You need to move. Florida is as flat as my ex.
Has Real Estate Lost Its Sizzle? Not on the Farm
By NORM ALSTER
Published: March 4, 2007
SOARING crop prices, strong export markets and growing demand for biofuels are adding up to good times for many American farmers. So it’s not surprising that farmland, particularly in the upper Midwest, has begun to reflect that good fortune with rapidly rising prices.
The Fed can always print more money but it can’t create new farmland, which has generally been rising in value since the late 1980s. From 2002 through 2005, American farmland appreciated by roughly 50 percent, according to Agriculture Department data. Farmland’s traditional investment appeal includes steady income from rents, along with appreciation that has tended to run ahead of inflation.
But since September, Midwestern banks and real estate brokers report, land has become a torrid commodity, with prices in Illinois, Iowa and other nearby states climbing by as much as 20 percent. Tom Archbold, senior vice president for farm ranch and timber management at U.S. Bank in Fargo, N.D., speaks of a client who had land in Nebraska appraised at $3,200 an acre late last year. Three months later, it fetched $3,850 an acre at auction in Lincoln.
Apart from farmers, the biggest beneficiaries of the land rush have been well-heeled investors like pension funds and university endowments. The Hancock Agricultural Investment Group, for instance, manages portfolios of farm properties for large investors and reports returns of better than 20 percent for each of the last three years. But the minimum investment is $40 million.
For those with less money to invest, the choices for participating in the farmland boom have been slim. If they already own land but don’t farm it, they can turn to a bank like JPMorgan Chase or U.S. Bank to manage their property for a fee. If they have a residence in Canada, they can buy farmland in Saskatchewan through the Agriculture Development Corporation, a private company, for a minimum buy-in of $20,000.
Otherwise, they can invest indirectly in farmland through a commodities-tracking mutual fund like Pimco Commodity RealReturn Strategy or a commodities-based exchange-traded fund like Powershares DB Agriculture.
Or they can simply follow the lead of Bob Wise, a software developer on Merritt Island, Fla., who concluded that the best way to enjoy farmland appreciation was to buy it directly.
Mr. Wise first bought a parcel of Iowa farmland in 1995 and reports that, between rent and appreciation, the investment has returned 12.5 percent, annualized. Last year, he bought a second Iowa property. Over the years, he had looked for ways to invest in farmland through financial vehicles designed for smaller investors. “I never found one,” he said.
But Wall Street is beginning to see an opportunity in broadening the market for this asset class. UBS AgriVest, a farmland investment subsidiary of UBS, which until recently confined its farmland investment portfolios to larger investors, now has a fund that can accommodate individual investors. But participants must meet the Securities and Exchange Commission’s definition of an “accredited investor,” requiring net worth of at least $1 million or annual earnings of at least $200,000 (or $300,000 when combined with those of a spouse).
Other financial services giants, including JPMorgan, which manages two million acres of farmland for its clients, are considering the creation of farmland investment products. “There’s definitely been talk of that. I have been approached by our investment bank asking about that,” said Steve Wright, Midwest regional manager for JPMorgan’s farm and ranch management unit in Lafayette, Ind.
Jeffrey A. Conrad, president of the Hancock Agricultural Investment Group, said, “Over time we have thought about tapping the retail market,” with offerings for less-affluent investors.
And Mr. Archbold of U.S. Bank said that a farmland investment product “is certainly being talked about now.”
Prices are rising for many types of agricultural land. The Hancock Agricultural Investment Group, for example, has produced a sparkling three-year annualized return of 28.2 percent on its farmland investments. “A lot of the performance,” Mr. Conrad said, “has been driven by almonds and pistachios.” Those nuts have benefited from a relatively weak dollar, which aids exports, and from research suggesting that they may contribute to cardiovascular health.
But Mr. Conrad notes that demand has inspired new plantings of almonds, potentially unbalancing the favorable supply-demand equation. Values of almond and pistachio acreage “could trend downward” he said.
Land that is now attractive, he said, includes property in Wisconsin for growing cranberries and in Washington State for apples.
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