Written by Edward Smith
A 2016 rule has allowed the nation’s largest water district to pay off its debts, eliminating caps on land purchases in western Fresno County. Brokers and consultants say this development may be enough to entice large institutional investors to take a chance on land in the area.
Last year, Westlands Water District repaid the federal government for infrastructure investment under the Central Valley Project by selling roughly $220 million worth of 30-year bonds. The passage of the Water Infrastructure Improvements for the Nation Act in 2016 allowed for the accelerated repayment of debts.
Most notably, the repayment eliminates caps on farmland operations. Under federal law, farming operations in water districts that still owe money can own no more than 960 acres to a single farming operation, said Tom Birmingham, general manager of the Westlands Water District.
The change may make the region more attractive to the kind of large investors — equity firms, pension funds, etc. — who have been looking to permanent plantings to diversify their portfolios.
“The existence of those limitations sometimes prevented the larger institutional investors from acquiring land in a federal reclamation district,” Birmingham said.
“The world is shifting away from family farmers,” said Marc Schuil, co-owner of Schuil & Associates, a real estate brokerage in Visalia. “It’s going more and more toward larger, professionally-managed institutional entities. This could be equity firms, this could be pension funds invested through locally managed companies.”
The reason for this is investment portfolio diversification, Schuil said. Farmland and commodity values aren’t intrinsically tied to market performance.
“They follow their own path. They can be profitable when everything else is not profitable,” Schuil added.
The problem is finding good opportunities. Because of water scarcity, as well as rules under the Sustainable Groundwater Management Act (SGMA), investors and farmers alike want land with at least two sources of water.
Because of this, land in eastern Fresno County — with its proximity to surface and groundwater — has been priced at a premium. It can go for anywhere from $20,000 to $30,000 an acre, Schuil said. And buyers line up when large tracts come on the market.
So brokers with Schuil & Associates, as well as Fresno-based New Current Water and Land, an ag consulting firm, have turned their eyes to western Fresno County in Westlands Water District.
Westlands doesn’t have the level of water security as land in eastern Fresno County, so acres can sell for half of what they do on the east side.
Every year, growers await decisions from the federal Bureau of Reclamation as to what percentage of the 1.198 million acre-feet of water under contract they will be allocated.
Under SGMA, growers have far more limited access to aquifers then they have historically relied upon.
Commercial agriculture in Westlands has garnered controversy over the years, with its poor drainage and arid conditions requiring the import of surface water. Many have questioned whether the land should be farmed at all. Representatives from environmental advocacy groups did not respond to requests for comment for this story.
But what Westlands Water District does have is lower land prices, Schuil said.
Schuil and Gary Sawyers, principal for New Current Water and Land, held a webinar for investors in January about making ag investments pencil out financially.
The two companies have an informal agreement between the two, said Sawyers.
Schuil will send a client with questions about water to New Current for their expertise on the subject, he said.
“Instead of just bumping into each other, we are now trying to help each other and cooperate with each other,” Schuil said.
Nearly 175 people attended — most were fund managers.
What Schuil tells them is land in Westlands Water District can be acquired for a fraction of that in eastern Fresno County. An acre of land often sells for less than $10,000 an acre.
By buying twice as many acres but only planting on half, it becomes a lot more feasible to come up with the water necessary for almonds or pistachios without breaking the bank.
Sawyers said he has been bullish on land in western San Joaquin Valley because of the productivity of the land.
“There are very few places in the world where you can grow as many crops as efficiently and productively as you can in the west of Fresno County and on the west side of the San Joaquin Valley generally,” Sawyers said.
For almonds — which investors crave the most along with pistachios — some reports go so far as to put an average of an additional 500 pounds per acre compared to land in other regions.
Those added yields can help offset higher water costs.
The land is some of the most fertile in the world, said Birmingham with Westlands, and innovations in water efficiencies allow farmers to produce better yields with two-thirds as much water as they have historically used.
The District continues to look for additional sources of water, said Birmingham.
One of the difficulties with soil in western Fresno County is the dense layer of “Corcoran clay” that keeps water from percolating into aquifers, even when growers try to replenish depleted water tables. A pilot project was initiated where water was directly injected into the groundwater basin. Birmingham said that method has been shown to be more successful than other methods.
Schuil acknowledges there is still uncertainty as to the availability of water. Allocations to farmers will drop in 2022 and then again in 2030. But Westlands is known for its resourcefulness when it comes to getting water to its fields.
Despite the uncertainty, investors still clamor to available land, and even on the West Side, “there’s not 100,000 acres ready to be transacted,” Schuil says. When priced right, farmland does not stay on the market long. He currently has seven clients from the webinar he hosted waiting in line for the right purchase.
“Finding that land takes dinner table conversations,” Schuil said. “These are big farms. They have countless family conversations.”