November 4, 2020

By Lynda Kiernan, Global AgInvesting Media

Homestead Capital USA Farmland Fund III has held its final close at $596 million, bringing the firm’s total AUM across its three funds to exceed $1 billion. 

Founded in 2012 in San Francisco, California, and with offices in Idaho, Illinois, and Arkansas, Homestead Capital has built and manages a vertically integrated portfolio of farmland across the U.S. that spans crops, lease types, operators, and regions.

Focused on investing and operating farmland throughout the Mountain West, Delta, Midwest, and Pacific regions of the United States, Homestead has curated a team led by co-founders Gabe Santos and Daniel Little that has a deep well of experience in agriculture, financing, farm management, farm acquisition, portfolio construction, and risk management.

“We are grateful for the support and opportunity to invest on behalf of our broad range of returning and new investors,” said Dan Little, co-founder and co-CEO, Homestead. “We are humbled by our limited partners’ confidence in us as investors. Fund III represents an endorsement of our ability to drive positive investment outcomes and act as long-term stewards of our limited partners’ capital.”

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.

Through an investment process that considers “labor, sustainable farming, and the environment”, Homestead is mindful of “…issues that relate to climate change and the scarcity of water” through its diligence and management. Using a proprietary software platform for modeling asset returns that accounts for yields, soil quality, climate patterns, commodity prices, and other factors, Homestead is able to manage concentration risk at the portfolio level, according to the firm’s website.

When asked about sustainability practices, co-founder Gabe Santos told GAI News in 2019, “The ones we employ are varied, depending on the type of farm we’re investing in. For example, water efficiency; we can deploy capital to make irrigation systems more efficient. More precise allocation of water can enable us to change crop rotation to a more profitable crop. Other sustainable practices we can use include variable rate of application of fertilizer, no-till farming and the use of cover crops.”

It wasn’t too long ago, in mid-September, when GAI News learned that Fund III had secured a $60 million commitment from the $19.5 billion State Universities Retirement System of Illinois (SURS). 

This investment, which was approved during the SURS Investment Committee meeting held on September 10 following a closed session presentation, marked the pension’s first investment in farmland, and in its first in Homestead.

Last year, New Jersey’s $70 billion public-employee pension manager, the New Jersey State Investment Council, also agreed to commit $100 million in Homestead Capital’s third fund.

“The United States farmland market continues to undergo a transition that presents many attractive investment opportunities,” said Santos. “Our strategy is uniquely suited to create value by utilizing our local networks and expertise to source farms and improve them, all the while preserving their long-term health through our sustainable farm management practices.”

Homestead closed its first farmland fund in 2015 at $173 million with a portfolio of farms spanning 11 U.S. states producing 16 different crops, including cotton, rice, wheat, soybeans, tree nuts, apples, table and wine grapes, as well as citrus fruits.

Fund II followed, closing oversubscribed at more than double the size of Fund I at $400 million in November 2016. This fund tracked the same trajectory as its predecessor, pursuing investments in both row and permanent crop farmland across the Mountain West, Delta, Midwest and Pacific regions of the country.

And consistent with Fund II, the firm states that Fund III will focus exclusively on investment opportunities in both row and permanent crops across the Mountain West, Pacific, Midwest, and Delta regions of the U.S. 

“We have been laser-focused on building a world-class team and organization that is best positioned to generate attractive risk-adjusted returns on our farmland investments,” said Santos. “While our core team has grown since Homestead’s founding in 2012, our commitment to disciplined, value-add investing underpinned by local presence has not changed.”

Little added, “We’re excited by the increasing recognition of the crucial role that farmland plays in a diversified portfolio, particularly in a macro environment characterized by low yields, high volatility and a renewed focus on environmental sustainability.”

– Lynda Kiernan is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, and HighQuest Group’s Oilseed & Grain News. She is also a contributor to the GAI Gazette. She can be reached at lkiernan@globalaginvesting.com.