Agricultural Land: A Hidden Gem In Real Estate Investment
Agricultural land is a hidden gem in real estate investment as it is relatively stable, has lower overhead costs, and has the potential to provide a steady stream of income. For Avenue Living Asset Management, it has become an important part of the company’s overall investment portfolio.
Leif Snethun, CEO of the Avenue Living Agricultural Land Trust, explains that the fund currently has just over 37,000 acres under management with an asset value of $58.3 million.
All of Avenue Living Agricultural Land Trust’s properties are currently located in Saskatchewan.
“Outside of high-net-worth families, farmland has not been a common investment. Historically, it hasn’t been an easy investment to make as it is not commonly available or top-of-mind for most people,” said Snethun.
“The Avenue Living Agricultural Land Trust is unique in that it can offer investors exposure to the agricultural land space,” said Snethun.
“At Avenue Living, we see value in farmland because it is a tangible asset. Though there are other tangible asset options an investor can choose from, many, such as precious metals for example, rely strictly on the potential increase in value of the asset to generate a return. They do not carry that secondary opportunity to generate a rental revenue stream,” added Snethun.
“Farmland is among the most low-maintenance asset class of real estate investments. The property owner and tenants’ interests are usually aligned with these types of investments. The tenants are incentivized to look after the land for personal reasons and gains, as they want to maximize the size of their crop and, ultimately, maximize that particular yield.”
A recent article in the Western Producer publication suggests that farmland in Saskatchewan might have been a better investment than gold over the past 20 years. It noted that the average increase in Saskatchewan land values from 2000 to 2018 was about 8.5 per cent, on top of the rent landlords collect annually from their tenants.
Snethun said Avenue Living aims to acquire land that has a higher likelihood of appreciation in value.
“We don’t look to acquire the top, high-grade farmland which has already gone up tremendously in value, nor do we look at land that is low-grade, such as pastureland or land that should be transitioned to pastureland. We look for that sweet spot where we find quality soil that still has a lot of room to move up from its current price point,” added Snethun.
Acquiring farmland in Saskatchewan is heavily restricted which has kept the costs lower than neighbouring Prairie provinces, while rents remain comparable. Avenue Living benefits from an exemption order from the Saskatchewan Farm Land Security Board that allows it to acquire Saskatchewan farmland though its investment fund structure. Avenue Living intends to acquire additional acres before the end of 2020.
“We have approximately 13,000 acres in the pipeline right now. These are deals we are actively working on getting under contract for closing in 2020,” Snethun said.