With inflation at its highest ranges for the reason that Nineteen Eighties, buyers are relentlessly looking for high-quality safe-haven investments. Whereas actual property has lengthy been a tried and true retailer of worth (assume Ken Griffin’s New York penthouse), lately, lots of the wealthiest buyers have been turning to a market section that’s making headlines: farmland.
Why are billionaires shopping for up farmland?
The one largest proprietor of farmland within the US is Invoice Gates, with over 275,000 acres that he has acquired over a decade. Ted Turner is the largest landowner in Nebraska, a serious landowner in a number of different states, and the proprietor of the biggest non-public herd of buffalo on this planet. Warren Buffet has repeatedly touted the advantages of farmland, saying that it’s an funding with “no draw back and probably substantial upside.” Even skilled athletes like Blake Griffin of the Boston Celtics and Joe Burrow of the Cincinnati Bengals are shopping for up farmland.
These millionaires and billionaires have realized that farmland is a one-of-a-kind protected haven funding that has traditionally held its worth by way of turbulent markets, carried out properly throughout instances of excessive inflation, and delivered robust, uncorrelated returns. In any case, farmland’s worth is underpinned by its elementary position within the international financial system: the world’s rising inhabitants must eat. And because the provide of high-quality farmland decreases annually, the long-term outlook for farmland turns into much more engaging.
Within the US alone, farmland represents a $2.9 trillion market of untapped worth for buyers. Learn on to study extra about why subtle buyers are tapping into this newly accessible actual property funding.
Farmland investing could seem unique, however in some ways, it is rather much like residential and business actual property. Like actual property, farmland house owners can profit from two income streams: revenue by way of rental funds from farmers and gross sales from farming operations, and a lump sum cost when the property is bought.
Over 40% of farmland within the US is rented, and amassing hire funds from farmers is much like amassing hire from some other tenant. Relying on the administration construction, rental costs are both mounted or structured with a variable element linked to crop costs. This permits the landowner to share the advantages in an up yr, however may additionally result in losses in years the place crops underperform. In relation to appreciation, farmland has traditionally seen sturdy valuations, pushed by its steady supply-demand fundamentals. Previously yr alone, US cropland values are up 14%, reaching a file $5,050 per acre.
Since 1992, farmland delivered common annual returns of 10.7%, outperforming not solely business actual property, the place returns averaged 8.4%, but additionally the S&P 500, which returned 9.58%.
Like business and residential actual property, farmland might be segmented into sub-sectors, with alternatives out there alongside the risk-reward spectrum. Annual crops, together with grains like corn or soybeans, are planted and harvested yearly, giving farmers the flexibleness to adapt to market developments from yr to yr. Thus, annual crops are typically much less dangerous for buyers.
In distinction, everlasting crops, equivalent to tree nuts or wine grapes, might take a number of years to mature however can have financial lives of 20 years or extra. Due to this longer funding horizon, everlasting crops have a tendency to supply a greater danger/reward profile.
Like some other actual property funding, location is a key driver of worth. California, for instance, is an agricultural powerhouse producing round 14% of the overall worth of farm merchandise within the nation throughout over 400 agricultural commodities, together with high-value crops like almonds, citrus, and stone fruit. The state has a number of the most respected cropland within the nation, with common costs per acre over $15,000, a rise of 11% from 2021. In the meantime, land costs throughout the Corn Belt reached traditionally excessive ranges all through 2022, and the pattern has continued by way of the post-harvest fall promoting season into 2023.
Farmland: Traditionally low-volatility, high-reward
Whereas farmland has traditionally provided lots of the similar perks as conventional actual property investments, farmland has different advantages that make it more and more interesting to buyers. First, farmland returns have been considerably much less unstable than most conventional and different investments. For instance, within the thirty years between 1992 and 2022, the NCREIF Farmland Index had a normal deviation of 6.6%, which is considerably decrease than the volatility of the S&P 500 (17.4%) and the volatility of economic actual property (7.6%).
Farmland returns have additionally been largely uncorrelated with most different asset lessons and broader market indices. In reality, in the identical 30-year span, farmland negatively correlated with shares, bonds, and publicly-traded REITs. In the meantime, the efficiency of farmland is positively correlated with inflation, making it a gorgeous retailer of worth in an inflationary surroundings.
Including farmland to a portfolio, then, may help scale back general volatility and make it extra proof against market-wide financial shocks. In contrast to business actual property, farmland skilled steady returns throughout the Nice Monetary Disaster and the Covid-19 pandemic. Final yr, farmland yielded returns of almost 10%, outperforming business actual property by greater than 4%.
Lastly, farmland is an asset class supported by robust market fundamentals. The general provide of farmland within the US is declining yearly, forcing farmers to feed a rising inhabitants with much less arable land. No matter inflation or the financial system, folks have to eat. These elements level to farmland being a compelling actual property funding alternative trying ahead.
An Untapped Market
Regardless of the a number of advantages of farmland, accessing this asset class has been tough for particular person buyers. Farmland possession is extraordinarily fragmented, with the overwhelming majority of farmland owned by small-family farmers. Moreover, sourcing and buying offers require specialised data, robust trade relationships, and specialised asset administration capabilities, which has saved many out of the market.
This state of affairs is altering, due to FarmTogether, a farmland funding supervisor targeted on offering wide-scale accessibility to institutional-quality farmland. Demonstrated by greater than $1.2 billion of deployed capital, their workforce of institutionally skilled asset managers has the talent set essential to establish high-quality offers, handle them successfully and supply a seamless, digital funding platform for buyers.
FarmTogether’s funding course of is rigorous and selective. Their workforce employs a complete due diligence guidelines with over 105 standards to make sure that no stone is left unturned. They aim a number of the highest-quality farmland areas in america, together with California and the Corn Belt, solely providing essentially the most engaging alternatives to buyers; lower than 1% of the transactions screened by the FarmTogether workforce are dropped at buyers.
FarmTogether continues to ship advantages for buyers post-acquisition as properly. They’re extremely selective when partnering with farm operators and extensively vet their financials, monitor file, and long-standing fame. They’re additionally a member of Main Harvest, an progressive nonprofit group and trade chief in sustainability, which was created by and for all stakeholders throughout the agricultural worth chain. All of FarmTogether’s agricultural operations have been licensed as in conformance with the Main Harvest Farmland Administration Commonplace, benefitting each the efficiency of their farms and the surroundings.
FarmTogether gives a number of funding options to suit numerous investor wants, whether or not people or household workplaces. They provide bespoke funding options for these fascinated about an individually-owned, extra tailor-made farmland funding. This channel permits buyers to take a extra customized strategy to their farmland publicity. Their funding workforce works intently with buyers to know your required standards, together with danger urge for food, maintain interval, and optimum money circulation profile. With these in thoughts, they’re able to present a choice of tailor-made investments that may finest match buyers’ general targets. Their funding professionals lead the due diligence course of after which handle the funding post-transaction, providing you with personalised, hands-off entry to high-quality, investment-grade farmland.
For these looking for extra diversified farmland publicity, buyers can take part of their Sustainable Farmland Fund. With a single allocation, you’ll be able to have entry to a diversified portfolio of institutional-grade farmland investments. The fund targets acquisitions throughout completely different geographies and a diversified set of commodities, together with citrus, tree fruits, tree nuts, and row crops.
Lastly, for these buyers who’re fascinated about marking a smaller preliminary dedication, we provide fractional possession in farmland by way of FarmTogether’s Crowdfunded product. Buyers profit from the identical skilled funding workforce, rigorous diligence course of, and best-in-class asset monitoring instruments for a minimal funding as little as $15,000.
Lastly, buyers are capable of entry farmland on a tax-advantaged foundation. A number of of their choices might be accessed utilizing a 1031 change, permitting buyers to take a tax-efficient strategy to develop and diversify their present actual property portfolio.
Farmland: an untapped actual property alternative
Investing in farmland supplies a singular alternative to entry an untapped, profitable actual property funding: farmland has traditionally provided passive revenue, robust appreciation, low volatility, and powerful efficiency all through financial cycles. Considering investing? For extra info, join with us at this time.
This communication isn’t meant to be relied upon as recommendation to buyers or potential buyers and doesn’t bear in mind the funding goals, monetary scenario, or wants of any investor. All buyers ought to think about such elements and dangers in session with knowledgeable advisor of their selecting when deciding if an funding is suitable. Historic information isn’t indicative of future outcomes and should not replicate charges which can scale back precise returns. Any historic info is illustrative in nature and should not characterize future outcomes, subsequently any investor investing by way of the FarmTogether platform might expertise completely different returns from the examples and projections supplied herein.
Information consultant from January 1992 by way of December 2022. Sources: Privately Held U.S. Farmland – NCREIF Farmland Index; Privately Held U.S. Business Actual Property – NCREIF Actual Property Index; Shares – S&P 500; Bonds – Bloomberg Barclays U.S. Mixture Index; Gold – Federal Reserve Financial institution of St. Louis Financial Information (FRED). Indexes are unmanaged and never out there for direct funding.