Private Markets   |   April 11, 2018

The Art and Science of Investing in Farmland

This short piece provides context for investors who are considering an allocation to agricultural investments. It highlights factors that can affect rural land values and the returns derived from growing food and fiber products on rural acres. It also discusses important criteria to consider when selecting an investment manager for land based assets.

Factors affecting land value in order of significance

Location, location, location

500 years ago, an acre in Midtown Manhattan was an agricultural acre, a lousy one. Thin, acidic soils with bedrock near the surface, made it unproductive. Glaciation, 10,000 years prior, had scoured Manhattan Island removing most of the topsoil required to support vibrant plant growth. But over time, the rivers and deep water harbours made Manhattan Island a rapidly populating location. Our lousy agricultural acre became a heavily trafficked location, and in time, the shallow depth to bedrock under Manhattan became an asset instead of a liability, providing a solid foundation under taller and taller buildings.

Today, the Midtown Manhattan acre might trade for tens of millions of dollars while this same scrubland acre transported to 300 miles northwest to the Tug Hill Plateau in central New York State should be worth far less than $1,000 an acre because it is likely to be still valued for what the largely unproductive soil can produce. In this instance, geography dictated settlement which dictated value.

For all property investments, the concept of Highest Best Use underlies all land based investing, and this example is intended to demonstrate the continuum between commercial real estate at the high end of the value spectrum and unproductive scrubland at the low end.

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Disclosures

DISCLAIMER NOTICE
This document is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The information contained herein is in summary form for convenience of presentation. It is not complete and it should not be relied upon as such. The information set forth herein was gathered from various sources which Fiera Comox believes, but has not been able to independently verify and does not guarantee, to be accurate.

This document is provided to you on the understanding that, as an accredited investor, you will understand and accept its inherent limitations and you will not rely on it in making or recommending any investment decision.

IMPORTANT RISK FACTORS
Land investing involves significant risks, including loss of the entire investment. Risks related to land investing include adverse weather, commodity price variability, water availability, natural disaster, environmental liability, health and safety liability, climate change and related regulations, illiquidity, legal and regulatory, third-party rights, insurance availability, and interest rate risk, among others. Prospective investors should carefully consider such risk before making any investment decision.

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