Area One reaches C$120m first close on Fund IV

Toronto-headquartered farmland investment firm Area One Farms has reached a C$120 million ($91.5 million; €80.4 million) first close on its fourth fund.

Area One Farms Fund IV secured a C$100 million commitment from an unnamed Canadian institution when it launched in May 2018. Area One chief executive Joelle Faulkner told Agri Investor at the time the vehicle is structured as a 10-year closed-end fund targeting mid-teens returns.

Faulkner told Agri Investor this week that fundraising for Fund IV has concentrated largely on Canadian endowments, insurance companies, pensions and high-net-worth individuals. She declined to identify the source of C$20 million raised since last May beyond identifying investor types as endowments and saying the vehicle does not have a specific target.

“We’re hoping to more than double,” said Faulkner, explaining she expected to see that growth within a year.

Area One’s previous vehicle, Area One Farm Fund III, closed on C$130 million in July 2017.

Fund IV is designed to offer institutions – Canadian and otherwise – access to farmland investments within every Canadian province except Manitoba and Ontario, where local regulations limit the role of institutional investors.

In May 2018, the firm launched a separate vehicle, Area One Farms Fund V, structured to offer Canadian individuals access to farmland investments within Manitoba and Ontario while staying within the letter and spirit of the ownership restrictions.

Faulkner said Monday the firm had yet to begin raising that vehicle.

Area One’s strategy focuses on establishing long-term partnerships with Canadian farmers who are given the option of repurchasing as much of their properties as they can afford at the end of a 10-year joint venture. The firm highlights the environmental and social governance of its investments and that its focus on land conversion reflects a commitment to sustainable farming practices.

The firm currently has investments in Alberta, Saskatchewan, Manitoba and Ontario.

According to an April 2018 Harvard Business School study of Area One, Faulkner said up to 90 percent of Canadian farmland available for sale never formally comes onto the market but extensive local networks allow the firm to acquire properties suitable for conversions for as little as C$500 per acre.

The joint ventures Area One establishes with farmers typically aim to produce 15 percent returns by increasing the size of their land holdings by three to five times, according to the study. The study’s authors wrote that Area One expects investments that involve planting on previously uncultivated land to produce 18 percent annualized returns after five or six years.

“She [Faulkner] was willing to give up some land appreciation to the farmer, given that Area One received operational knowledge and the ability to buy good land cheaply in exchange,” wrote the study’s authors. “Through Area One’s JVs, both partners (Area One and the farmer) could access that land, buy it for lower prices and work with farmers who had better ideas regarding how to make local land more valuable, leveraging the farmer’s expertise.”