LandFund reaches $12m first close amid institutional run towards the Mississippi River Valley

Nashville, Tennessee-headquartered farmland manager LandFund Partners has reached a $12.1 million first close on its fourth fund.

According to a regulatory filing shown Friday, LandFund Partners IV has secured commitments of at least $50,000 from 47 investors since its first sale in late April.

LandFund managing Partner Chris Morris said that investor demand for the vehicle has exceeded the firm’s expectations and allowed it to raise more than one-third of the total target in less than 60 days. The firm expects a final close will be achievable in “the next few months.”

“If someone really wants a benchmark-type property, they are going to have to step up and pay for it”
A broker active in the Mississippi River Valley

“Everyone is accepting that we are in a late-cycle economy, and it’s been very well-documented that every recession for the past 50 years has been preceded by a pretty dramatic rise in commodity prices,” Morris told Agri Investor. “For us and our investors, being able to own a real asset with a value-add strategy that is also providing that commodity price is something that people have really grabbed on to.”

The firm also announced it has purchased the first property with Fund IV capital and has plans calling for investments to improve the irrigation infrastructure on the property.

Morris said that the 620 acre-property is located in Arkansas, close to an existing LandFund property, and devoted to growing soybeans, rice, wheat and corn.

‘Extremely tight’ market

In February, LandFund founder and president John Farris told Agri Investor that Land Fund Partners IV had raised a total of $5.5 million from the firm’s management and existing investors. He said the vehicle had a target of $30 million, was seeking pledges from family offices, small university endowments, high-net-worth individuals and family trusts and aimed to generate returns of between 10 and 12 percent.

LandFund manages more than $125 million in Mississippi River Valley farmland, and in February Farris described the firm’s strategy as focused on finding properties well-suited for conversion through precision-leveling, the addition of irrigation systems and, in some cases, conversion to organic production.

Farris also described how the region’s endowment of large contiguous farmland tracks had started to quietly attract investors from across the country, including GMORR, International Farming Corporation and TIAA-affiliate Westchester Group Investment Management.

“Everyone is accepting that we are in a late-cycle economy”
Chris Morris, LandFund

Later that month, Agri Investor reported Westchester had purchased a 50,000 acre farmland portfolio in the region from entities affiliated with real estate investor Gaylon Lawrence Jr.

A farmland broker active in the Mississippi River Valley region told Agri Investor last week that the market is currently “extremely tight” with practically no high-quality farmland currently for sale publicly. In response, the broker’s firm has been more focused on matching their investors with farmers who might be convinced to sell.

“The cap rate you can generate on that [Mississippi River Valley farmland] is down probably just under four percent,” the broker said. “A lot of people want to buy it, they just don’t want to get down into that three-and-a-half [percent cap rate] range category to make it work.”

The broker described a recent situation where a farmer was considering a sale/leaseback, though they said the structure was still not commonly in use in the region’s farmland market.

Private sales

In late March, Hertz Real Estate farmland broker Doug Hensley told Agri Investor that continued pressure on profit margins had helped bring about an increase in sale/leasebacks in the Midwestern farmland market. Last month, University of Illinois professor and director of the TIAA-CREF Center for Farmland Research Bruce Sherrick added there was currently an evident opportunity for institutional investors to provide such capital to farmers.

The Mississippi farmland broker said in recent years there has been a decreasing portion of the region’s farmland for sale being offered publicly, a change he attributed in part to the proliferation of investors interested in the region.

The current market for high-quality farmland, the broker said, stands somewhere between $5,500 and $6,000 per acre, thought he noted many financial buyers have decided to continue to wait for capitalization rates on properties to rise closer to 4 percent.

“The very high-quality stuff: definitely on the plus side of five [thousand dollars per acre], 55 or so. The thing is there’s just nothing out there,” he said. “If someone really wants a benchmark-type property, they are going to have to step up and pay for it.”