Can AgStar Save Rural Minnesota?

The third big issue AgStar is addressing through its investments is housing. While affordable housing is a pressing concern across the state, the devaluation and deterioration of housing stock are also serious problems in areas of declining or stagnant population. The Greater Minnesota Housing Fund has reported that up to 4,000 new affordable housing units are needed annually in greater Minnesota. And with rural demographics changing, immigrant workers need rental units.

“Most cannot come into this country and buy a house,” DeBriyn observes. “They need housing. They need education. They need financial education: How do I go about buying that first house? The multi-unit housing in a lot of these towns is not up to where it should be.” While financing apartment buildings isn’t currently in the pipeline for AgStar, it remains an option. For the near future, senior cooperative housing and assisted living facilities will likely be the bulk of the lender’s housing projects.

All this isn’t to say that everyone in rural Minnesota is welcoming AgStar’s move into infrastructure investment with open arms.

The Suspicion of the Banks

AgStar admits that since it has entered the rural development arena, it has been getting pushback from some local community banks. But it says that it has no desire to displace them.

“Local banks are critical to local communities,” Monson says. “We aren’t trying to replace that. We are offering them a resource [by offering to partner with them] so they can compete with U.S. Bank and Wells Fargo.”

Rural community banks sometimes are wary of AgStar and its resources. But "local banks are critical to local communities," says an AgStar executive. "We aren't trying to replace that. We are offering them a resource."

Some community banks lack the capital for rural development projects of the type that AgStar finances, and will refer such clients to AgStar. In such cases, both the bank and AgStar share the fees. AgStar provides funding by purchasing bonds, and the community bank also participates in the loan. “Together, we create capital capacity,” Monson says. “We bring regional financing. They bring local financing.”

While large financial institutions such as U.S. Bank and Wells Fargo can and do offer long-term fixed rates in rural areas, Monson argues that AgStar’s rural mandate gives it a major advantage over them. “We don’t swoop in, transact the deal at low, cutthroat rates with high fees,” he says. “We come in, try to understand the client’s needs, focus on the community’s needs, and build a solution around that.”

As for competing with the big banks, DeBriyn and Monson find the idea of going head to head with Wells Fargo or U.S. Bank a bit amusing. They say that many of the projects AgStar invests in are too small to be of much interest to much larger urban lenders. “We’re not leaving the rural areas and we are not coming into the Twin Cities,” Debriyn says. “U.S. Bank and Wells Fargo must look at the Twin Cities as being the bulk of Minnesota. That’s where all the people are. Our rural focus keeps us committed to the rural areas.”