Nashville-based farm investor LandFund Partners hopes to raise up $70m from US institutions for its third fund, after investing its second fund with $7.5m of commitments into 2,500 acres of Mississippi River Valley farmland.
“The plan is to make fund three big enough for institutional investors,” LandFund Partners founder and president John Farris told Agri Investor. Based on investor demand and the firm’s pipeline of over 11,000 acres in the Mississippi River region, Farris is targeting between $35 million and $70 million of equity commitments – an increase of roughly five to almost ten times the capital raised for the second fund. LandFund intends to raise the capital over the next six to 12 months, he added.
With leverage at around 30 percent loan-to-value, the firm hopes to have between $50 million and $100 million to invest in buying multiple farms across the southern region. It is considering establishing the new fund as an open-ended vehicle to allow the firm to continue raising capital for farm deals, with liquidity options for investors wanting to exit.
The plans follow the investment of the second fund into a single deal for 2,500 acres of high-quality, irrigated farmland in eastern Arkansas. The deal takes LandFund’s portfolio to 4,800 cultivated acres let to farmers in the Mississippi River Valley, worth about $25 million. LandFund is targeting gross returns of about 15 percent for investors, based on a 4.5 percent cash yield from rents, an estimated 6 percent increase in land values, and the effect of leverage on its investment.
The group tends to find off-market investments and avoids increasingly common auction processes, as the region begins to attract investors and farmers who had previous focused on land in the Midwest farming belt. The price of high-quality land in the Mississippi region is roughly half that of comparable assets in the Midwest, but those values are steadily catching up, presenting an attractive investment play for farm buyers, Farris said.
“Input costs might be a little bit higher, and crop yields might be fractionally lower, but it doesn’t account for a 5 percent difference. Convergence in price is happening,” Farris said.