LandFund Partners has completed the first acquisition from its fifth fund, which its chief financial officer described as a short-term opportunistic vehicle seeking distressed farmland opportunities.
Managing director and chief financial officer Chris Morris told Agri Investor that LandFund drew $2 million from LFP Opportunity Fund to acquire the Quitman County, Mississippi property in mid-August.
“We didn’t call it Land Fund V because this is a very quick, in and out, opportunistic fund. It is really more of an in-between fund,” said Morris. He added that the firm had secured $13 million towards the fund’s $20 million target in approximately the past 60 days, and expects to reach its fundraising target by October and be fully deployed by Q1 2021.
“We anticipate that when we do launch a true Fund V in the coming years it will be a larger fund, but this is purely an opportunity fund that is picking up some of these smaller, distressed opportunities and also providing the opportunity for the opportunity zones capital gains money.”
Another element of the fund’s strategy is farmland investments held within opportunity zones (OZs), which are economically distressed communities within which investors are eligible for preferential tax treatment under the 2017 Tax Cuts and Jobs Act.
Regulations governing the program were only finalized in December, Morris said, which has reduced the ambiguity faced by investors holding capital eligible for tax incentives when invested in OZs.
LandFund’s strategy focuses on row crop farmland in states including Arkansas, Louisiana and Mississippi, all of which contain many qualifying areas. The firm hopes to help investors avoid too heavy of a concentration in real estate, which has been the focus of much OZ investment to date, according to Morris.
“They want to invest in the space [farmland], which is where the main motivation comes from,” said Morris of Opportunity Fund LPs. “But, if there is an ability to improve these assets in economically disadvantaged areas, then that is a cherry on top.
The LFP Opportunity Fund has an up-to-10-year holding period and will target a 2-4 percent annual dividend and an 11-13 percent net return at the fund level, said Morris. He described LPs in the fund as a mixture of high-net-worth individuals, registered investment advisors and smaller family offices.
“It is not the large institution that is having an asset allocation meeting in the summer that we are talking to for this fund. This is a quick, private equity ‘We want to find good deals’ type of investor,” he said. He explained that the impetus for the vehicle came from some of the firm’s long-term investors approaching LandFund about covid-19’s potential to create opportunities to acquire farmland from producers facing financial distress.
“It is not just commodity price or interest rates, but also volatility,” said Morris about the financial conditions facing producers. He highlighted hemp as a market of particular focus. “Farmers who were not appropriately hedged, or were hedged the wrong way, can get stomped out pretty quickly and be forced to take losses.”
The Mississippi property that LandFund acquired is indicative of the kind of small (relative to the region’s capacity) deals on which the firm expects to concentrate investments from the LFP Opportunity Fund, said Morris. LandFund became aware in May that the owner of the 450-contiguous-acre property was facing financial distress, he explained, and the resulting purchase price translates to about $4,500 per acre in what is the smallest deal the firm has ever closed.
“It is almost 100 percent precision-leveled, really good soil, so we jumped all over it,” said Morris, adding that the property is currently planted in soybeans and is likely to be switched into cotton next year.