June 13, 2024

By Lynda Kiernan-Stone, Global AgInvesting Media

Latin America currently accounts for 16 percent of the world’s total food exports, a figure that the UN FAO expects to increase to 25 percent by 2028. And, as food security has grown to be recognized by international investors as a strategic asset class, Mexico is a high-potential market in the region. 

Beginning in the 1980s, following a period of economic hardship, the country enacted a string of trade reforms that saw it emerge as a major global trade partner, according to the USDA. 

By 2021, the country’s agricultural exports to all global markets totaled approximately $44.8 billion, and in 2022, the country’s agricultural exports hit a record, totaling $34.12 billion in just the eight-month period between January and August – a 15.5 percent jump over the same time period a year before. 

However, there’s a pervasive gap in productivity assets and capacity holding back companies in the region from meeting their growth potential. 

Recognizing the need, in February 2023 FARM Capital launched the first private agro-industrial real estate fund in Mexico with an initial closing of $35 million. 

FARM Capital explained that this launch embodied a new category of industrial real estate in Mexico, specializing in Sustainable Agri-Food Chains for export, with dollarized revenues from food consumption in developed countries – primarily North America and the Middle East. 

Led by highly experienced team of investors and advisors that have collectively structured, funded, and managed multiple private market investment vehicles totaling more than US$1.5 billion across different asset classes, FARM Capital intends to leverage this experience to improve the productive capacity of exporting agro-industrial companies in Mexico by acquiring and upgrading, or building-to-suit strategic assets and leasing them back to companies meeting global food demand. 

A further significant appreciation is also expected for these industrial properties aligned with the nearshoring industrial phenomena in the area – referring to the existence of a transformative phenomena in which Mexican companies allocate a portion of their production to third-party foreign entities in close proximity to the country.

Now, little more than one year in, FARM Capital announced its first round of acquisitions of agro-industrial assets including an 18.5 hectares of high-tech greenhouses producing speciality cucumbers and tomatoes, along with a packing facility for the export of figs, avocados, lemons, and prickly pears. 

This inaugural investment represents the annual production of 7,500 tons of vegetables, the preservation of 686 direct jobs, the creation of 150 new jobs, of which 60 percent will be filled by women. It also strengthens the prospects for 1,300 small producers in the region who will adopt better production practices to meet higher market standards. FARM Capital also noted that technological advancements will be implemented in the greenhouses, including water recirculation, for the reduction in the use of chemical inputs. 

This investment of US$26.7 million is part of a $200 million portfolio with capitalization rates exceeding 10 percent in USD. It also falls at the higher end of the intended investment range for the fund, which writes tickets between US$4 million – US$30 million in promising subsectors with promising potential. 

As the fund progresses, prospective assets will include farmland and cattle farms, high-tech greenhouses, food processing, packing, and storage facilities, cold storage, abattoirs, grain warehouses and railway ports, agroindustrial parks, and agroindustrial facilities in Free Trade Zones. 

The ultimate goal is to build a portfolio of six to ten rent-producing properties that will be leased to exporting tenant companies with sales in excess of US$10 million. These triple-net lease agreements will have terms of 10-15 years with renewal options and cap rates of 9-11 percent. 

Through this structure, the fund expects to provide quarterly cash distributions of approximately 8 percent to its investors and a total cash-on-cash IRR greater than 13 percent, and to achieve final liquidity through the sale of lease contracts or assets to strategic investors, or possibly through an eventual listing as a public REIT. 

~ 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. She can be reached at lkiernan-stone@globalaginvesting.com.

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