Farmland: The untapped blue-chip real estate market
With inflation at its highest level since the 1980s, investors are in constant search for high quality safe investments. While real estate has long been a tried-and-true store of value (think Ken Griffin’s New York penthouse), recently, the wealthiest investors are turning to a market segment that’s making headlines : Farm.
Why are billionaires buying agricultural land?
The largest owner of agricultural land in the US is Bill Gates, who acquired over 275,000 acres in a decade. Ted Turner is the largest landowner in Nebraska, a major landowner in several other states, and the owner of the largest private herd of buffalo in the world. Warren Buffett has repeatedly spoken about the benefits of agricultural land, saying that it is an investment that has “no downside and potentially substantial upside.” Professional athletes such as Blake Griffin of the Boston Celtics and Joe Burrows of the Cincinnati Bengals are also buying farms.
These millionaires and billionaires have realized that agricultural land is the kind of safe haven investment that has historically maintained its value through turbulent markets, performed well in times of high inflation, and delivered strong, uncorrelated returns. . Ultimately, the value of agricultural land hinges on its fundamental role in the global economy: the world’s growing population needs to eat. And as the supply of high-quality farm land dwindles each year, the long-term outlook for farm land becomes even more attractive.
In the US alone, farmland represents a $2.9 trillion market of untapped value to investors. Read on to learn more about why sophisticated investors are tapping into this new accessible real estate investment.
Farmland vs. Traditional Real Estate
Farmland investing may sound exotic, but in many ways it is similar to residential and commercial real estate. Like real estate, farm owners can benefit from two revenue streams: income through rental payments from farmers and sales from farming operations, and lump sum payments when the property is sold.
Over 40% of agricultural land in the US is rented, and collecting rent payments from farmers is similar to collecting rent from any other tenant. Depending on the management structure, rental prices are either fixed or structured with a variable component linked to crop prices. This allows the landowner to share the profits in one year, but also incur losses in years where the crop performs poorly. When it comes to appreciation, agricultural land has historically seen sustainable valuations, driven by its stable supply-demand fundamentals. In the past year alone, US cropland prices have risen 14%, reaching a record $5,050 per acre.
Since 1992, farmland has delivered an average annual return of 10.7%, outperforming not only commercial real estate, where returns averaged 8.4%, but also the S&P 500, which returned 9.58%.
Like commercial and residential real estate, agricultural land can be divided into sub-sectors with opportunities available along the risk-reward spectrum. Annual crops, including grains such as corn or soybeans, are planted and harvested annually, allowing farmers to adapt to market trends from year to year. Thus, annual crops are less risky for investors.
In contrast, permanent crops, such as tree nuts or wine grapes, may take several years to mature but have an economic life of 20 years or more. Because of this longer investment horizon, sustainable crops offer a better risk/reward profile.
Like any other real estate investment, location is a major driver of value. California, for example, is an agricultural powerhouse that produces about 14% of the total value of agricultural products in the country in more than 400 agricultural commodities, including high-value crops such as almonds, citrus and stone fruits. The state has some of the most valuable arable land in the country, with an average price of more than $15,000 per acre, up 11% from 2021. Post-harvest sales season in 2023.
Bespoke Hazelnut Orchard
Farmland: Historically low-volatility, high-reward
While farmland has historically offered many of the same perks as traditional real estate investing, farmland has other benefits that make it increasingly attractive to investors. First, agricultural land returns have been much less volatile than most traditional and alternative investments. For example, over the thirty years between 1992 and 2022, the NCREIF Farmland Index had a standard deviation of 6.6%, which is much less than the volatility of the S&P 500 (17.4%) and commercial real estate (7.6%). ,
Farmland returns have also been largely uncorrelated with most other asset classes and broad market indices. In fact, over the same 30-year period, farm land was negatively correlated with stocks, bonds and publicly traded REITs. Meanwhile, the performance of agricultural land is positively correlated with inflation, making it an attractive store of value in an inflationary environment.
Adding agricultural land to a portfolio can help reduce overall volatility and make it more resistant to market-wide economic shocks. Unlike commercial real estate, agricultural land experienced stable returns during the great financial crisis and the Covid-19 pandemic. Last year, agricultural land gave returns of around 10%, outperforming commercial real estate by over 4%.
Lastly, agricultural land is an asset class supported by strong market fundamentals. The total supply of agricultural land in the US is decreasing annually, forcing farmers to feed a growing population with less arable land. Be it inflation or economy, people need to eat. These factors point to agricultural land as being a compelling real estate investment opportunity going forward.
an untapped market
Despite the many benefits of agricultural land, it has been difficult for individual investors to access this asset class. Ownership of agricultural land is highly fragmented, with the majority of agricultural land owned by small family farmers. Additionally, sourcing and purchasing deals require specialized knowledge, strong industry relationships and specialized asset management capabilities, which has kept many out of the market.
That landscape is changing, thanks to FarmTogether, a farmland investment manager focused on providing broad-scale access to institutional-quality farmland. As evidenced by over $1.2 billion in deployed capital, their team of institutionally experienced asset managers has a proven track record of identifying high quality deals, managing them effectively and providing a seamless, digital investment platform for investors Required skill.
FarmTogether’s investment process is rigorous and selective. Their team puts in place a comprehensive due diligence checklist with over 105 criteria to ensure that no stone is left unturned. They target some of the highest quality agricultural regions in the United States, including California and the Corn Belt, offering only the most attractive opportunities to investors; Less than 1% of the transactions examined by the FarmTogether team lead to investors.
FarmTogether has continued to deliver returns to investors even after the acquisition. They are incredibly selective when partnering with farm operators and look extensively to their financials, track records and long-standing reputations. He is also a member of Leading Harvest, an innovative non-profit organization and industry leader in sustainability, which was created by and for all stakeholders in the agriculture value chain. All of FarmTogether’s farming operations are certified to the leading Harvest Farmland Management Standard, benefiting the performance of both their farms and the environment.
Vista Luna Organic Vineyard
FarmTogether offers a range of investment solutions to meet the needs of various investors, whether individuals or family offices. They provide pre-booked investment solutions for those interested in individually owned, more tailored farm land investments. This channel enables investors to take a more custom approach to their farm risk. Their investment team works closely with investors to understand your desired criteria, including risk appetite, holding period and optimal cash flow profile. Keeping these in mind, they are able to provide a selection of tailored investments that can best fit the overall goals of the investors. Their investment professionals lead the due diligence process and then manage the post-investment transaction, giving you personal, hands-on access to high-quality, investment-grade farmland.
For those seeking a more diversified farmland investment, investors can participate in their Sustainable Farmland Fund. With a single allocation, you can get access to a diversified portfolio of institutional-grade farm land investments. The fund targets acquisitions in various geographies and a diverse set of commodities including citrus, tree fruit, tree nuts, and row crops.
Finally, for investors who are interested in marking down a small initial commitment, we offer fractional ownership in a farm through FarmTogether’s crowdfunded product. Investors benefit from the same experienced investment team, rigorous due diligence process, and best-in-class asset monitoring tools for a minimum investment as low as $15,000.
Finally, investors are able to access agricultural land on a tax-advantaged basis. Many of their offerings can be accessed using a 1031 exchange, allowing investors to take a tax-efficient approach to growing and diversifying their existing real estate portfolios.
Farmland: An untapped real estate opportunity
Investing in farmland offers a unique opportunity to access an untapped, lucrative real estate investment: farmland has historically offered passive income, strong appreciation, low volatility and strong performance throughout economic cycles. Willing to invest? To learn more, sign up with us today.
This communication is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investors should consider such factors and risks in consultation with a professional advisor of their choice when deciding whether an investment is appropriate. Historical data is not indicative of future results and may not reflect fees that could dilute actual returns. Any historical information is of an explanatory nature and may not represent future results, therefore any investor investing through the FarmTogether Platform may experience returns that differ from the examples and projections provided herein.
Data representative from January 1992 to December 2022. Source: Privately Held US Farmland – NCREIF Farmland Index; Privately Held US Commercial Real Estate – NCREIF Real Estate Index; Stocks – S&P 500; Bonds – Bloomberg Barclays US Aggregate Index; Gold – Federal Reserve Bank of St. Louis Economic Data (FRED). The indexes are unmanaged and not available for direct investment.