UBS AgriVest Farmland Fund Inc., a Connecticut-based farm real estate fund has emerged as the winning bidder in two widely watched private land auctions in Texas and Wisconsin.

The purchases are unusual for their scale and reflect both the growing ranks of institutional investors aiming to boost their exposure to the buoyant agricultural real estate sector and a tight market in which few attractive properties are available for sale.

Through September, Midwest land values are up 13% from a year, according to a survey of agricultural bankers by the Federal Reserve Bank of Chicago. That pace is down from 14% and 22% annual gains in 2010 and 2011.

Speaking at a conference hosted by the Chicago Fed last week, Murray Wise, founder of Westchester Group-a Champaign, Ill. farm asset manager now majority owned by New York retirement fund manager TIAA-CREF-speculated that as much as $10 billion in institutional capital is searching for a home in U.S. agricultural land.

"Institutional investors are very frustrated at the moment," says Mr. Wise. "They feel almost locked out of the Midwest marketplace as rent income yields continue to decline and the cash position of the operating farmer in most cases is too much for them to compete with."

Though farm rents are on the upswing, land prices are rising faster, pushing rent income yields from 5% in 2006-2007 to 3%-4% today. "Many institutional investors are having a hard time accepting a 4% cash-on-cash return, and in some cases less than 4%, when in fact they want 7% ideally," says Mr. Wise.

The tightening land market presents a growing hurdle for farm investment managers who are under pressure to put client cash to work. At mid-year, UBS AgriVest had $288.6 million of client funds awaiting investment in farmland.

 

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In a June meeting with the Alaska Retirement Management Board-which owns $640 million in U.S. farmland managed by UBS AgriVest and Hancock Agricultural Investment Group-James McCandless, president of UBS AgriVest, told Alaska officials he wouldn't begin investing a September 2011 $100 million mandate from the Iowa Public Employees' Retirement System until he had found property for $41.6 million of Alaska funds awaiting investment and $147 million queued up for the UBS AgriVest Farmland Fund.

On November 13th, UBS AgriVest paid $67.5 million or about $6,922 per acre for 9,754 acres in southwest Wisconsin. The deal ranks among the biggest sales of Wisconsin cropland in recent memory and is unusual for the UBS fund since its average farm investment is $4.8 million.

The purchase also marks UBS AgriVest' s return to the Midwest after at least three years, while it sought more attractively priced farm properties in Georgia, Texas, Arizona, Idaho and Oregon. The fund acquired just one property in the first half of this year.