Farmland LP, a US-based regenerative agriculture fund manager, has launched a $250 million real estate investment trust. This is the firm’s second investment offering after raising $50 million for a limited partnership fund that closed at the end of 2013.
Farmland LP decided to launch its second offering in a REIT structure in order to offer investors an easier way of accessing farmland assets with tax advantages, according to Craig Wichner, managing partner at Farmland LP.
“A REIT provides the protections of a corporation but without the double taxation,” he told Agri Investor. “REITs are also suitable for foundations and endowments, many of which are unable to invest directly in real estate because those investments will have negative tax consequences. This has kept many of them from investing in farmland in the past.”
“The REIT structure is good for international investors too,” he added.
The REIT will have a 10-year term with two, two-year extensions but Farmland LP is planning to list the REIT before the end of the term after acquiring land and increasing its cash flows. The REIT aims to buy conventional farmland that is returning 3.5 percent in cash flows each year and increase those to between 6 percent and 8 percent by converting it to organic, sustainable farmland. REITs distribute 90 percent of cash flows to investors.
Wichner hopes to attract more institutions to the REIT than Fund I, which attracted high net worth individuals for the most part and one institutional investor: Eco Trust Forest Management, a timberland fund manager that employs similar regenerative management approaches.
The REIT will span five geographies within the US compared to Fund I’s two: Northern California and Oregon. It will also be
registered under relatively new documentation at the Securities Exchange Commission, Rule 506(c), which allows the firm to market its offering to investors, but puts the onus of verifying they are the right type of investor onto the firm. “We are required to screen the investors much more,” said Wichner.
“You are effectively allowed to solicit the general public provided that you vet every single investor to ensure they are suitable,” he said. “I believe it was introduced as a means to try and stimulate the economy.”
Farmland LP operates a buy-and-lease investment model although each farmer works closely with the firm’s farm managers and also participates in a shared revenue agreement of varying degrees. The properties are currently growing a range of crops from alfalfa to tomatoes and are also grazing cattle and sheep; the aim is to rotate these agricultural uses over time. The conversion to fully organic will take some time not least because the land must be free from artificial inputs for three years before it is certifiable.
Watch out for a Q&A with Craig Wichner later this week as part of our Regenerative Agriculture series.