens.
10. (Determined by Legal Domain Team) Has your project obtained any legal opinions or memoranda regarding the regulatory standing of the token or an explanation of the same from the perspective of any jurisdiction? If so, those materials should be provided for community review.
We do not have any materials we can provide at this time.
11. (Determined by Legal Domain Team) Describe whether there are any regulatory registrations for the token and provide related documentation (including an explanation of any past or existing interactions with any regulatory authorities, regardless of jurisdiction), if applicable.
The issuance of DROP and TIN tokens is handled via Securitize, with AML/KYC procedures and compliance with US securities guidelines. Investors based in the US must be accredited investors (generally defined as having a net worth of at least $1 million). The SPV issues DROP tokens for the Maker vault, and Centrifuge will post legal discussion about potential implications for Maker.
12. (Optional) List any possible oracle data sources for the proposed Collateral type.
The Issuer will provide annual appraisals for each farm property, which will be used to value the NFTs.
If an appraisal submitted by the Issuer shows a decrease in the total appraised value of a farm property then the value of the NFT will be marked down. If, as a result of such mark down, the outstanding value of the DROP Tokens increases to more than 90% of the Pool Valuation, then Tinlake will lock the Issuer from drawing any further Dai and will lock the TIN investors from redeeming. The Issuer may restore balance and unlock Tinlake by: (1) buying additional TIN tokens so that the proceeds will increase the cash reserve in an amount necessary to cause the value of outstanding DROP Tokens to be no more than 90% of the Pool Valuation or (ii) redeem DROP Tokens in an amount necessary to restore the value of outstanding DROP Tokens to no more than 90% of the Pool Valuation.
If an appraisal submitted by the Issuer shows an increase in the total appraised value of all farm properties, the Issuer may: (i) draw additional amounts from the Financing Line to be funded by DROP Tokens up to the amount that would cause the total outstanding DROP Tokens to equal 90% of the Pool Valuation or (ii) withdraw TIN Tokens to restore the ratio of the value of the outstanding DROP Tokens to the value of the outstanding TIN Tokens to 90/10 or (iii) do nothing, which will effectively over collateralize the pool of assets by the excess value of the TIN Tokens.
13. (Optional) List any parties interested in taking part in liquidations for the proposed Collateral type.
The Issuer will provide MakerDAO with a put option, which it can utilize if it ever needs to liquidate. After the first 6 months, MakerDAO will have the right, but not the obligation to sell its ownership of DROP tokens to the Issuer, in whole or in part, upon 90 days notice. The Issuer will work in good faith on a best efforts basis to find one or more buyers for farm properties and will only purchase the DROP tokens from MakerDAO if it successfully sells farm properties to a new buyer. If the farm properties are not sold within 90 days, then the Issuer will have another 90 days to sell the farm properties. This process will continue until the Issuer has fulfilled the MakerDAO’s sell request. The Issuer has a proven long term track record of selling farm properties. Peoples Company completes about 400 farm auctions per year worth over $400 million. Peoples Company average time to sell a farm is 90 days.