Farm Investors Welcome
Marcia Zarley Taylor DTN Executive Editor
Mon Sep 22, 2014 12:27 PM CDT
(Page 1 of 3)

HADDONFIELD, N.J. (DTN) -- Until recently if you wanted to be a farmland owner, you had to own the real McCoy. Now companies traded on NASDAQ and the New York Stock Exchange will let investors own shares of the action, but without the headaches of being a hands-on landowner.

Ag REITs allow investors to own shares of farms across the country, from California to the Eastern Corn Belt. Some already are large enough to qualify as wholesale lenders and resell mortgages to the secondary Wall Street markets. (DTN file photo by Kurt Lawton)

Gladstone Land (Nasdaq: LAND) raised $57 million in January 2013 in an initial public offering and now owns 6,833 acres on 28 farms in California, Florida, Michigan, Oregon and Arizona valued at approximately $144 million. Many of its investments are in specialty crops. It announced it had converted to a formal Real Estate Investment Trust (REIT) Sept. 10.

Farmland Partners (NYSE: FPI) had a $53 million initial public offering in April and owns 41 farms with 23,630 acres in Illinois, Nebraska and Colorado, along with three grain storage facilities. It has five farms under contract in Arkansas, Louisiana and Nebraska totaling another 4,075 acres. It is an internally managed real estate company that acquires row-crop farmland, but intends to convert to a REIT for tax purposes with the 2014 tax year.

Both funds pale in size next to established institutional farmland owners that court pensions and wealth funds but aren't open to garden-variety investors. For example, the mutual fund company TIAA-CREF launched its own Global Agricultural unit with $2 billion in 2011 and recently received another $1.4 billion in private commitments from pension funds and other large-scale investors for its second agricultural fund. The company purchases farmland in U.S., Australia and Brazil.

Outside of agriculture, REITs have become a fixture of real estate investing over the past 20 years. It's a way to bundle what can amount to trillions of dollars in apartment complexes, shopping centers or commercial real estate, and then paying public investors a share of the rents. One of the largest REITs owns 50,000 apartments in about two-dozen metropolitan areas nationwide. By law, REITs must distribute 90% of their earnings to shareholders. On average, they've been paying about 4% lately.

Some farm lenders are getting a piece of the action, too. In late August, Farmland Partners scored a coup with the initial issuance of a $20.7 million, three-year interest-only note from Farmer Mac with a fixed interest rate of 2.4%. The company expects that note to be upsized, giving it access to government-sponsored credit that is normally reserved for wholesale lenders, who in turn offer mortgages to farmers and ranchers. In this case, Farmland Partners will use the funds to acquire more farms for itself. Each note will be secured by ag real estate owned by Farmland Partners, each of which will have an effective loan-to-value ratio of no more than 60%, the company and Farmer Mac said in a joint statement announcing the arrangement.

Officials at both Farmer Mac and the Farm Credit Administration say Farmland Partners' collateral is qualified to be sold to Farmer Mac. The firm has a credit subsidiary that makes mortgaged-backed loans to itself, but technically qualifies as a wholesale lender under Farmer Mac guidelines.

Tim Buzby, Farmer Mac's CEO, views the growth of agricultural REITs as "a potentially large market" for the agency. What's more, he sees a public benefit to the flurry of interest by large-scale nonfarm investors.

"They'll create demand if you're a farmer looking to sell land," he says. "In times of land declines, it will add additional buyers to the market."

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