Black Sea Agriculture, a buy-and-lease investment manager, has received two soft commitments from US high net worth investors totalling $1.5 million for direct investment into projects in Eastern Europe, according to Jeffrey Notaro, principal and executive officer of Global Quest, the parent company.
A US institutional investor is also doing due diligence for a potential $2 million to $5 million commitment to the Black Sea Agriculture Fund, an open-ended vehicle that launched in 2012, added Notaro. It raised $1.65 million with commitments from 10 high net worth investors and is fully deployed.
Black Sea focuses mainly on farmland investments in Bulgaria.
Direct investments are a popular method of agri-investment for some investors that do not want to be locked into a fund structure and who have other ambitions in the sector, said Notaro.
“If an institution wants to dictate its own holding period that is easily workable with a direct investment,” he said. “They acquire the land and lease it and then have complete control over the timeframe. We can also work on different structures and opportunities to suit their needs; for example one potential direct investor is a farmer that eventually wants to operate in the region.”
Black Sea charges a fee for finding the investment, drawing up the local business structure — necessary for foreigners to own land in the region — and the firm will also receive a portion of the leasing income as it handles the relationship between the farmer and the investor owner.
The firm is also fundraising among family offices, high net worth individuals and funds of funds. It some cases it is speaking to real asset portfolio managers; Notaro believes that having a real assets bucket makes it easier for investors to target agriculture.
The fund returned 11.12 percent in 2012 but posted a negative return of 1.04 percent in 2013 making it up 9.96 percent to date.
Bulgarian farmland consists of several small plots of land; a typical feature in post-communist states where land was distributed to the farm workers. For this reason it is very cheap, according to Notaro, and presents an attractive aggregation opportunity. Land properties in Romania are a big larger than in Bulgaria, he added.
The Northeast of Bulgaria has a more serious farming background than elsewhere in the region with good quality soil and access to seaports. While land elsewhere is unlikely to reach the value of land in this area, the gap will close providing an attractive buying opportunity, said Notaro.
Black Sea charges a 2 percent management fee for investments under $1 million — 1 percent for anything more — and a 20 percent performance fee based on net profits. It has not used any leverage yet and has a 50 percent maximum. Investors are locked up for one year and can redeem every year. The fund is valued three times a year.
Notaro and his partner, David Florov, started looking at the region from a real estate standpoint believing in the growth potential of countries like Bulgaria. Global Quest, the parent company, currently manages two real estate investment funds and other direct investments in the asset class. Florov’s family background in Bulgaria was another factor, according to Notaro. They met working at the New York-based brokerage firm Vision Financial Markets where they dealt in commodities.