Case study by TIAA-CREF
TIAA-CREF (US) explains the benefits of preserving and improving existing land and resource rights. They found that efforts taken to investigate the ownership history of potential acquisitions, the history of land use as well as efforts to prevent and proactively resolve border disputes can reduce risk and improve liquidity for the entire market in a region.
“Our efforts to cultivate best practices around land ownership have resulted in more efficient use of farmland in Brazil and have benefited local communities.”
Jose Minaya, TIAA-CREF
- Local knowledge is necessary for long-term success. Partnering with a local firm that shares your investment values is the easiest way to achieve this.
- Recognise the risks involved when investing in regions where regulatory frameworks are still evolving. Understand the local legal and regulatory environment, especially how it protects the ownership and revenue rights of foreign investors while respecting existing land rights.
- Effort is (usually) rewarded. It requires time and energy to resolve complex issues involving many parties, but the potential benefit can be significant.
- Responsible long-term foreign investors can have a beneficial impact on local farmers. By facilitating and fostering fair and responsible solutions to local issues, investors can overcome barriers to investment and productivity for the benefit of all.
TIAA-CREF is a global investor in farmland, managing over 675,000 acres throughout the United States, Brazil, Australia, and Central Europe. TIAA-CREF recognises that the agriculture industry faces diverse regional characteristics. Therefore, in 2008 the company partnered with a long-established Brazilian firm, Cosan, to create a joint venture called Radar, to make profitable long-term farmland investments in Brazil. Radar has invested over BRL 940 million (US$ 510 million) in properties in four Brazilian states. Its focus on transparency and process in environmental, labour, legal, and land use issues has made it a leader in sustainability in the agricultural real estate industry.
Challenges with land ownership in Brazil portfolio companies
The Brazilian agricultural industry includes a range of participants including small family farms, indigenous communities, and sophisticated global corporations. However, the national and local regulatory frameworks are still developing, leaving many gaps in information about land ownership. This may lead to conflict among local operators and uncertainty for investors, reducing the potential for efficient use of land resources. By using technology to reduce information gaps and by facilitating conflict resolution among market participants, Radar is able to bring greater certainty, efficiency and fairness to the market.
Investigating the ownership history of potential acquisitions
Because documentation of land ownership in Brazil is a relatively recent phenomenon, Radar has established a process to investigate the ownership history of potential acquisitions. Checking the “Deed Chain” of a property means Radar will trace the ownership of the property from its current owner back to the original owner (the government). In some cases the team has gone back more than 100 years and has verified issues or missing periods in that chain. In addition, different government institutes provide certifications related to the environment, land rights and indigenous reservations. Radar ensures that the land under consideration has the relevant certificates, ensuring that it is appropriate for investment.
Investigating the history of land use
Satellite images dating back to the 1950s enable Radar to understand the historical use of land, cultivation patterns, any transformation or development, the presence of indigenous populations, and all issues related to the environment. Combined with historical ownership documents, these are powerful tools for cross-checking information and understanding the historical use of a property.
The benefits of preventing and resolving boundary disputes
In addition, geo-referencing of a property is required under Brazilian law before a deed can be transferred. This requires that the property boundaries be defined using a Global Positioning System (GPS) demarcation with exacting specification. All owners of contiguous properties must agree on the boundaries and sign an affidavit before the registry office will transfer the deed. While the process is time-consuming and costly there has been a dramatic reduction in boundary disputes in Brazil since this law was implemented in 2000. It will take some time before all properties in Brazil are geo-referenced, but all of Radar’s properties have gone through this process.
Radar’s in-depth due diligence and the ability to bring interested parties to the table has provided ancillary benefits to neighbouring communities. For example, in 2009 the team made an offer on a property with disputes that involved more than 500 regional farms. Because of the disputes, those farmers were unable to secure credit and thus unable to farm. Radar convened negotiations that, after 12 months, settled the dispute with reasonable terms for everyone and cleaned the deed.
These negotiations became a model among a large number of nearby farmers who resolved their own ownership disputes. Several farms subsequently resumed production, generating sustainable regional economic growth. As a direct result of the increased production, a respected multinational company announced a new facility in the region. Furthermore, with ownership rights securely identified, Radar has been able to develop and propose a title insurance model for Brazil that, if adopted, may reduce risk and improve liquidity for the entire market.