*adds further fund information and comment.
Buy-and-lease farmland fund manager LandFund Partners has launched its second fund targeting farmland in the Mississippi River Valley region of the US. The fund is targeting $20 million in equity and a further $30 million to $40 million in debt, according to John Farris, founder and president of LandFund Partners.
LandFund Partners II already has cornerstone commitments of $5 million and a contract to purchase its first property, 2,500 acres near Helena, Arkansas, according to a press release.
Cash rents are expected to return around 4 percent a year and debt will be secured at interest rates of around 3 percent to be paid down during the life of the fund and any balance paid on exit, Farris told Agri Investor.
“We target very high quality farmland so our rents haven’t gone down although some lower quality farmland has fallen,” he said. “I think that contrary to mainstream media, prices and rents for high quality farmland will remain high and are at worse leveling off. You have some lower quality farms and farmers who have been stretched and may have to turn back the land, but it’s rare and not like anything we saw in the housing crisis.”
The firm closed Fund I on $7 million in October 2013 after attracting commitments from 37 investors, according to Securities and Exchange Commission (SEC) filings. The fund is fully deployed across four properties and 2,400 acres near Moon Lake, Mississippi.
“Mississippi River Valley farmland is very attractive when compared to other regions. If you look at acreage costs and yields per acre in the Midwest and compare those prices to acreage costs and yields per acre in Arkansas and Mississippi, you will find that row crop farmland in our target region offers you much more value per acre,” wrote Farris in the press release.
Mississippi River Valley land values are closing in on Midwest values as agricultural production yields improve in the region with the help of seed technology and other agtech, Farris told Agri Investor.
The region also consists of very large tracts of land in comparison with the Midwest which is another advantage, he added.
LandFund charges a management fee of 1.5 percent which will include the farm management fee.
The fund is filed with the SEC under Rule 506(c), a relatively new regulation introduced as part of Jumpstart Our Business Startups (JOBS) Act of 2012, which allows general solicitation of accredited investors. The code contrasts 506(b), which the vast majority of private fund managers file under and which prevents solicitation of investors.
“The JOBS Act bill passed for reason,” said Farris. “I think it’s a great move by the SEC to allow us to communicate directly with investors and provide more transparency in what we are doing. I think that we are on the front end of a wave that will continue for the next 20 years.”
“I think, especially with younger people, that people want to know what they are investing in and we want the world to know about our investment, so that’s why we went down this route,” he added.
LandFund does have to make sure that the investors it approaches are accredited, “but that’s something we should be doing anyway”, said Farris. “That’s the only extra step you have to take.”
Fund II is targeting minimum investments of $100,000 and is targeting a slightly smaller investor base than US Trust, the private banking arms of Bank of America Merrill Lynch, that targets minimum investments of around $1 million.