Brian Luftman of American Farm Investors
“Buy land. They’re not making it anymore,” is a quote often attributed to Mark Twain, and later to humorist Will Rogers.
More people are following that advice, and one Lexington company attracts investors from across the United States in the purchase of Central Kentucky farmland.
American Farm Investors LLC owns tracts in Boyle, Mercer and Marion counties, and it plans to close on the purchase of more acreage in Hardin County, said Brian Luftman, who started the company nearly six years ago.
“Investors from all over the country are recognizing that Kentucky is a good place to invest their money,” Luftman said. “They can get productive land in a place where water resources aren’t drying up. They are in a growing market in a cool industry — bourbon — that they understand. They love the fact that they can invest in Kentucky land and they know what their crops are going to.”
The 2008 Great Recession caused some investors to seek farmland because it was seen as a secure place to put money, according to a Yale University study released in November.
Historical data shows that farmland has outperformed stocks over the past 40 years, the Yale study said.
AFI leases its land to tenant farmers who pay labor and other costs to grow the crops. The tenant farmers pay rents to AFI, which then pays dividends to the investors.
Among AFI’s investors are Catherine and Chris Arne (who received his doctorate from the University of Kentucky). The Illinois couple wanted to invest in land without buying an entire farm and managing it themselves, Catherine Arne wrote in an email.
“Even if stocks are a completely sound investment, I dislike investing in corporations, which I think are responsible for the demise of small independents, the downward pressure on wages, and the homogenization of the country, which I think are all disturbing trends,” Catherine Arne said.
The Arnes have not seen the Kentucky land in which they invested.
“It wasn’t important to us to see it in person,” Catherine said. “We have more information about it than we do for companies in which we hold stock. The fact that we could see the land if we chose was enough.”
Like many investors, the Arnes want to put money into tangible assets: real estate and precious metals.
“In a world where all of your assets are essentially electronic — your bank accounts, all of your investments — people have gravitated to keeping a small portion of their assets into real assets that they can go feel, touch, see,” Luftman said.
About 40 percent of AFI investors live in Kentucky, and 60 percent are from out of state, Luftman said.
“Most of them are self-made millionaires, very smart entrepreneurs, whether they are physicians who have opened their own practice or business owners who have sold their business or they’ve operated a business for many years, and they have a lot of operating cash that they want to invest,” he said. “Almost all my clients are investors who have a diverse investment portfolio, and they think of this as the illiquid, risk-free part of their portfolio that is set-it-and-forget-it.”
Luftman, 38, a Dunbar High School graduate, once traded in cattle options and cattle futures at the Chicago Mercantile Exchange. He also once owned Illinois farmland that was used to grow white corn for snack maker Frito-Lay. He bought the farm for $4,800 an acre in 2008 and sold it for nearly twice that three years later.
That experience led Luftman to create a company that would help accredited investors put farmland into their portfolios. (To be considered an accredited investor, you must have a net worth of at least $1 million, excluding the value of your primary residence, or have income of at least $200,000 each year for the past two years.)
“What I wanted to do is create a company that helped make farmland investing more of a reality,” he said.
Institutions and funds are buying more land. For example, between 2007 and 2015, financial services company TIAA spent $8 billion on farmland purchases in the United States and overseas.
The interest in farmland is due to a number of global factors. Demand for row crops such as soybeans is increasing because of population growth and the demand for protein. The current world population of 7 billion people will increase to 8.5 billion in 2030 and 9.5 billion in 2050.
But land suitable for growing crops land decreased by more than 50 percent between 1950 and 2000. Worldwide, more than 75 million acres of farmland are lost each year to industrialization, urbanization and desertification.
So farmland is a limited resource that has a higher rate of return than many other conventional investments such as shares and bonds traded on Wall Street, according to a presentation given in May by John Farris of Lexington, founder and president of LandFund Partners. That company manages thousands of acres in Arkansas, Louisiana and Mississippi.
Between 1980 and 2015, Iowa farmland owners averaged annual returns of 10.5 percent (capital gains and cash rents) versus 8.1 percent for the S&P 500, according to the National Council of Real Investment Fiduciaries.
But the big institutional investors don’t have holdings in Kentucky because the Bluegrass State doesn’t have the large tracts that Iowa, Illinois, Indiana and other states have.
That’s where AFI comes in, because it looks for smaller tracts that might be of interest to investors who pool their money to buy land. Before it buys a farm, the land is mapped and evaluated for soil depth and soil quality, “so we know that this will be a productive farm for a long time,” Luftman said.
“We’re not some cold hedge fund or huge institutional investor that has no care for the land that we’re buying and thinking of it strictly as a land investment,” he said. “We’re here in Kentucky buying land within 100 miles of here, and we’re trying to create a long-term view of how to sustainably farm this acreage for many, many decades.”