July 31, 2018 Author: Murray Wise Associates
A publication we have often mentioned is the Chicago Federal Reserve’s AgLetter. The Chicago Federal Reserve does a remarkable job of reaching out to lenders and monitoring credit conditions.
In the most recent AgLetter, a quote from a lender stuck out to me: “Several area banks are putting pressure on producers with tight margins to either sell land or refinance with another bank.”
This quote confirms what I have been hearing in talks with lenders and operators. When talking to operators, I have often found that refinancing with another bank is not an option, and selling land only decreases acreage and makes problems seem more difficult.
While grain prices have remained low, inputs high, and interest rates have started to inch up -- all squeezing operators’ bottom lines -- the one positive has been that land prices have continued to stay near all-time-high values. This is due, partially, to strong demand for farmland from investors.
One potential solution in this environment is something my clients have had success with throughout my career and that is the sale/leaseback.
This has positives for both investors -- who, as I mention above, have a great appetite for land yet have had trouble finding it -- and farmers who need to improve their balance sheet. It can also act as a safety net as it did for one of my clients in the late 1980’s, when father & sons were in the midst of foreclosure on 1,600 acres in north central Iowa. An investor client of mine bought 1,300 acres and offered a 3-year leaseback. This allowed the sellers to keep 300 acres with all the buildings and livestock facilities and to keep farming the balance of the property. They are still farming the 1,300 acres today.
Another example happened just this year when I worked with a farm owner/operator to sell 80 acres to an investor with a 3-year leaseback. That investor has now purchased 4 additional farms in that area and has leased them all to the same operator.
A sale/leaseback offers investors a ready-made investment by having a long-term lease in place. It’s something many investors I speak with on a daily basis are actively seeking.
For farmers, a sale/leaseback offers the security of freeing up capital while maintaining current acreage and income potential.
In a market in which it seems hard to find a win these days, many sale/leaseback transactions have the potential to become “win-wins.”
If you are a farmer looking to do a sale/leaseback or an investor looking to acquire land with a proven tenant who has worked the land, please feel free to call me at our Clarion, Iowa office, (515) 532-2878.
Murray Wise founded the Westchester Group in 1986 after acquiring the Champaign, IL division of the Sandage Companies, a traditional farm management and brokerage firm…
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