Location: Southern Illinois
Transaction Size: $518,628
Target net IRR: 12%
Asset: 166 acres, 88% tillable; corn & soybean farm
THE OPPORTUNITY
Farmland Capital by FBN is offering accredited investors the opportunity to invest in some of the most productive and highest quality soil in Illinois. This $518,628 investment is in a corn and soybean farm in Central Illinois, managed by the same family for almost 70 years. This is a unique opportunity to gain exposure to some of the most productive soil in the US corn belt and support an experienced operator, all at a valuation below current market rates given the timing of the deal.
KEY DEAL METRICS
Projected returns based on average appreciation from 1940 to 2022 (inclusive of all USDA land valuation data)
THE FARM
This 166 acre Illinois farm is located in the west central part of Illinois, a rural area adjacent to expanding residential areas. The property is 88% tillable with primarily Ipava silt loam and Virden silty clay loam soils. The Illinois Productivity Index (IL PI) for this farm averages 140 for this property (the highest measurement in the scale), compared to a county average of 126.
As demonstrated in the charts below, the farm has above average productivity for the county, in one of the most productive counties in the state. Additionally, the proceeds from the investment enabled the farmer to purchase the land from his father. This land has been operated by the same family for almost seven decades.
Source: Charts are from USDA - RMA crop yields. Dark points indicate crop yield reported by RMA for the county of interest. Lines show RMA trend yields.
Lighter colored points show yields for neighboring counties
Sugar Creek Farm data points based on APH yields used for federal crop insurance purposes
Farm APH refers to a farm’s Actual Production History metric, which is a regulated figure used for federal crop insurance protection
THE STRUCTURE
The investment is structured as an option on the change in farmland values and does not participate in annual farm cash flows, shielding investors from any short term changes in commodity prices, or weather and/or operational risks. At the same time, Farmland Capital investors participate more in the appreciation of the farm. In our structure, investing 20% of the land value entitles the investor to a 64% share of the change in farmland value over time.
Farmland Capital investments are therefore a straightforward bet on the long-term appreciation of farmland in this country. We expect the availability of extremely high quality farmland such as what exists on Sugar Creek Farm to decline over time, therefore increasing its value.
KEY DEAL TERMS
* All annual investment expenses are paid up front
** Five years of management fees are paid up front (on a discounted basis), with the remainder paid out through distributions at the end of the term
+Total closing and investment expenses are for the fund overall and will be split pro-rata across LPs
VALUATION
This farm is located in the premier growing region of the most productive part of the world for growing corn. It is this type of high quality asset that investors in Farmland Capital by FBN gain access to in partnership with FBN, and in a structure where incentives are aligned: the farmer is invested in improving and maintaining this acreage for the long term.
The entry value reflects a valuation comparable to farms of comparatively worse soil productivity in the area, offering investors potential upside on the exit. In addition, the appraisal comps were mostly transacted over 18 months ago in an appreciating market, implying a discount relative to market prices. Finally, the purchase price reflects a 12% discount to the appraised value. Because the property has some commercial development potential (which is incorporated into the appraisal value), we intended to reflect the primary usage as agriculture land with this discount. Therefore, an exit before ten years provides an upside opportunity for investors.
Historical farmland annual appreciation since 1940 in Illinois has been 5.9%, in line with the national average. Note that in an effort to create win-win structures for our investors and farmers, total IRR is capped at 18%.
*Avg. Land Appreciation for row crops: https://quickstats.nass.usda.gov/
**Net IRR and MOIC
+Total Gross IRR is capped at 18% to incentivize a structure that shares value across owner and investors
