Growth Farms’ new Australian Agricultural Lease Fund has been “inundated” with demand from potential tenants seeking to lease farms, managing director David Sackett has told Agri Investor.
The manager began raising for the fund in April and has already secured one cornerstone commitment of a minimum A$10 million ($7.38 million; €6.31 million) from Providence Wealth, a wealth advisory business. The upper fundraising limit for the fund is A$100 million, with first close set for the end of September.
The AALF will be a 10-year closed-ended lease trust targeting 10 to 12 percent IRR net of fees. It will target agricultural assets valued in the A$3 million to A$8 million range of diverse property types in different regions of Australia. Properties will be purchased and then leased to tenants to operate, providing full exposure to land appreciation while avoiding the year-to-year volatility associated with weather and price fluctuations.
“We’re aiming to go wider and smaller [in property size], and spread the risk,” Sackett said. The fund aims to cover at least four geographic regions and five sectors across approximately 20 assets. It will develop a portfolio of 80 percent land and 20 percent water based on current market conditions.
As well as the cornerstone commitment, Growth Farms has had strong interest from two investors, one European and one North American, who are looking to commit between A$10 million and A$30 million each, Sackett said.
On the leasing side, demand from farmers and potential tenants to lease properties purchased by the fund is “incredibly strong,” he said.
“It reinforces our view that there’s a demand for leasing in Australia,” Sackett said. “If a family farmer wants to build scale, they would normally have to be very careful and would only get a few opportunities in their career to do so. And it can be risky. This need to increase scale and a need for capital makes leasing attractive.
“Leasing is still relatively uncommon in Australia, because we’ve been much more focused on owning and operating here,” Sackett added. Tenants will have first right of refusal to purchase the property at the end of the fund.
The fund is targeting a gross annual lease yield of 4.5 percent, with leases typically operating on an initial three-year term. Tenants will have the opportunity to extend for another three years and then a final four once they have produced a solid track record.
Growth Farms currently manages agricultural assets valued at around A$430 million, more than A$30 million of which operating as leasehold properties. Its debut fund, a 10-year vehicle launched in 2014, closed in mid-2016 at an undisclosed amount.