Is TIAA-CREF Investing In Farmland A Harbinger Of The Next Asset Bubble?

Tyler Durden's picture

Who says the only investable assets are equities, fixed income or commodities? Not TIAA-CREF - the Teachers Insurance and Annuity Association has figured out that one of the arguably best fat tail investments has nothing to do with America's megabroken capital market structure, and is instead going back to grass roots... Literally. The FT reports that "TIAA-CREF, an asset manager, is ramping up its exposure to agriculture by buying a specialist investment firm, in an effort to double its activities in the emerging area of “real asset” investing. Westchester, in which the US pension fund has taken a controlling stake, manages about $1bn in assets and nearly 320,000 acres of farm land, as well as acquiring land on behalf of large clients. About 80 per cent of its holdings are managed on behalf of TIAA-CREF, one of the world’s biggest money managers." In other words, farms (or "real assets" as they are known in polite company) are about to become the next big bubble, and the "you have two cows..." joke is about to make a very violent comeback.

From the FT:

The deal will leave TIAA-CREF with more than $2bn in assets invested or committed to the agricultural sector, a total it aims to double over the next three years or so.

People close to the situation said TIAA-CREF had acquired 85 per cent of the company with an option to buy the rest in the future.

The asset manager is making its move as interest in agricultural investing rises. Investors are attracted to the sector’s supposed lack of correlation with traditional assets, such as stocks and bonds, and because owning real assets – physical entities such as land or property – is seen as a hedge against inflation.

Population growth coupled with the growing demand for food, as well as the energy and water required to produce it, are expected to support the value of farm land in the coming years.

Somehow we get the feeling Lloyd Blankfein's henchmen would not be very welcome in the plains states, yet at these rates of return, they may just be willing to risk it:

TIAA-CREF cites historical returns of 8 to 12 per cent from agricultural investing, evenly split between income from leasing land and increases in the value of land.

However, investment in the sector remains in its infancy. Estimates for institutional money invested in farm land range from $5bn to $15bn, according to TIAA-CREF, against thousands of billions of dollars worth of farm land globally.

“Institutional penetration is low right now,” said Jose Minaya, head of TIAA-CREF’s natural resources group. He said the company wanted to tap into increasing interest in the sector by enabling third-party investors to use its platform.

“We think that this is going to evolve in a similar way to real estate,” Mr Minaya said.

It's good to get confirmation that Marc Faber has been ahead of the curve (as usual) on this one.

h/t Michael

 

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economessed's picture

Have we learned NOTHING?

Commander Cody's picture

Real assets, who'd a thunk?  Sign of Wall Street's fake paper going the way of the dodo?  Or, more fake paper?

Robslob's picture

TIAA-CREF will now be owned by Monsanto

Ripped Chunk's picture

And in 2 or 3 generations, every baby will be born with an extra foot or an ass growing out of the side of its head.

ussa's picture

 

Learn about the empire from a West Point and HBS grad that is teaching the uneducated how the system works:

http://www.csper.org/renaissance-20.html

Wonder if our fellow citizens will ever understand it. 

 

 

 

tired1's picture

Thanks for posting, gives another perspective of the nature of the BEAST.

MsCreant's picture

Farmland bitchez. I may have the option to do this but did not know TIAA-CREF was offering this. I am a hostage to these folks. I pulled out of the market and went into an annuity in late 2006 and missed the haircut everyone else took. But maybe I could do this and be okay.

How do you call the top of this bubble? Is it years away?

Ragnarok's picture

Once HGTV starts doing reality shows with a bunch of yuppies becoming farmers and Nebraska becomes the biggest hot-spot in the US.

Agent P's picture

Farm Flippers, Thursdays this fall on HGTV.

"Well, the place was in total disrepair when we bought it last month, but we cut down all the overgrown corn, painted those ugly brown cows black and white, put lipstick on all the pigs, and of course put in all stainless steel & granite feed troughs and watering buckets.  We project we'll make a 300% profit when we sell next month..."

Jendrzejczyk's picture

So THAT'S how those double posts happen.

Apologies.

i-dog's picture

What's the secret? I've tried and can never get one!

MsCreant's picture

Secret, what secret?

MsCreant's picture

Secret, what secret?

Hephasteus's picture

You got to post a reply just when one of the tylers is posting a story or one of the contributors is posting or fixing one. Because it locks files and unlocks them.

Jendrzejczyk's picture

We're close already.

http://en.wikipedia.org/wiki/The_Fabulous_Beekman_Boys

The episode where they have the rednecks come out to shoot their pigs is a classic.

 

Landrew's picture

I am still working however, I thought once annuitized you are locked to that rate. I do not have that option of real asset. This may be an option only to the private side of the company.

Lionhead's picture

MsCreant, you ask about bubbles; "How do you call the top of this bubble? Is it years away?"  You & the FED seemingly cannot spot them as they are occurring. How so? May I suggest you do some simple research on markets, charting, & especially parabolas. Human behaviours are played out time & time again for all to see. There is nothing new under the sun.

What limits most folks from enjoying markets, trading, & investments is their belief system(s). They usually end up doing the wrong thing at the wrong time. Don't follow the group think of others. Research, educate yourself in the things you need to be successful. Always remember, you are the market, even if a very small part of it in the composite mosaic.

Good luck on your journey if you decide to embark on it. You will learn much, make mistakes along the way, but be rewarded in ways you never thought possible. At the end, you will "see" bubbles before they burst.

TheMonetaryRed's picture

Wait, you mean money managers are being encouraged to "snap up" marginally-productive real estate that "cannot go down in value"???

Wow, who would have thought that marketing approach would work?

Gold to $1700.

Maos Dog's picture

Now these effin wall street guys are going to come into *MY* swamp and buy all the land around me? They'll bid up the land and make my taxes go up, and I will not be able to afford to expand my farmlands.

High food prices will keep this ag land bubble going for some time if the bubble does in fact form.

samsara's picture

 

Now these effin wall street guys are going to come into *MY* swamp and buy all the land around me? They'll bid up the land and make my taxes go up, and I will not be able to afford to expand my farmlands.

I guess Dog that is the way the Elite Aristocracy has always done it.  "The Land belongs to the Lord of the Manor,  You will be punished for hunting on his land and will be fined. "

Sounds like a time for Robin Hood?

 

 

 

curbyourrisk's picture

Maybe they are buying farm land....not for investments....but for survival.....

 

 

TheMonetaryRed's picture

The "survival" of who?

The mutual fund?

So what's the concept? The retiree drives up to an alfalfa farmer and says:

"Hey, I have shares in a mutual fund that has interest in a fund that has part ownership of this farm land. Can I stay here?" 

 

 

RRat's picture

Owning and renting out productive farm land is something that requires real on-the-ground supervision. You cannot just sit in town and wait for your checks to come in. All kinds of bad things can happen down on the farm while you away. This management company needs to be really good at managing agricultural land.

TheMonetaryRed's picture

"Managing the land?"

Pal, you don't get it. This is about a story - a narrative - a sales pitch. 

The management of the farmland has nothing to do with any of this. 

Djirk's picture

Or they could mis manage farmland to crimp supply and drive up commodities? But that would be greedy and evil. oh wait

Eagle Keeper's picture

"Somehow we get the feeling Lloyd Blankfein's henchmen would not be very welcome in the plains states, yet at these rates of return, they may just be willing to risk it:"

Of course, they would just be doing "God's work"


Bruno the Bear's picture

You might want to take a look at the returns TIAA-CREF has generated YTD in its Institutional Real Estate Investment Fund - 21+% ain't bad considering the CMBS were supposed to crash and burn. Maybe they know something about managing properties.

Net asset value as of 10/01/2010 : $9.41
Total return year-to-date as of 10/01/2010 : 21.57%
Fund's net invested assets as of 06/30/2010 : $599.68 million
Gross Expense Ratio : 0.62%
Net Expense Ratio 1 : 0.59%
Inception date : 10/01/2002
Investment class : Real Estate

As of 05/15/2007 : 30-day yield : 2.40%

Leo Kolivakis's picture

Farmland and timberland are nothing new. Harvard and Yale have been investing in them for years. Next bubble? It's all partof the private market bubble that has been going on for years.

grunk's picture

Harvard? You mean the Harvard where Larry Summers was in charge of the endowment?

http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/

Maybe Larry will go back to Harvard and invest in urban gardens in Detroit.

 

 

 

RobotTrader's picture

I'm sure that farmland is a tiny percentage.

Compared to what they have in bonds.

The dip buying in bonds has been relentless.

Right now, "Paper" rules over "Things" in the investment world.

Even some California Muni ETF's hit new highs today.

Minion's picture

The could also be reacting to the spike in ag commodities pricing.

gumstick2003@yahoo.com's picture

Point is to control.  pricing, production and ultimately consumption on everything we need.  food, the most basic of all commodities.  now, firmly entrenched in monsanto shaping of human life.  bye bye organically grown family owned farmland selling fruits and vegetables brimming with life and flavor for sale at your farmer's markets. hello gmo soybeans as they watch as our bodies and brains swell with loathing of their supremacist indoctrination.  all part of the plan. wish someone could convince me otherwise. 

cat2's picture

I'm not sure it's a good investment:   property taxes

Why own something that gives the government leverage against your assets.  Property taxes are set to go through the roof as government gets more desperate for cash.

Bruno the Bear's picture

TIAA-CREF is a non-profit organization.  Doesn't pay property taxes. Probably something in lieu of propert taxes but that's voluntary.

puckles's picture

And in any event, taxes on on "unimproved" (i.e., unbuilt) farmland are, and always have been, dirt cheap.  Not to make a pun...

MachoMan's picture

Everytime I see a non profit that purchases land I wonder why it gets to compete for the same land without having to pay tax on the profits utilized to derive the capital necessary to purchase the land...  You wonder why farm land keeps going up in price, but between churches and nonprofits (i.e. you take all the money out before the year end), we get the shit end of the stick.  Complete and total bullshit.

If you want to avoid taxes AND buy land, then you can pay taxes on the purchase of the land... no more "we would rather expand than actually be non profit"

/rantoff

gwar5's picture

I agree on the property taxes. It's a prime factor. I picked up something cheap on 7 acres, w/ just low county taxes in NC. Well and septic. Even if taxes double, it's still less than $1k per year. They're out there.

 

 

silvertrain's picture

  Yep..There are laws in place to keep taxes low on A-1 Agriculture farmland, I think here in Va. You need to have 20 acres to qualify along with growing or producing something.....I have 11acres right now and am desperately trying to find a way to gather in a few more..Im going to grow Loblolly Pine trees as a substainable crop, *wink*...My taxes would go down to $10 per acre then...

whiskeyjim's picture

Buying farm land is the next fad to avoid the crushing, looting cities and provide a stable food source after the economy collapses.

This is just more of the same.

gwar5's picture

Sweet. Now teachers can grow a real cash crop like marijuana to fund their pensions.

Actually, not a bad investment. Both Jim Rogers and Faber have been saying this. I bought foreclosed farmland with a house in the country in the Spring. I'm feeding the deer for opening day and planting fruit trees.

Ruth's picture

I guess they got the memo about raw land being....THE PLACE THEY'LL HAVE TO LIVE AFTER THEY TAKE ALL YOUR HOUSES!

Rental farmland, BITCHEZ!

MsCreant's picture

Work Campz BITCHEZ!

Great to see you Ruth. It is Ruth-less without you!

StarvingLion's picture

Now we can bulldoze entire suburbs to make way for LandBubble.  Then after LandBubble goes bust, build houses again.  Rolling bubbles people. 

TheSettler's picture
  • 77 percent of farmers in Arkansas did not collect subsidy payments - according to USDA.
  • Ten percent collected 81 percent of all subsidies.
  • Amounting to $7.26 billion over 15 years.
  • Top 10%: $63,755 average per year between 1995 and 2009.
  • Bottom 80%: $745 average per year between 1995 and 2009.
TheSettler's picture
  • 62 percent of farmers in United States did not collect subsidy payments - according to USDA.
  • Ten percent collected 74 percent of all subsidies.
  • Amounting to $156.2 billion over 15 years.
  • Top 10%: $29,675 average per year between 1995 and 2009.
  • Bottom 80%: $579 average per year between 1995 and 2009