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Investing In U.S. Farmlands Has Appealing Returns

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By Katie Gilbert
April 2010

Keywords: farmlands, investment strategies, alternatives


Page 1 of 2

People have to eat. It’s this simple fact that sold Dixon Boardman of Optima Fund Management on his newest venture: investing in U.S. farmland. The founder of the $4.5 billion alternative investment firm is banking that after 2008’s economic fallout, investors are on the lookout for uncomplicated, nonleveraged, inflation-resistant options that will remain sound through economic storms. He believes farmland offers them just that.

The seeds, as it were, of Boardman’s project were planted in March 2009, during a dinner conversation with real estate scion Harrison LeFrak, who observed that farmland had appealing returns. The National Council of Real Estate Investment Fiduciaries Farmland Index has in fact yielded an annualized 13.57 percent over the ten years ended December 31, 2009.

It didn’t take Boardman long to rack up reasons farmland looked to be a solid bet: Demand for food is increasing, thanks to a world population expected to grow from 6.8 billion to 7.6 billion in 2020. Farmland investing hasn’t been, as Boardman puts it, “Wall Streeted,” so it doesn’t correlate with stocks and bonds. It is a hedge against inflation (“It’s like gold with a yield,” he explains). And perhaps most attractive of all, farmland is a familiar, graspable hard asset — a comforting thought after trillions of dollars in derivatives losses.

“It’s the most primary, basic thing — people have to eat,” Boardman says. “Plus, a stock price can go to zero, and provided you haven’t borrowed money for the farmland, it’s always going to have some value. In this uncertain world, where would you rather invest?”

So, under the Optima umbrella, he and his high-profile partners in the venture — the LeFrak family; William von Mueffling, founder of Cantillon Capital Management; and the Fanjul family, owners of Florida Crystals Corp., a West Palm Beach, Florida–based sugar company — formed a real estate investment trust and named it American Farmland Co.

The fund closed at the end of March with $100 million under management, $20 million of which was the partners’ own capital. Boardman says his list of initial investors reads like a “Who’s Who in very smart money.” 

Optima has teamed with Prudential Agricultural Investments, a unit of Prudential Mortgage Capital Co., which will act as the experts in finding farmland to purchase and lease back to farmers.

“We don’t envision ourselves as bankers with pinstripes and Wellington boots,” Boardman says. “We are experts in finding great managers.” So he’s surrounded himself with people who do tend to wear Wellies. American Farmland’s advisory board, for instance, includes Mark Wilkinson, a retired senior vice president of agricultural investment for Prudential, who grew up on a farm, earned a degree in agriculture from Purdue University and owns his own farm. Wilkinson says the fund will construct its portfolio with an eye to diversity, from citrus groves in the Southeast to soybeans in the Midwest to cotton and rice in the Mississippi Delta.

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Comments (7)

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khogan May 17, 2010

5/10 Think about Florida citrus. Excellent tax benefits and solid returns for right location. Ability to lock down solid returns with multi year contracts from the plants.

Ankur Apr 08, 2010

The article has good information value that there are other possible investments also. It does not however does a fair or even close to evaluation of the proposed idea and reads just like a marketting brochure aimed at attracting new investors. So take it at its face value as to what it is, Just another commercial for yet another type of investment

Ankur Apr 08, 2010

The article hass good information value that there are other possible investments possible. It does not however does a fair or even close evaluation of the proposed idea and sounds like a marketting brochure aimed at attracting investors. So take it as its face value as to what it is. Just another commercial for yet another type of investment

Nick Gogerty (NYC hedgie from Iowa) Apr 06, 2010

weather risk is less about idiosyncratic risk (1 year of drough) vs, longer term pattern shift that may affect crop yields and therefore cash rent yields. typically the Ag outreach center in a given area will be able to indicate the 5 yr. historical yields on a given parcel of land. If all else fails visit the local coffee shop. The average farmer is north of 55 and their living history and awareness of neighbors yields will provide good insights. For the record I am a hedgie PM in NYC, but do consulting and due diligence on tech, renewables and agriculture related things and come from 4 generations of midwest land owners.

Earnesto Agua Apr 06, 2010

Another long term play for ag investors will be water rights: ground water and surface. That is were the balloon payment lies. Check out available water inventories for municipalities and correlate to adjacent irrigated farmland. The next 30 years are going to be interesting. Who said 'The value of water is not apparent until the well runs dry'?

Agriculture Informed Apr 06, 2010

No, weather risk is not a problem. They are leasing the land to farmers. They are not owning the product in any fashion. All they need are farmers waiting at the front door to rent that land. Even after a bad weather year, they will be right back at it. Farmers all have crop insurance. Matt LaCapra Apr 06, 2010 This article should say more about risk. For example, isn't weather a risk? Food for thought -Yes pun intended!

Matt LaCapra Apr 06, 2010

This article should say more about risk. For example, isn't weather a risk? Food for thought -Yes pun intended!




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