The Wall Street Journal-20080212-From London- a Rural Focus- Elbow Room Sought As Global Prices Surge for Farmland
Return to: The_Wall_Street_Journal-20080212
From London, a Rural Focus; Elbow Room Sought As Global Prices Surge for Farmland
Full Text (623 words)Special to The Wall Street Journal
LONDON -- London money managers are shopping in the countryside, not just for weekend houses but for investments.
Investors have been snapping up farms, rural estates and other agricultural land in the U.S., Argentina, Russia and Australia for the past few years, as rising commodity prices, growing food demand from China and the push to turn crops into biofuels have made rural land there more popular. Now, the trend has spread to Britain, where investors are betting that the value of farmland -- up sharply last year -- will continue to outperform other real-estate investments.
Prices of arable land in Britain rose 28% last year to about GBP 3,446, or roughly $6,800, an acre, according to Savills PLC, a real- estate services firm based in London. In contrast, prices of residential property in the United Kingdom rose between 6.5% and 7% last year, says the agent, while those of commercial property fell 8.6%, according to the London real-estate-information firm IPD.
With farmland prices surging, "we've got investors and buyers desperate to get into the market," says Liam Bailey, head of research at British estate agent Knight Frank. But the volume of land that comes on the market is in short supply compared with the new demand from investors and farmers attracted by potential profits.
U.S. money manager BlackRock Inc. in October started a London-based agricultural hedge fund to invest in commodities, equities and farmland, beginning with land in Britain. The fund had assets of $253 million in January, according to a memo sent to investors.
Though BlackRock is focusing on British farms, the move makes sense broadly, says Mohammed Kamal Syed, chief executive of Axiom Funds, a London money manager that invests in hedge funds, including BlackRock's agricultural fund. "We believe agriculture is in a secular bull market," Mr. Syed says.
Braemar Group PLC, a residential-property company based in Cheshire, is raising money for a GBP 20 million fund to invest in British farmland. The company has contracted with a farm manager, Humberts, to run the farms, which will grow cereal crops suitable to convert into biofuel.
Whether funds will be able to invest in British land in a significant way remains a question. Only about 180,000 acres of farmland are openly marketed in the U.K. each year, down about 30% from the late 1990s, says Crispin Holborow, head of Savills's farm agency. "The difficulty for the sums in investing in the U.K. is it's hard for investors to buy land. It's difficult to find," he says.
Savills is working on devising lease-back arrangements, so that farmers who own land can sell it to investors and continue to farm it. But so far no such structure is in place, he says.
Some investors use tenant farmers. For example, Grainger PLC, a British residential-property company, in January bought a 5,200-acre estate in Staffordshire -- complete with 60 houses and cottages, an 8,000-square-foot manor house in need of repairs and the ruins of a 15th-century abbey tower -- for GBP 34.6 million. The Ranton Estate, formerly owned by the late Lord Lichfield, a cousin to Queen Elizabeth II, will give Grainger annual rent of GBP 762,000 from the tenants and farmers already on the estate, along with some immediate trading opportunities and long-term exposure to rural property, says Michael Lamyman, acquisitions director at Grainger.
"We've only owned it about a week, and we've been getting a lot of calls from neighboring farmers that want to buy more land just so they can expand their acreage," Mr. Lamyman says. Though the company will likely make some quick sales, he says it will hold on to most of the land "just because we feel that land prices will continue to rise."
