Farmland and timberland are becoming increasingly attractive to long-term investors, according to Navigating Opportunities in a Dynamic Market, a Specialty Asset Management Outlook update released by Bank of America (BoA) on April 30.

Land = Inflation Hedge

“We are seeing an increased demand from clients in this real-asset space to serve as a hedge against inflation and interest-rate volatility,” says Ken Shepard, BoA’s Head of Specialty Asset Management. “These clients don’t want to just invest in assets. They want assets they can walk on and have more control over.”

One of the appeals of land investment is a tangible and even emotional connection that rarely comes from owning stocks or other paper/electronic assets. Chad Rushing, who oversees BoA’s Farm and Ranch division, says this is especially true for many younger investors.

Emotional Connection to Land

“We’re noticing that the next generation is often very interested in farmland,” Rushing says. “A lot of them believe in the long-term value of supporting farmland investment and have a passion for it. Last year, I took clients to a farm they purchased in Nebraska — it was their first farm acquisition — and they got emotional talking with the farmer. There is often that type of attachment for our clients.”

BoA Managing Director Tom Crowder says he sees a similar dynamic taking place within timberland investment. “In addition to building a portfolio, they’re also going out and experiencing the property,” Crowder says. “It’s a heartstring type of asset.”

The BoA report indicates that the investment outlook for both farmland and timberland remains strong. However, Rushing says farmland profits have started to stabilize because of a recent slowdown in commodity prices.

Commodity Prices Recalibrate

“We had strong appreciation and good income growth from the fourth quarter of 2020 through most of last year,” Rushing says. “But we’ve seen commodity prices moderate a little bit, and land-value appreciation has stabilized. Some areas are even slightly lower over the last 12 months. But we’re still in a stable land-value situation that is providing good opportunities.”

As for timberland, Crowder says investors are intrigued by all the additional revenue opportunities that can come along with ownership, such as renewable-energy projects, conservation easements, carbon-sequestration markets, and wildlife management.

“One of the bright spots in the market right now is these alternative value streams. That really resonates with some of these investors,” Crowder says. “Those streams are increasing, and the clients who have multiple objectives for this type of land are also increasing. We’re seeing more clients who are interested in the core investment principles, but also are looking at some of the additional objectives and values that come with timberland.”