Over a lobster roll and cod cakes, Tom Eisenhauer confesses to having faced a familiar financial dilemma: He struggled to find a home for his retirement savings.
Where the former tech investment banker is a little different from you and me is that his solution was not to buy bonds or stocks for his RRSP, but to create Canada's first and largest farm fund manager, Bonnefield Inc. In the seven years since it was launched, Ottawa- and Toronto-based Bonnefield has invested more than $400-million in 77 farms across seven provinces. Performance has been impressive, with funds returning 11 per cent to 13 per cent annually, leading Mr. Eisenhauer, the chief executive officer, and his 16-person team to launch a new fund this month that's expected to bring in an additional $300-million.
Travel demands that include land acquisitions, marketing the new fund and squeezing in a few days' vacation at a family home in Lunenburg, N.S., dictate that Mr. Eisenhauer sit down to a virtual lunch with me through FaceTime.
While the Nova Scotia native tucks into homemade salted cod cakes in his Lunenberg kitchen, I'm 1,800 kilometres away, dining on a roll with a pleasingly high lobster-to-bun ratio at his favourite Toronto restaurant, Rodney's Oyster House. We're connected via the screen on my cellphone. We're both sipping water – Mr. Eisenhauer is an ardent cyclist who just finished a ride under the summer sun – as the 54-year-old describes the evolution of an asset manager that is generating double-digit returns for conservative investors, while keeping farms in families.
Bonnefield was born during the worst days of the global financial crisis in 2008. At the time, Mr. Eisenhauer was nine years into running a successful Toronto-based private equity fund, called Latitude Partners, which owned a portfolio of Canadian technology companies. Prior to this, he had spent a decade as an investment banker on Bay Street, including a stint as head of tech investment banking at TD Securities. With the markets melting down, Mr. Eisenhauer said: "I looked at my personal finances, and decided I wanted to park part of my savings in real assets. So I looked at investing in a farm, because it's real estate that generates income."
Mr. Eisenhauer in Toronto’s financial district in 2011.
Deborah Baic/The Globe and Mail
Mr. Eisenhauer is a natural storyteller who maintains a deep passion for the Maritimes, decades after moving away. The bartender at Rodney's listens to what's playing out and quietly slides two Nova Scotia oysters my way, on the house, after hearing about the Bonnefield CEO's Lunenburg roots.
While searching for real estate investments in 2008, Mr. Eisenhauer talked to two friends in Ottawa, brothers Jan and Steve Kaminski, who had run several tech companies, but have a sideline investment in a sod farm near Ottawa. The Kaminski brothers were deeply frustrated by the lack of financing options available to Canadian farmers.
That frustration prompted Mr. Eisenhauer to dive deeper into farm financing, at the same time he and his colleagues sold Latitude Partners to a rival firm. His research revealed two things: There is enormous demand for farmland financing alternatives to the banks, and that, to be credible with skeptical farmers, a Bay Street financier with an undergrad degree in economics and Russian literature needed a partner who grew up working the land.
The idea to launch a farmland fund came to Mr. Eisenhauer during a bike ride with his wife Nancy around farms owned by her uncles near Paris, Ont. The business model drew in part on well-established funds in Europe and South America that help aging farmers pass their land to the next generation.
Credibility with farmers came from Bonnefield's first hire, an Ottawa Valley cattle and cash crop farmer named Wally Johnson, who had also honed business skills as the owner of a real estate brokerage. The pair, backed by the Kaminski brothers, founded Bonnefield in 2009. Mr. Eisenhauer raised capital and Mr. Johnson used the money to buy all or part of a property, and then lease it back, in negotiations that typically played out over the farmer's kitchen table.
Farmers proved receptive to Bonnefield's pitch as an attractive alternative to what had been their only source of capital – borrowing from the bank. Farmers use a sale-leaseback arrangement with Bonnefield to pay down farm debt, plan for retirement, fund growth or smooth out succession. Bonnefield leases typically last 10 years; at that point, the farmer has the option of either renewing or buying back the land.
Farmers who currently work their neighbour's land often tap Bonnefield for the money to buy out the property next door and lock up control, in part to justify additional spending on equipment needed to service more fields. In one recent deal in Ontario, a family sold Bonnefield 500 of their 1,200 acres, set aside part of the money to prefund 10 years of lease payments, and used the remainder to help pay for retirement of one generation and buy a neighbour's farm for the next.
The company also tries to be more than just a source of cash by running programs that keep farmers up to date on new markets for crops and best practices in agriculture: A recent missive from Bonnefield highlighted the potential for selling Canadian crops to Saudi Arabia. Mr. Eisenhauer explained: "We never talk about ourselves as buyers of farmland. We are financial partners to farmers."
While farmers bought in from the start, investors in the first Bonnefield fund proved harder to convince. Mr. Eisenhauer recalls: "I was convinced this was a silver bullet for investors: an asset with dependable returns that weren't correlated to interest rates or stock markets. But I had to start from square one in terms of educating investors on farmland."
Potential backers shied away from what they perceived as commodity risk, despite the fact that Bonnefield is designed to have minimal exposure to short-term moves in crop and livestock prices: Farmers pay a set rate for land they lease. While there's always a risk that a prolonged plunge in commodity prices will have an impact on a farmer's ability to make lease payments, the track record of long-standing farmland funds in Europe and South America compares favourably with other real estate funds.
Bonnefield's first fund closed in 2011, after two years of marketing, and was relatively small, attracting $18-million from wealthy individuals and families. To meet regulatory requirements in several provinces, all farmland investors have to be Canadian.
That inaugural fund provided backers with a 13-per-cent annualized return, in part reflecting rising prices for crops, such as corn. As we waited for our cod cakes and lobster roll, Mr. Eisenhauer said the strong performance and growing acceptance of farmland as a distinct and attractive asset class made subsequent Bonnefield funds easier to sell. A second, larger fund in 2013 posted 11-per-cent returns. Backed by this track record, Mr. Eisenhauer was able to move quickly when the agricultural opportunity of a lifetime came along.
Over a six-year period, a Boston-based hedge fund quietly acquired 6,500 acres of pastoral potato farms just north of Toronto. (Ontario allows foreign ownership of farmland.) In 2011, the fund announced plans to turn the properties into a limestone megaquarry. The project drew fierce, widespread opposition, with celebrity chefs among those organizing protests. After two years of legal sparring, the U.S. fund dropped the quarry plan in 2013, leaving the Americans stuck with huge tracts of rural land.
As the dominant domestic farmland fund – there are two smaller Canadian competitors – Bonnefield was a natural buyer. Yet it took Mr. Eisenhauer months to get a meeting with the Boston fund, a reflection of the bitter battle. Once in the room, he made the most of the opportunity: Bonnefield offered $65-million and an honourable exit. The American fund agreed to sell, on the condition that Bonnefield pay within 60 days.
The unexpectedly tight deadline put pressure on the company, which only had $5-million to invest at the time. Bonnefield needed an additional $60-million, quickly, and began pitching what would be its third fund. Years of educating investors on the merits of owning farmland, along with awareness of the high-profile megaquarry fight, came together to allow Bonnefield to pull in the cash with time to spare, and eventually raise $261-million for the third fund, backed by institutions and wealthy individuals.
That cash, now fully invested, brought home ownership of the Ontario potato fields and a portfolio that also includes a wide variety of farmland across Canada, from British Columbia's Peace River region to Nova Scotia. A souvenir of the Boston encounter is one of the few decorations in Mr. Eisenhauer's modest office in Toronto: A bright red "Stop the Mega Quarry" lawn sign leans against one wall.
As we finish our seafood and prepare to end our virtual lunch without dessert – it's not just cycling that keeps Mr. Eisenhauer lean and lanky – Bonnefield's CEO talks about regions with excellent growth potential for farmland financing, despite or because of global warming.
Bonnefield expects to add to its partnerships by working with more farmers in prime areas where it operates, as well as emerging agricultural regions, such as Timiskaming, a Northern Ontario district better known for mining than cash crops. Investors have pledged $60-million to the firm's newest fund, its fourth, where the goal is to raise $300-million or more. Bonnefield also plans to reopen a farmland fund for wealthy individuals this year.
"We've only begun to tap the potential that comes with offering the next generation of farmers dependable, long-term access to capital," Mr. Eisenhauer says of a business that started as a response to where to safely invest his own retirement funds, and is now an 80,000-acre farmland portfolio, the largest of its kind in the country.