UBS AgriVest, one of the earliest farmland investment management companies, currently manages nearly $1 billion of buy-and-lease farmland assets. Here James McCandless, founder of AgriVest and managing director of UBS AgriVest, explains the strategy and how demand for the asset class has changed over the years.
How has demand for farmland changed since AgriVest started offering investment products in the asset class?
AgriVest launched in 1983 as the spin out from an insurance company that was investing into farmland so they became our main client. But in 1990 we were one of the first asset management firms to be mandated by a US pension fund to invest into farmland as a small number of pension funds started to show interest in expanding into an area in which they had not traditionally been invested.
This demand held for a while and then tapered off until mid-2004. After a brief revival in demand, the global financial crisis saw that taper off again. There has been steady interest for the last five to six years; it’s not huge though. Our total assets under management are just under $1 billion and total US-based institutional holdings of farmland are a bit over $4 billion. That is not a lot and it has taken a while to get there.
How do you know the size of the industry in the US?
The National Council of Real Estate Investment Fiduciaries gathers data for commercial properties and timber and we were instrumental in getting our peers to contribute their data towards the NCREIF Farmland Index. There are some small players that do not contribute their data but essentially it represents the whole market.
The majority of the index consists of buy-and-lease investments; however there are some own-and-operate managers that contribute data. These are most likely to be permanent crop properties.
Have you ever considered pursuing an own-and-operate strategy?
No. We have never considered this and this distinguishes us. We strictly adhere to a leasing strategy because it is our philosophy that the farming risk should be taken by farmers and institutions do not make good farmers.
Buy-and-lease investments still allow us to participate in good years but they also afford us downside protection in bad years and our client’s capital is not exposed to farming risks.
How do you value land?
We look at comparable sales and evaluate them against current market prices for property, current market rents and the returns they would yield. If those return levels meet or exceed our requirements, we might consider an acquisition; the levels differ depending on different properties and types of risk. Land values have moved up quite a bit but rents haven’t moved up at the same pace so this is contributing to declining results as a result.
UBS AgriVest has an open-ended fund that accounts for just under $1 billion of overall assets under management. The remainder is managed in separate accounts. The firm targets 25 states but is currently invested in just 15 with its largest exposure in California. AgriVest was acquired by UBS in 1999. James McCandless was a founder of AgriVest in 1983.