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A diversified portfolio is more than stocks, bonds and cash reserves. It can be land — farmland or timberland.
An investment in land is more tangible and less volatile than equities, speakers at Thursday's Virginia Land Forum said.
"We get to deal with land, real dirt and real assets," said Dennis Moon, a managing director with U.S. Trust, an investment management company based in New York.
"From a U.S. Trust perspective, farm and timber are important ingredients to a well-diversified, long-term portfolio," said Tom Gates, moderator at the afternoon event at The Westin Richmond Hotel in Henrico County. The event drew about 130 land brokers and real estate attorneys from across the state.
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Investments in land can provide the benefits of higher returns with lower risk than equities over the long term, meaning 15 years or more, Gates said.
William G. Barnett, a partner in Commonwealth Land, a division of Commonwealth Commercial Partners Inc. in Henrico, said the price for rural properties in Virginia of more than 100 acres peaked in 2005 at an average $3,000 per acre.
Prices fell and transactions bottomed out in 2009, but the industry is seeing signs of recovery, he said.
"We believe this is the best buying market with proper due diligence that we have experienced in our lifetime," Barnett said.
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Sean M. Sullivan, a partner in the Raleigh, N.C., office of Richmond-based Williams Mullen, spoke on the challenges of investing in commercial land in light of new environmental regulations and the cost of compliance.
Some regulations have been challenged in the court as being beyond the authority of the Environmental Protection Agency, Sullivan said. "I would be surprised if there aren't more lawsuits."
Investor confidence has taken a pounding, Moon said. Commercial and residential real estate continues to feel the pain. Add in the trouble in the Middle East, surging gas prices and the devastating tsunami in Japan.
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People want to know where they can put their money, Moon said.
He said farmland is a robust asset class, particularly with prices for corn, wheat and rice rising. The world population continues to grow, and emerging middle classes in China and India are fueling the need for more and better foods.
Moon said he sees no bubble in sight — "not for real core farmland that you can grow something on." Institutional investors see this investment class as providing a good, stable return, he said.
Moon said he doesn't have a crystal ball into what will happen with land for oil and gas drilling or exploration. "It's too much of a geopolitical issue."
He described ranch land as a funny asset. "There are ways to make money running livestock, but it takes quite a bit of an operation to do."
The recreational aspects of ranch land — hunting and fishing — can be a promising investment, he said.
Doug Donnell, also with U.S. Trust, said the number of timberland transactions has dropped dramatically in the past couple of years, in light of the ailing housing industry and the reduced demand for lumber. "The markets are simply difficult right now."
He said he is bullish for the long term. "We think now is a great time to acquire timberland. Not everyone feels that way."
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Source: Richmond Times Dispatch