Grainfield Capital Management has begun a capital raise for its second farmland fund, Grainfield Partners II. The 10-year fund will invest in Midwest corn and soybean acreage. It is targeting a capital raise of $10 million to $25 million, with a minimum investment of $100,000. Grainfield Partners II follows a previous, smaller farm fund that began distributing cash returns to investors last spring.

“Grainfield Partners II will follow the same strategy: building, actively managing, and enhancing a portfolio of productive Midwest farms,” Dan O’Neil, a partner at Grainfield Capital Management, wrote in an email. “This is not a simple buy-and-hold approach. We’re targeting market-beating returns by acquiring quality, productive, B+/A- farms at reasonable prices and then developing and executing value-add plans to make our farms even better,” O’Neil wrote.

Partnership with Hertz Farm Management

O’Neil believes Grainfield Capital Management’s affiliation with Hertz Farm Management sets it apart. Founded in 1946, Hertz is a nationally known farm management firm with 14 offices across the Corn Belt and more than 3,000 farms under management.

“Randy and Chad Hertz are my partners in Grainfield Capital Management, and they and their team are among the best in the business, bringing advantages that are hard to replicate,” O’Neil wrote. These include local expertise, an established land-sourcing pipeline, and access to top producers, brokers, appraisers, and landowners. The trio of Grainfield Capital Management partners has committed to invest at least $1 million in the fund themselves to better align their interests with those of the limited partners.

Grainfield Partners II Fund Strategy and Terms

Grainfield Partners II will rely on Hertz’s network to identify high-quality, off-market Midwest farms. The goal will be to build a geographically diverse portfolio over the next 12 months. The fund will target properties with value-add potential, including opportunities to improve drainage and add wind turbines. The fund will leverage financing at a maximum loan-to-value ratio of 20 percent.

Upon acquisition, Grainfield Capital Management will implement various operational strategies, including annual cash leases that generate fixed rental income, crop-share leases, and contract farming, which assigns all crop-yield risks and rewards to hired farmers. Most farms will be cash-rented.

Grainfield expects to distribute cash-flow returns annually before selling the portfolio and distributing the proceeds at the end of the 10-year hold period. In the event of favorable market conditions, an extension is possible. The company is targeting a 10-12 percent gross total average annual return, including approximately 3 percent gross annual cash flow. Limited partners will receive a 6 percent preferred return, after which fund principals will receive 20 percent back-end carried interest. The principals will also take a one-time organizational flat fee of $150,000 and a 1 percent annual management fee after final closing.