Institutional investors active in the US Mid-South are likely to begin focusing on aggregating smaller parcels of land due to the limited availability of the large tracts that are their traditional focus, according to a local farmland broker.
The author of the second annual Mid-South Land Values and Land Trends report wrote that the past year has seen limited availability of investment-grade farmland, with very few transactions reported in the 1,000 acre to to 3,000 acre range.
At the time time, wrote William Stacey Gillison, the past year has also seen “unusually large” transactions involving institutional investors, including Westchester Group Investment Management’s purchase of 50,000 acres from local investor Gaylon Lawrence, Jr early last year.
However, Gillison told Agri Investor the Lawrence deal is “not something that will repeat itself very often, if ever”. He added: “Over time, as they [institutional buyers] acquire properties, they will have to do more of accumulation than they will buying in place.”
‘Delta-flipping days over’
“It appears that the Delta flipping days are over, for now at least,” Gillison wrote in the report, which describes land values and lease trends across Arkansas, Louisiana, Mississippi and Tennessee. “We now have a group of institutional investors driving the 1,000-plus acre farms, and individual investors/farmers, depending on capacity, driving the rest of demand.”
Gillison, president of Arkansas-based farmland management and consulting firm Agriworld and current president of the American Society of Farm Managers and Appraiser’s (ASFMRA) Mid-South chapter, told Agri Investor that Hancock Agricultural Investment Group, Fall Line Capital, Farmland Partners, International Farming Corporation and Oak River Farms – an affiliate of Bill Gates-linked agricultural investment vehicle Cottonwood Ag Management – are among the firms that have been most actively investigating farmland opportunities in the region of late.
“You have a fragmented ownership base and you have a consolidated investment base,” he said. “When they run into each other, it’s a cluster; it doesn’t work like they expect or want it to and it’s not going to.”
Whereas institutional buyers often need at least a 4 percent annual return on farmland, Gillison said, local owners of smaller tracts in key Mid-South markets are more willing to accept more modest returns. Westchester, for example, is currently concentrating on dealing with larger farmers with economies of scale that allow them to accept smaller margins, Gillison said, highlighting the Lawrence transaction as an example.
Oak River Farms, to reference another example, has hired local managers, Gillison said, for properties acquired both before and after Cottonwood’s bulk purchase of $700 million of US farmland from the C$456.4 billion ($341.5 billion; €304.22 billion) Canada Pension Plan Investment Board in late 2017.
“The Canadian stuff was, in my opinion, not the highest quality necessarily, not something I would recommend to my investors,” said Gillison. “The properties were big though, just not what I would consider top properties.”
Looking ahead, Gillison said the Mid-South region’s weather patterns and growing seasons mean the region is likely to see a move into more specialized production. While some smaller-scale investors have begun projects focused on vegetables and sweet corn, there has yet to be a large-scale investment in such production.
“Inevitably, we will – slowly but surely – transition into some of those specialty markets, whether it be organic or sweet corn or vegetables,” he said.
One benefit of crops that might become more common in the Mid-South region, according to Gillison, is that some – including row-watered rice – allow for lower labor costs.
The ASFMRA report provides breakdowns for land value and lease trends across 17 regions in Arkansas, Louisiana, Mississippi and Tennessee, with high-quality cropland, for example, valued at between $3,600 and $7,700 per acre across regions.