Homestead Capital, a US farmland fund management firm, closed its first fund today at $173 million, falling short of the pool’s original $225 million target, according to filings with US Securities and Exchange Commission.
“Since this is our very first fund and it has generated strong interest from established institutional investors, we now want to focus more on deploying the capital and finding good investment opportunities instead of raising more capital,” Gabe Santos, managing partner and head of acquisitions and structuring at Homestead Capital, told Agri Investor.
The fund received support from a range of leading institutional investors, the majority of which are pension funds, endowments and foundations. LPs also include funds of funds, high net worth individuals and insurance companies, according to a press release.
Investors include Texas Teachers Retirement System (TRS), a US public pension fund; Meketa Investment Group, a full service investment consulting and advisory firm; FLAG Capital Management, a US equity and real assets manager; and the University of Alabama, according to Santos. SEC filings show there are a total of 19 investors in the fund as of April.
The fund aims to acquire farm investments in the Mountain West, Pacific, Midwest and Delta regions, which will be “the most attractive agricultural regions within the next 10 to 15 years, and are where our expertise can be best applied,” Daniel Little, managing partner and head of portfolio construction at Homestead Capital, told Agri Investor. The fund will construct a diversified portfolio of assets across different regions, crops, lease types, farm operators and certain other risk factors.
Little said around 70 percent of the fund will be invested into row crops and the remaining 30 percent into permanent crops.
According to its website, Homestead uses up to six different lease types in its buy-and-lease strategy: cash rent, flex lease, net share, fixed bushel, crop share and custom arrangements with tenant farmers.
Little told Agri Investor that four of the six types have been applied across eight projects the new fund invested across all four regions. The transactions happened over the past 12 months, with a total deal value of $60 million.
Santos said the type of lease applied is dependent on the opportunities and investments that come to the firm.
Homestead applies a value add approach to its investment decisions and management by improving land productivity and operation yields on the farms. There are four approaches to doing this, Santos told Agri Investor: making capital improvements, changing farm operators, changing crop rotations and negotiating a different variety of lease types.
“When we acquire a farm, we would like to bring in our own operator as opposed to just doing a sale and leasing back,” Santos said. “The way we enhance value is by partnering with very good operators.”
“We are proud that our first fund has generated such strong interest from established institutional investors. It reflects growing investor interest in farmland as an asset class and the opportunity it offers to produce attractive, risk-adjusted returns and act as a portfolio diversifier and hedge against inflation,” Little said in a statement.