While many institutional investors are familiar with the investment opportunities associated with financing private real estate, most tend to focus on commercial real estate assets, such as office buildings, apartments, retail spaces, industrial properties and hotels. However, they may be overlooking another compelling segment of the market: agricultural finance. In this paper, we will examine the attractive investment characteristics of agricultural finance, current market dynamics and key considerations for investing in the asset class.
Many U.S. farmers access credit as a normal course of business at various points throughout their production cycles. This can include short-term loans to help finance the planting and harvesting of crops, medium-term loans or leases to finance farm machinery and mortgages to finance land purchases and capital improvements. Investing in this debt offers an effective way to tap into a major sector of the U.S. economy that is experiencing secular growth.
Farmers can access loan financing through several sources. Many of these lenders offer these
specialized credits as investment opportunities to institutional investors:
Within the spectrum of agriculture loan types, investors tend to focus on real estate mortgages in the segment, on both a whole loan and securitized basis, with most operating and machinery debt traditionally financed by banking institutions.