Underwriting an almond block where the entire return depends on a water allocation

Get a current well test and a video survey of the casing before anything else. Four years is long enough for the water level to drop and for the pump to lose efficiency, and casing problems develop on the same timeline. A well that shows 900 gpm on paper and 600 gpm in reality changes which years you can farm at all. That test costs a small fraction of your due diligence budget and it is the only way to learn what the primary source actually does.

Also ask who has been farming it and whether they stay. A block like that in transition years is where trees get stressed and never fully recover, and the operator, more than the seller, is the person who knows what happened in the 0.6 acre foot year.

Being blunt about the structure. Your delivery history averages 1.75 acre feet against a nominal 2.4, so the allocation is really about 73 percent reliable on that sample, and two of six years were catastrophic. Model the deficit year as the base case rather than the exception. In a 0.6 year you need roughly 3 acre feet from the well across 118 acres, which is 354 acre feet in a season. Work out whether 900 gpm running the hours you can actually run it gets there, then work out the power cost, because pumping that volume at depth is a five or six figure line by itself. Then the part you cannot underwrite. Groundwater management regimes are state specific, and in some states basin level allocation frameworks are being implemented on multi year timelines, so what your pumping is worth in 2030 may be a number that has not been set yet. Nobody in this thread can tell you what that number will be, and any seller or broker who does is guessing. What you can do is find out what stage that specific basin's plan is at, whether allocations or fees have been proposed, and whether the parcel has established pumping history that matters under the local framework. That is a conversation with a water attorney in that state, and it is worth the fee relative to 3.24 million. On your comparison, two more small buildings you understand will beat a break even orchard with unpriced water risk, unless you are buying the water and treating the trees as incidental.

Sextant's last line is the deal. Are you buying trees or buying water? If it's water, the eleventh leaf almonds are a cost center you inherited and you should be pricing the tear-out.

New to all of this so genuine question. What does eleventh leaf mean, and is that old or young for almonds?

@megan_doyle15 leaf years count growing seasons since planting, so eleventh leaf means the eleventh season. Almonds typically start bearing around year three, hit full production somewhere in the high single digits, and productive life often runs into the low twenties depending on variety, rootstock, and how they've been managed. So eleven is mature and productive with maybe a decade of useful life if it's been treated well, less if it went through those short water years dry.

The stale well test is the cheap fix. The expensive unknown is what those two short years did to the trees. Stressed almonds carry the damage forward in reduced spur wood and it shows up in yields for years afterward. A seller's yield range given as a range is a range for a reason, and the huller receipts by year should get matched to the delivery history. If the low end of that range lines up with a known drought-year allocation, that's explicable. If yields have drifted down since, the buyer is looking at a declining block.

Ask me about scope creep and I'll tell you this deal has it built in. Well work, possible pump replacement, irrigation system upgrades if it's still on old drip, and a replant decision inside ten years. None of that is in the 27,500 an acre. On my renovation projects the pattern is always the same: the item you defer during diligence becomes the item that sets your actual basis.

The seller carry is the detail worth sitting with. If a seller is willing to hold paper on an asset with unpriced water risk, that says something about how confident they are in getting the full asking price in cash from someone else. Worth finding out how long the block has been marketed.

@raj_mehta14 seller carry can also just be a tax and timing preference on the seller's side, so it doesn't necessarily read as distress by itself. It's still worth asking how long the property has been listed and whether it's been in escrow before and fallen out. That's the question that tends to answer itself fast.

Cairn, multifamily investors learn from units breaking, and that's why this one is worth slowing down on. Multifamily failures tend to be small, frequent and legible. A permanent crop failure is infrequent, expensive and biological, and it often shows up two seasons after the mistake was made. There is no feedback loop built up here yet. For anyone who still wants exposure to this category, the version where the investor is the landlord and someone else takes the farming risk sits much closer to a multifamily skill set. It pays less. It also does not require becoming a grower at a distance.

Cairn already knows the answer here. Every reply about the trees is about a cost, and the only argument for the deal is that the water might be worth more later. That's a different investment than the one the broker described.