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Gladstone eyes Mid-Atlantic expansion after $7.2m acquisition

Director Joseph Van Wingerden says a desire to grow crops closer to population centers is among factors producing increased rents and investor interest in Virginia, Maryland, New Jersey and Pennsylvania farmland.

Gladstone Land acquired 939 acres of farmland in Delaware and Maryland in a $7.4 million transaction, marking its entry into the Mid-Atlantic region where the company plans to continue expanding.

“We had been looking at this region for a couple of years, trying to get in,” Gladstone director Joseph Van Wingerden told Agri Investor of a market he said includes Virginia, Maryland, New Jersey and Pennsylvania.

“It is an evolving area that is becoming one [made up of] more high-value properties. People are doing a lot more vegetables out there, trying to get closer and closer to the city market.”

The acres Gladstone purchased are spread across five parcels within 30 miles of each other, Van Wingerden explained, including one farm that forms part of the border between Delaware and Maryland. The Nasdaq-listed real estate investment trust entered into a 10-year lease on the properties with an unidentified vegetable and sod grower in the region.

The properties fall within Gladstone’s focus on assets producing high-value crops that are capable of securing rents in the $400 per acre range, said Van Wingerden. Among the crops Gladstone’s tenant plans to produce on the properties include sod, which is grass held together by a small layer of soil and is used for landscaping individual lawns, sports stadiums and elsewhere.

Most sod is used within about 70 miles of where it is grown, Van Wingerden explained, adding that producers often partner with vegetable growers and rotate into other crops every three to four years. In addition to servicing demand stemming from the growth of Washington, DC and surrounding suburbs, he added, Mid-Atlantic sod producers also often establish long-term supply contracts with universities and home builders.

“We thought covid might slow that market down; instead, the sod market has had probably the best year they have ever had, with people working on their houses. They have nothing else to do, so they are going to go work out in their yard,” Van Wingerden said.

Though institutional activity in the Mid-Atlantic is relatively limited and neighboring farmers remain the key competition among buyers, Van Wingerden said rising rents in the region have started to attract increased attention among investors. The fact that Gladstone’s entry came after a lengthy process of acquiring and combining a number of smaller properties, he added, highlights hurdles newcomers to the region could face.

“We will see more competition out in the Eastern Shore [of Maryland] and Mid-Atlantic over the coming years, but it faces the challenges with putting acreage together,” predicted Van Wingerden. “Lots of different sellers own it, a lot of people own estates and farms out there and they are not as motivated to sell as in other areas of the country.”

On Gladstone’s second quarter earnings call in early August, chief executive David Gladstone said the REIT had signed purchase agreements and was in due diligence on four acquisitions totaling about $70 million. The company announced earlier this week it had acquired 2,515 acres of Fresno County, California farmland that includes acres planted in pistachios and organic acres that are currently open farmland, for approximately $31.8 million.

Despite the recent transactions, both Van Wingerden and Gladstone highlighted delays in closing deals stemming from covid-19 related closures of local government offices and demands on producers’ time.

“The farmers who grow produce sold to the grocery stores are flat out working night and day, as much as possible … and it is impacting our ability to buy more farms,” said Gladstone. “The farmer is out, busy working on the farm, they do not have time to spend negotiating contracts.”

Gladstone’s 89,000-acre farmland portfolio is spread across approximately 150 farms in 12 states and was valued at $912 million as of the early August call.