Toronto private equity firm Area One Farms is raising two funds to expand its business of partnering with Canadian farmers, President and CEO Joelle Faulkner told Buyouts.
Area One Farms Fund IV is targeting $250 million (US$194.4 million) from institutions, with room to raise around $100 million more.
A cornerstone commitment of $100 million has been secured from a Canadian institution. The fund has a 10-year term.
Area One Farms Fund V is aimed at Canadian individuals and structured as a permanent-capital vehicle, with liquidity options starting in year five.
It will seek $50 million to $100 million to invest in Manitoba and Saskatchewan, where laws limit the ability of institutions to purchase farmland. Faulkner hopes to hold first closes in the summer and to wrap up fundraising by year’s end.
Area One closed its third fund in August 2017 with $130 million, exceeding its target by 30 percent.
The firm’s first two funds were small proofs of concept for the partnership structure, Faulkner said. “Fund III was proof of concept of our ability to invest a more substantial amount of money.”
Funds I and II are exceeding the targeted 12 percent net IRR, she said, while the third fund is ahead of expectations in its initial land-improvement phase.
“We do a lot of land improvement” to increase productivity — clearing brush, adding drainage and irrigation, Faulkner said. The land will be used to grow annual crops, primarily wheat, canola, soybeans, quinoa, peas and lentils.
Area One’s shared-value model involves partnering with operators in 10-year joint ventures.
The firm puts up most of the equity to buy acreage and invests in equipment, land improvement and research. Farmers share in the earnings and can buy the expanded property in the 10th year.
The idea is to help farmers expand or keep their operations in the family, Faulkner explained.
“Either you’re retiring and you have no kids interested (in farming), in which case you want to sell,” she said. “Or you’re retiring and you have three kids interested, so you have to triple the farm size, and you need so much capital.”
Because Area One’s partners earn income and appreciation on the part of the property they don’t own, “unless they could do it really, truly on their own, they’re better off with us than any other method.”
Photo of Joelle Faulkner courtesy of Area One Farms