Inside The Growing Real Estate Asset Class That's A Favorite Of Bill Gates, The Mormon Church

A series of unknowns looms over commercial real estate, with uncertainty sidelining many investors and motivating a small but growing number to cut their losses and bet on American farmland, an asset that remains in high demand even as prices soar.

Farmland is known for its historically strong returns, low volatility and ability to act as an inflation hedge. That gives the asset a relative stability that is a big draw for CRE investors, especially in an era when interest rate hikes are decimating profits, said Carter Malloy, founder and CEO of farmland investment platform AcreTrader.

“We are seeing a lot of interest from those more traditional real estate types of folks,” Malloy said. “In commercial real estate, you’ll have plenty of people who show up and say, ‘I doubled my money last year,’ and plenty who will say, ‘I lost it all.’ That’s a rarity in our world.”

Over the last 20 years, U.S. farmland delivered an average return of 12.24%, according to the National Council of Real Estate Investment Fiduciaries Farmland Property Index. Between 2008 and 2022, total farm value increased 75% to $3,800 per acre, with cropland values in particular skyrocketing by 83%, according to Cushman & Wakefield.

More recent stats show agricultural land values staying mostly flat from 2014 to 2020 before bouncing 20% in two years to its current value.

The majority of America's 900 million acres of farmland are still owned and operated by farmers themselves, but deep-pocketed investors in the space demonstrate the draw for the well-heeled. Bill Gates reportedly owns 270,000 acres across 18 states, and The Church of Jesus Christ of Latter-day Saints, one of the nation’s largest private landowners, has roughly 1 million acres in its portfolio. 

But despite the asset’s many benefits, institutional owners still only make up between 2% and 4% of the buyer pool. That is because it isn't nearly as accessible as more traditional asset types, Malloy said, and even once it is secured, it can be difficult to manage, especially for those with no experience or connection to the space.

That is slowly changing. Dallas-based private equity group Macfarlan Capital Partners dove headfirst into farmland in early 2021 after years of investing in value-add office and retail. Today, the firm owns 25,000 acres across three farms in Montana, and it is preparing to double its holdings with another acquisition in South Dakota.

“It was not necessarily an easy decision to pivot,” Macfarlan partner Trevor Hightower said. “But the conviction came from the price-to-risk dynamics of those asset classes coming out of the pandemic.”

The value of office has fallen precipitously as pandemic-era vacancies persist and rent growth slows. Firms like Macfarlan saw the writing on the wall early and decided to reallocate funding toward assets with more potential for long-term appreciation.

According to AcreTrader, a $10K investment in farmland in 1991 would now be worth more than $232K. By comparison, the same $10K invested in CRE today is worth $108.7K. 

“Farmland was the right alternative asset class that had a lot of the attributes we liked about commercial real estate,” Hightower said. “Prices remained at very high levels in office and retail, and we didn’t see prices [accounting for] any of the risk to where we felt confident that’s where we should direct investor capital.”

About 20% of Macfarlan’s portfolio is farmland, but the hope is to grow that share as the firm sells its other holdings, Hightower said.

“We haven’t ruled out purchasing the right office property, but our focus and our belief and our conviction is in farmland and growing our portfolio there,” he said.

A handful of real estate investment trusts are providing wider access to farmland. Denver-based Farmland Partners, a REIT that not only owns and manages farmland but also makes loans to farmers, has an equity market cap of about $600M.

Executive Chairman Paul Pittman grew up in a farming family and began buying agricultural land as an investor in the mid-1990s. He took his company public in 2014 and has since grown his portfolio to 194,000 acres across 20 states worth $1.3B.

“Farmland never really has a bad year,” he said. “I hate to sound trite, but did you eat today? Do you plan on eating tomorrow? What we are normally playing for in agriculture is the insatiable demand for food that grows with population and grows with worldwide wealth.”

Institutional groups have historically written off farmland because of the relatively small size of each purchase, but what many don’t realize is that holdings can quickly add up, Pittman said.

“We have $600M of farmland in central Illinois, and we accumulated $2M to $4M at a time,” he said. “It wasn’t really hard, and it didn’t take that long, but unless you grew up around that, you just think it’s this tiny individual transaction market that can never create scale.”

About 40% of American farmland is leased, Pittman said. That share is as high as 55% in prime farming states like Iowa, according to data from Iowa State University.

“Massive amounts of farmland are owned by wealthy people with rural roots who don’t actually farm,” Pittman said. “It will always be a big piece of the market because a lot of them get started by inheriting farmland from their parents or grandparents. They add to it or don’t sell it because they like it as an investment.”

Institutional ownership is also limited by national and state-level restrictions, said Wendong Zhang, an assistant professor and extension economist at Cornell University who spent years leading farmland research at Iowa State University.

Eight states have anti-corporate farming bans on the books, including Iowa, where companies of 25 stakeholders or more can’t easily purchase more than 1,500 acres of farmland.

The point of the law, which dates back to 1975, was to keep corporations from bidding up costs, but Zhang said a shortage of supply, extraordinarily high demand and lucrative returns have made Iowa farmland expensive regardless. Only 6% of Iowa farmland was owned by corporations in 2022. Close to 60% was owned by local, existing farmers. 

Even in states like Illinois, where anti-corporation laws don’t exist, the presence of institutional buyers is relatively small, with more than two-thirds of acreage still owned by local farmers, Zhang said.

“In percentage terms, their share is significantly higher, but they’re still not the dominant buyer in the market,” he said. 

The value of farmland in Iowa jumped 17% to $11,411 per acre in 2022, with all 99 counties notching an increase, according to an annual survey conducted by Iowa State University. Neighboring Illinois saw prices increase by 25% to $10,300 per acre, per Farmers Business Network.

The people paying top dollar for farmland tend to be tenured farmers, not institutional investors, Pittman said. Once costs per acre get too high, investors tend to bow out in favor of fixer-upper properties in areas where land is cheaper but can be upgraded to achieve higher returns.

“I’ve sold something recently where Bill Gates got outbid by a local farmer,” Pittman said. “His team ran a financial model and it got to a return level they didn’t like, and the farmer paid a little more.”

Macfarlan has partnered with an operator that has a long track record of farming in Montana and South Dakota. The firm underwrites its acquisitions to 10-year holds with the end goal of either selling to the operating partner or to another institutional buyer.

“We do see value in that region relative to other parts of the country,” Hightower said. “Long-term, we like where row crops are going to be in Montana and South Dakota and where we can get in at a good price now since we are doing long-term holds.”

The value of South Dakota farmland jumped 19% to an average cost of $2,600 per acre in 2022, per the Department of Agriculture. Montana’s value increased 11% to $1,030 per acre.

For the most part, higher prices are still set by local farmers, Zhang said, though the growing prevalence of wealthy buyers is making it harder for entry-level farmers to purchase land. 

To be successful in the row crop space, a farmer needs between 400 and 500 acres, Zhang said. With prices fluctuating between $10K and $15K per acre in some regions, the capital investment is too significant for many beginners.

“Overall, the increase in investor demand definitely creates more pressure for all the market players to bid higher,” Zhang said. “But in general, this market is very tight in supply, and even before you see an increase in investor demand, it’s still not easy for a beginner farmer to get into.”

The barrier to entry is not a new phenomenon. The share of land bought by new farmers in Iowa has remained below 10% since at least 1989 and was roughly 5% in 2022, per Zhang’s research.

When surveying existing landowners, about 75% said they would be willing to sell to a beginner, but only if the purchase was supported by federal or state tax credits. The same share of respondents said they would sell to a hardworking beginner farmer at fair market value, but only 40% said they would sell for below fair market value.

Close to 60% said they were worried about an entry-level farmer’s ability to pay top price. Sharita Humphrey, a Houston-based financial consultant and farmer who was at one point homeless, said the jump in costs has made it more difficult for beginner farmers like herself to purchase land.

“I’ve hit financial rock bottom, so I have a bit more resilience than most,” she said. “But for many who I hear from in this space, they just give up on their dream, or if they’re in the process, once it starts to get too difficult financially, they just throw it all away.” 

Humphrey and her husband, who comes from a farming background, have a goal of purchasing about 300 acres in Texas over the next couple of years. They won a bid for their first 50 acres last year, but the sale fell through after soil samples failed on a portion of the land.

They were devastated, but they are determined to keep going. Part of Humphrey’s mission is helping other minority farmers improve their financial acumen so they can also build generational wealth through the accumulation of land.

“It’s been a journey, but we’ve learned a lot,” she said. “From firsthand experience, I can help other future farmers to understand what all it takes. It’s not just the farmland — it’s all the other things that go on behind the scenes that people don’t talk about.”

The average age of all U.S. farm producers in 2017 was 57.5 years old, per the USDA, and upon their deaths, many owners will transfer their land to their children. 

Experts like Zhang predict the vast majority of those children will lease the land out, but some may choose to sell to corporations. In those cases, knowledgeable investors with an altruistic desire to protect America’s food security can add value to the space, Pittman and Hightower said. 

“In a lot of cases, the next generation doesn’t have a desire to farm,” Hightower said. “There needs to be a solution in place that really accounts for that and keeps the U.S. farming industry going.”

CORRECTION, JULY 11, 9:02 A.M. CT: A previous version of this story misidentified Paul Pittman's title. It has been updated.