The recently launched sustainable livestock focused Gratitude Farmland Fund is about to close a deal on its first acquisition, Gratitude Railroad founder Eric Jacobsen has told Agri Investor.
The fund, targeting $40 million, has 763 acres of Georgia farmland with the potential for an 800 acre expansion, said Jacobsen, to be purchased through a $3 million “warehouse” vehicle. The fund is seeking to convert undervalued farmland for high-intensity cattle grazing.
The acquisition will be the first by GFF, which was launched this month by Gratitude Railroad as a joint venture with Blackdirt Capital, also founded by Gratitude Railroad manager David Nicola. Fund managers say they will “retrofit” the land to high quality pasture to increase biomass per acre.
Concentrating its acquisition strategy in the south-eastern US during the early phase of its deployment, GFF could then expand into upstate New York, or be followed by a further fund targeting north-eastern assets.
It is now looking for land investments between $2 million and $6 million, with possible bolt-on acquisitions, adding up to around 10 to 12 farms should the fund raise $40 million.
“In forming our strategy, we were really focused on the price of land as compared to productive capacity,” said Jacobsen. “We also believe availability of water tends to reduce risk in the long term. Given those priorities, we found the most attractive places to invest are the south-east, particularly in and around Georgia, and in New York near the Adirondacks.”
The introduction of intensive grazing on former croplands for high-value organic grass-fed beef and dairy will increase production value, said Jacobsen. Proponents of intensive grazing say the technique builds soil health and productivity over time, qualities which Jacobsen says will accelerate value appreciation of the land and meet their sustainability investment mandate. In high-intensity grazing, trampled plant matter and concentration of manure is believed to naturally return more nutrients to the soil, while sequestering carbon.
Australia currently dominates the grass-fed beef sector, in large part because grassland is cheap and abundant. But Jacobsen said operating in the US offers a competitive advantage, saving on transport costs for domestic consumers.
“There’s so much demand for grass-fed beef that we’re not concerned whether we have a market to sell it at a price where we can make a profit. But ultimately we need to concentrate on reducing our costs as we build scale, so that we can continue to be more competitive over time,” said Jacobsen.
“We have to think about our land and production relative in location to slaughterhouses and packing facilities [and] be mindful of transportation costs.”
This emphasis on building efficiencies could mean integration with slaughter, packing, distribution and branding companies. However, any exposure further down the value chain would likely come through a different fund.
“We have tried very much to keep this … a pure land fund, because of the benefits and risk profile of investing in land. But there’s no question over time [Gratitude Railroad] or someone [is] going to have to continue to invest in the whole value chain,” said Jacobsen. “As that [value chain] is built up, I think our value proposition for the land fund is going to get better and better.”
Gratitude Railroad, founded in 2013, acts as an incubator for investment funds focused on addressing environmental and social problems, while also delivering financial returns. The firm provides seed capital, advisory services and direct co-investment with participating funds. The firm has invested about $5 million in Gratitude Farmland Fund, which it launched as a joint venture with Blackdirt Capital in August this year. The fund is seeking $40 million from family offices, high net worth individuals and institutional investors.