Inside Area One Farms III

The C$130m vehicle, which closed last month, targets low double-digit returns through an innovative strategy focused on partnering with family farms. We talked to co-founder and president Joelle Faulkner to bring you all you need to know.

Toronto-headquartered farmland investment firm Area One Farms has closed its third fund on C$130 million ($103.5 million; €87.9 million), surpassing its C$100 million initial target.

The fund, Area One Farm Fund III, will seek low-double-digit returns through a strategy focused on forming joint ventures with between 10 and 15 Canadian crop and cattle farmers, the firm’s co-founder and president Joelle Faulkner told Agri Investor.

Designed to encourage the inter-generational transfer of farmland ownership, the partnerships give the farmer the option to buy back as much of the property as they can afford at the end of the 10-year joint venture.

“I didn’t start this to invest in land, I started this to figure out how do we create stronger family farms in a really capital-intensive climate,” Faulkner said, highlighting the firm’s efforts to enhance farmer capacity that have recently included the integration of farm management software and collective inputs purchasing. “Our investors find very significant value in partnering with someone who cares.”

Area One Farm Fund III drew investments from endowments, insurance companies, pension funds and high-net-worth individuals, with most coming from Canada, Faulkner said.

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During the course of the fundraising, which took place over more than a year, Faulkner said she found investors became increasingly educated and interested in agriculture. More than a third of Fund III investors elected to visit farms, she added, especially significant because their inconvenient locations often necessitated dedicating two days to the visits.

She noted that many investors have recently created real asset allocations that can accommodate farmland, often at the expense of private equity or real estate. Faulkner said that Area One’s focus on facilitating inter-generational transfer of farmland ownership has helped garner a positive reception.

The dynamics of helping keep farmland ownership inside families is different in Canada from the US, according to Faulkner, who cited a report from Statistics Canada that showed last year to be the first since 1991 when the number of Canadian farm operators under 35 years of age rose in absolute numbers.

While much of the ownership transition in the US stems from the retirement of farmers whose children are not taking over operations, the majority of farmers working with Area One are looking to utilize what Faulkner labels “third-kid financing” for families preparing for more than one adult child to play a role in the farm.

“Usually we see a parent who is 55 [years old], with three-plus kids already returned to the farm from university, and they are trying to figure out how, over the long term, to grow enough to accommodate them so that when he is 70 or 80 and wants to retire, they actually have big enough farms that they can be sustainable on their own,” she said.