SLM Partners secures $75m organic conversion separate account – exclusive

The separate account’s buy-and-lease strategy was trialed by the GP in 2019 and involves a flex lease arrangement that is conducive to organic farming.

SLM Partners has secured a $75 million separately managed account with a single institutional investor, vice-president John Evangelista told Agri Investor.

Capital will be deployed to pursue an organic conversion strategy that SLM Partners trialed in 2019 through a $5 million separately managed account for an unnamed family office, which acquired an 80-acre farm in Illinois in December 2019.

Evangelista declined to share further details about the investor, including the global region they come from, but did say that talks concluded in November 2020.

The buy-and-lease strategy will be deployed in the eastern Corn Belt and becomes the firm’s main US agricultural strategy. SLM was established in 2009 and has total assets under management of $210 million in farmland and timberland.

“We take the view that there’s a lot of really talented organic farmers out there and it’s just a matter of giving them access to the right land – there’s a lot to be had there,” Evangelista told Agri Investor.

The firm will offer long-term leases – one of its tenants is on a 10-year lease with a right to extend for a further 10 years – that are conducive to the needs of organic farming.

Converting a conventional farm to organic typically takes two to three years. Yield size and quality can also be positively impacted by multiple years of organic farming on the same land, from which farmers also want to capture long-term gains.

The firm will also offer farmers flex lease arrangements, which is typically comprised of “a base rent that is tied to resemble the land value and any capital improvements that we make on it, which is also reduced during that two-to-three-year organic transition period,” explained Evangelista.

“Across the life of the lease, it settles on a slightly higher base rent rate. There is also a profit share on top of that – we use fixed farming budgets per crop so farmers know ahead of time what the overall threshold will be for the profit share.”

The $75 million mandate is now 25 percent deployed and has amassed a portfolio with roughly 2,500 acres of farmland assets. Single farmland transactions in the eastern Corn Belt typically fall into the $900,000 to $9 million range, said Evangelista, due to the way parcels have been split and sold in the past, which has partly led to assets worth as much as $15 million rarely coming to market.

SLM expects the strategy to deliver an IRR of 9 percent and income yields of between 4 to 5 percent.

The firm is working to expand across the Corn Belt, added Evangelista, and is also developing a specialty crop program focused on the US west coast. SLM’s next “big step” is likely to be its European strategy, said the vice-president, which will be a diversified tree crops play.