Family offices looking to farmland for stable investments

Why this is important: Family offices and other high net worth investors are buying farmland across the U.S.

For family offices, where maintaining wealth is often a top priority, investing in farmland has made good sense for the past few years.

“Farmland always has a rent,” said Chris Morris, co-founder and managing director of LandFund Partners, a Nashville investment firm that buys land primarily in Mississippi and Arkansas. “Farmland is a productive asset; things actually grow out of the ground, so a farmer can always make some sort of revenue.”

Farmland is also less vulnerable to market ebbs and flows such as the 2008 financial crisis and its aftermath.

“Farmland was still producing positive returns [post-2008] because it’s not financialized, it’s not as connected to the Wall Street system,” Morris told Buyouts.

“It’s a stable investment,” said Eric Sarff, vice president of Champaign, Illinois-based Murray Wise Associates, a large global farmland asset manager. “The year-to-year returns aren’t sexy, but as long as you’re in it for the long game, it’s a pretty attractive investment.”

Both LandFund and Murray Wise said they do a lot of work with family offices and other high-net-worth investors.

Sarff and Harrison Freeland, a Murray Wise senior associate, said they saw interest in farmland investments among FOs and wealthy investors spike around 2012. Freeland said most of that was concentrated in Illinois, Iowa and Indiana, the so-called I states.

“It’s considered a very stable investment-grade-asset farmland in those areas,” he said. “In terms of the farms we’re adding to our portfolio, it’s almost a hundred percent these high-net-worths and family offices.”

Freeland said that in total, wealthy investors and FOs had bought 15,200 acres of farmland for $158 million in Illinois since Jan. 1, 2018. Murray Wise declined to share how much of that was the firm’s deals. It said those numbers came from public records.

“There have been at least three or four big guys buying farmland in this region, so it’s certainly been an active region,” Freeland said.

Morris estimated that half of the $30 million in LandFund’s fourth and most recent fund comes from family offices or funds of funds and the rest from other high-net-worth investors. After recently saying it would buy $10 million of farmland in Q2 2019, LandFund’s Fund IV now holds about $17 million of what he expects to eventually be $50 million in holdings. (LandFund uses some debt for each of its purchases.)

LandFund controls about 25,000 acres of farmland in the South for about $125 million in AUM, Morris said.

Neither LandFund nor Murray Wise would identify the family offices they work with. Morris did say that most of LandFund’s families had at least $100 million in assets, usually investing 5 percent of that in farmland. He said their families also tended to already understand real estate.

Some of the world’s wealthiest people have invested in farmland.

Land Report reported last September that Microsoft Founder Bill Gates paid $171 million for farmland in Washington state. Agri Investor reported that Gates appeared to be the buyer of $520 million of U.S. farmland from a Canadian pension fund in 2017. In 2011, the Washington Post reported that the billionaire investor George Soros controlled farmland in South America.

Farmland prices rose for a few years after the 2008 crash but prices have flattened overall in recent years, according to the U.S. Department of Agriculture.

Mykel Taylor, an associate professor of agricultural economics at Kansas State University, confirmed that was also the story in the Midwest.

The year “2014 or 2015, depending on what state you’re in and what commodities you have, was kind of the peak,” she told Buyouts, “And then the next year we started to see commodity prices fall off and we started to see some profitability fall. And land values have since started to soften in most areas around the Midwest and the Great Plains.”

Freeland said land prices in the I states were slightly up this year, and he saw them holding firm in years to come.

“This does not really affect family offices investing in farmland greatly, as to them it is a long-term investment typically measured in decades, not years,” he said in an email.

LandFund’s Morris told Buyouts that land prices have gone up in the South, even as they have fallen slightly or plateaued in the Midwest. Overall, he is optimistic.

“We’ve definitely seen a pickup in investor interest,” he said.

Action item: Check out LandFund’s website. Contact Murray Wise Associates’ team here.