November 16, 2023

By Lynda Kiernan-Stone, Global AgInvesting Media

In a sign of enduring confidence, following a $75 million commitment to Homestead Capital USA Farmland Fund III, the State of Connecticut Retirement Plans and Trust Funds (CRPTF) is doubling down on its support with approval for an imminent investment of $125 million in Homestead Capital USA Farmland Fund IV, according to public records. 

Led by co-founders Gabe Santos, a former executive with Goldman Sachs’ natural resources group,  and Daniel Little, previous head of a global portfolio management team at J.P. Morgan, Homestead Capital has built, and continues to manage, a vertically integrated portfolio of farmland across the U.S. that spans crops, lease types, operators, and regions.

With a particular focus on investing and operating farmland throughout the Mountain West, Delta, Midwest, and Pacific/Pacific West regions of the United States, Homestead has curated a team that has a deep well of experience in agriculture, financing, farm management, farm acquisition, portfolio construction, and risk management.

Partnering a “bottom-up” approach to sourcing and value creation, which is driven by Homestead’s locally engaged farmland managers, with a “top-down” course for portfolio construction and risk management, Homestead is able to deliver a properly diversified portfolio with an appropriate risk and reward profile.

The firm’s record speaks for itself. Homestead Capital closed its inaugural farmland investment fund, Homestead Capital USA Farmland Fund I, at $173 million in 2015.  

In the last quarter of 2016, the firm announced that it had closed its second fund – Homestead Capital USA Farmland Fund II at $400 million. This fund, which surpassed its initial target of $350 million to close oversubscribed, more than doubled Fund I. 

Fund III is currently fully invested, closing in October 2020 with $596 million in capital commitments from pension investors. Along with CRPTF, additional investors include Illinois SURS, which allocated $60 million in 2020, and New Jersey’s $70 billion public-employee pension manager, the New Jersey State Investment Council that agreed to commit $100 million in 2019.

Today, Fund IV carries on the successful investment strategy of Fund III. Beginning operations in May 2023 and making its first investment – a $23 million investment in a potato, sugar beet, corn, and hay farm in Idaho – in August 2023, Fund IV has a funding target of $500 million with a hard cap of $575 million in place. 

Homestead Capital plans to build out a diversified portfolio for its latest fund by making 35-45 investments in smaller sized farms throughout the U.S. with typical tickets ranging from $5 million-$30 million. The targeted niche strategy in smaller farms is uniquely sound, as the firm views this particular segment as a pocket of opportunity – too large for non-institutional scale farmers, and too small for corporate scale investors. 

Ratios for the portfolio are targeting 60-70 percent row crops and 30-40 percent permanent crops with investments spread nearly evenly across the firm’s targeted geographies. The closed-end fund will have a term of 15 years from the point of initial close with two one-year extensions, and is targeting gross IRR of 11-14 percent.

Over the life of the fund, Homestead intends to foster appreciation through a multi-directional approach: capital improvements; better farm management through operator/lessee selection; identifying economies of scale; effective crop selection and rotation; the implementation of ag technologies; and participation in government programs. 

The significant scale of the investment being committed by CRPTF to Fund IV, and the fact that this signifies a return investment, reflects not only the strength of Homestead Capital’s ability as an agricultural investor and asset manager as they progress in building out Fund IV, but confidence from one of the country’s top pension funds in the asset class writ large. 

Behind the recommendation for the investment are a number of factors, including the strong long-term macro fundamentals that farmland investment offers including growing demand on the back of population growth, expanding middle classes, and a lower availability of arable farmland. By 2050, the global population is expected to jump by about 35 percent, or more than 2 billion people – this, together with high incomes and shifting diets, will necessitate the doubling of crop output.

When considering the more near-term, some permanent crops are on the back end of a period of oversupply, indicating that future supplies may be more restricted, while the growth we’re seeing in biofuels, and alternative energy sources such as solar and wind power may present new or additional income channels. 

Within this ecosystem, the experienced Homestead Capital senior leadership team brings the specific relationships and ability to tap into these potential upsides in the farming sector.

This ability by the team to generate results is evident in the record of Homestead Fund III, which just ended its investment period in May 2023, outperforming CRPTF’s INR benchmark and the NCREIF Farmland Index with a net IRR of 8.4 percent. And considering the level of maturation still required for the portfolio, preliminary comparisons to the NCREIF suggest the future potential for outperformance as strategic execution progresses.

~ Lynda Kiernan-Stone is editor in chief with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Unconventional Ag. She can be reached at lkiernan-stone@globalaginvesting.com.

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