LandFund Partners has secured commitments to a planned direct investment platform following the final close of its fourth fund at $24 million late last year.
John Farris, founder of the Nashville, Tennessee-headquartered farmland manager, told Agri Investor there had been a recent surge in demand for direct investments carrying out LandFund’s strategy, which focuses on acquisition, management and improvement of row crop farmland in the lower Mississippi River Valley states of Arkansas, Louisiana and Mississippi.
Investor types including high-net-worth families, sovereign wealth funds, insurance companies and registered investment advisors have expressed an interest in the platform, said Farris. Such LPs, he explained, are interested in direct farmland investments that afford them greater control over tax structure, leverage strategy and crop selection.
An unnamed Asian institution was among three to commit to the direct investment platform. Potential investments will be distributed among direct investing LPs through a queuing system informed by a questionnaire, which assesses the characteristics of farmland investments sought be each investor.
Managing director Chris Morris said the move to establish a direct investment platform followed the firm’s experience working with a single investor in its third fund; an unnamed trust company that committed the entire $20 million held within that vehicle.
Part of what makes the Mississippi River Valley region well-suited to direct farmland investments, said Farris, is the presence of large contiguous tracts, often with one seller. The region’s diversity of crops, he added, also plays an important role.
“If you look at cotton and rice – which are two crops that are in the Delta but are not grown in the Midwest – those really provide some insulation for the farmers from the tariffs and trade war scenarios,” said Farris. “A farmer in the Delta is able to grow and sell five different products on the same farm. You get away from really being tied to the soybean/corn commodity complex.”
Following the close of an acquisition expected by the end of January, Fund IV will be fully allocated, at which point LandFund will begin investing for, and taking additional commitments to, the direct investment platform.
Fund IV is a five-year fund with return expectations of between 12 and 15 net annualized IRRs, Morris said, adding that plans call for annual distributions. In addition to continuing LandFund’s traditional focus on fundraising from endowments and family offices, Morris said the firm also secured commitments to Fund IV from funds of funds.
“We did not have much luck with LPs who had a very short-term, emotional reaction to the trade war,” Farris added. “For investors who saw the long-term trends in demographics and understood the long-term thesis – which is the kind of investors we want to target anyway – they understood this was a buying opportunity for us because of some of the pain that the trade war created for certain farmland owners.”
Farris cited an Arkansas property the firm unsuccessfully attempted to purchase several years ago, which was owned by a producer who preferred to keep the property within his family. Worries about the length of trade tensions between the US and China helped convince the owner to enter a sale/leaseback transaction with LandFund.
“An offer that was denied in 2016 and 2017 was accepted in 2019 and really rounded out our fund,” he added.