Work With Investors

January 6, 2016 02:06 AM
Work With Investors

Up-and-coming land companies seek producers to farm their ground

Publicly traded investment companies have been snapping up farmland faster than you can say “sold.” 

In November 2015, Denver-based Farmland Partners announced plans to acquire $197 million of Illinois cropland. Earlier in September, McLean, Va.-based Gladstone Land Corporation purchased $19 million of irrigated California land to be shifted from wine grapes to almonds. 

So who are the people behind these up-and-coming investment firms, and how should top operators view their presence in rural America? 

Executives say they need producers to farm the land, identify available parcels and provide a regular rent check. In exchange, farmers will enjoy long-term leases and financial stability to transition farms to the next generation of leadership. 

Investment Leaders. Although a handful of privately held farmland investment companies are in operation, the publicly traded companies are the most visible.

“The real story here is global food demand increases in the face of land scarcity,” explains Paul Pittman, CEO of Farmland Partners. 

The primary objective is to develop a relationship with farmers, buy land and be a real-estate partner, says CEO David Gladstone of Gladstone Land Corporation. 

“They don’t really have to worry about whether they’ve got a farm to farm,” Gladstone says. “They just need to pay the rent. They don’t have any capital tied up, all they have to do is use their capital to grow their farms.”

Course Change. Investors have always been a part of the farmland scene. Yet the recent softening of land values has led more investors to form real estate investment trusts (REITs) and begin making land purchases, says Mike Walsten, editor of LandOwner newsletter, part of the Farm Journal Media family. The increase in buying land for the long term is a change in direction from the early 2000s, when investors and recreational buyers jumped into farmland amid low land prices. When farm profits rose along with commodity values, though, investors exited land while farmers stayed.

What Does It Mean To Me?
  • Farmland purchases by publicly traded investment companies are picking up. 
  • Each firm seeks to collect reliable investor returns with rent checks.
  • Word of mouth is the No. 1 way investment firms learn of land for sale. 
  • Farmers and investment firms should interview each other to clarify terms.
  • Global growth is possible as firms look to serve consumers in Asia.

“Do not expect that to be the case with these REITs,” Walsten says. “I expect them to operate more like the pension funds that have been in the market for quite some time.”

In the western Corn Belt, historically 75% to 85% of farmland buyers are farmers, with the remainder being investors, he says. Most investors are local with ties to ag. 

“I expect to see investors becoming a larger percentage of buyers,” Walsten says. “The percentage change will be more focused in the eastern Corn Belt and in the Central and Southern Plains where investment funds are allowed.”

CEOs Detail Purchases. To understand why investors are more interested in farmland today than in the past, Top Producer contacted the three publicly traded REITs: American Farmland Company, Farmland Partners and Gladstone Land Corporation. Two agreed to interviews; a representative for the third, American Farmland Company, did not respond by the deadline. 

Both Gladstone’s namesake CEO and Farmland Partners’ Pittman grew up in farming, became successful investors, started purchasing land as individuals and decided the lack of opportunities for land investments represented a gap in the marketplace.

Gladstone’s career began to take a turn back toward farming in 1997, when he bought one of California’s largest strawberry and vegetable operations. The farm had about 5,000 workers and a staff of 90. 

In 2004, he decided to keep the land and sell the farming operation to Dole. He continued to buy farms and in 2013 took Gladstone Land (NASDAQ: LAND) public. Many of its farms are located on either coast, though the firm opened a Midwest office in 2015. 

Gladstone Land doesn’t participate as a bidder in local farm auctions, instead opting to purchase properties it learns about through word of mouth. “Most of the farmers we work with today are farmers we’ve met,” Gladstone says. “They’re looking for a farm to buy, and they let us know about it. We buy it and they farm it.” 

Food Demand Explodes As Farmland Supply Inches Higher
Investors see long-term financial returns from farmland, in part because of the disparity between projected demand for grain and projected increases in available cropland, as these data points from a recent investor report show. 

Sale leasebacks are common in the industry, adds Pittman, whose company announced a $32 million arrangement of that kind in Louisiana in December 2015. 

“That’s a family guy who wanted to reorganize his personal capital,” Pittman says. “We bought it from him and rented it back to him.” 

For Pittman, the journey to farmland investment began on a family farm in Illinois. He graduated from the University of Illinois in 1985, the low point in the 1980s farm crisis, with a degree in ag. 

He returned to his farming roots in the mid-1990s when he began buying land as a personal investment. He continued farming for his family’s crop operation in Illinois, Nebraska and Colorado while growing his portfolio to include $100 million of farmland. In 2014, he placed $70 million of land into a REIT and went public. 

The firm has experienced explosive growth from 7,300 acres nationwide in April 2014 to 105,000 acres in December 2015. In contrast to firms such as Gladstone Land, Pittman says, Farmland Partners (NYSE: FPI) is focused on developing investments in the Corn Belt because the global food supply is so dependent on grains, oilseeds and livestock.

“I think public companies that invest in that space should be welcomed,” Pittman says. The company plans to expand in future years to countries such as Australia, which is well-positioned to serve the Asian export market. 

The Partnership Decision. The choice to farm for an investment company should be considered carefully, but it can be beneficial.

“For the producer, as always, it depends on how good of a manager they are,” Walsten explains. “There are advantages. You’re dealing with a professional farm manager. People may not enjoy having somebody look over their shoulder, but I also know of operations that have become better operators because they had a second opinion looking over their shoulder.”

Minimal reporting is required beyond what a landlord would expect, Gladstone says. Leases are set for five years to 10 years or more.

As the world’s population expands, farmland investment companies plan to play an active role in meeting the demand for food. They’re hopeful top operators will join them.

Major Farmland Purchases By REITs
There has been a rapid uptick in cropland purchasing by two publicly traded real estate investment trusts (REITs), Farmland Partners and Gladstone Land Corporation, as recent figures show. 


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