Romanian farmland interest reflects managers’ risk rebalancing – Brown & Co

Institutional investors are expressing increased interest in Romanian farmland due to reassessments of return expectations and risks in other markets, said a partner at real asset broker Brown and Co.

Adam Oliver told Agri Investor his firm’s tour of ag investment opportunities in the country attracted institutional farmland managers, as well as more traditional respondents like family office and high-net-worth-individual investors.

Some established managers are investigating in Romania as part of an effort to diversify risks and supplement 2-3 percent annual returns from US farmland investments as relevant funds near the end of their lives, according to Oliver.

“Many people think there is still another 10 or 20 percent to come off the US market, given the state of the agricultural economy,” he said. “Therefore, [institutional managers] are not wanting to make further allocations into the US, but would like to make some allocations into a developing market, where you are looking at 4-6 percent type of returns, to give a ‘kicker’ to the overall portfolio.”

Oliver added that Central and Eastern Europe have become promising locations for the 5-10 percent maximum allocation most managers consider appropriate for developing markets within a farmland portfolio in light of challenging developments in markets such as Brazil and Argentina.

Within Central and Eastern Europe, Oliver added, political conditions effectively eliminate Ukraine and Russia. Interested investors tend to concentrate next on countries with the political and regulatory stability provided by European Union membership and low land prices and capable operator base necessary to produce returns from leased farmland.

“Hungary is a basket case because of Viktor Orban and the political situation there. Poland is now almost super-developed as far as prices and overall development are concerned and yield compression has occurred in a very significant way,” said Oliver, who lives in Poland and operates throughout the surrounding region.

“It’s almost by a case of selection, or de-selection as it were, that you end up saying ‘Romania genuinely is of interest for all of those reasons,’ because it ticks those boxes.”

Romania accounts for 3.3 percent (€18.6 billion) of overall monetary value from agricultural output in the EU, although the country is home to roughly a third of all farms within the European bloc, according to the 2019 Eurostat annual review of agriculture, forestry and fishery statistics.

Two-thirds of that €18.6 billion in agricultural output was derived from Romania’s production of cereals, which accounted for about 10 percent of EU production in 2018, according to the review. Eurostat reported last February that Romania had experienced a 6 percent increase in fruit tree plantings since 2012, predominately in apples, and accounted for about 12 percent of overall EU apple production.

The country offered the EU’s cheapest land prices as recently as 2017, according to the 2019 review, which reported an average price of €2,085 per hectare.

Institutional investors active in Romania’s farmland markets currently prefer “buy-and-lease” investments, Oliver added, with some form of revenue sharing on sizable properties that have already been combined from purchases of smaller parcels and experienced rent increases.

Family office investors, he said, have generally displayed more interest in backing operating businesses that already own or lease farmland and, under existing Romanian law, allow for a long-term strategy focused on accumulating smaller parcels for future sale.