Fat of the land

   After spending 10 years making money betting on interest rates, Joe Leininger is generating profits in a much more traditional way - from land. He and partners Jim Geisz and Aaron Patsch have turned investing in land used for agriculture, mining and timber into a profitable niche. Their Resource Land Holdings LLC operates three funds totaling $246 million, and they plan to launch a fourth fund later this year.

   The company's initial fund has generated returns averaging more than 20 percent a year with low risk to the original investment - mostly for pension funds and other institutional investors - largely by acquiring property in declining markets, Leininger said.

   "We have developed a model that invests in cyclically valued hard assets and buy on the downside. It is somewhat of a contrarian investment model," Leininger said. "To own things that are basic human needs like food, shelter and water makes sense to us."

   The key to Resource Land's strategy is acquiring property that generates income from agriculture, mining or timber but eventually can be put to other uses such as recreation, giving investors both an income stream and a chance that the land will grown in value.

   "They seem to have a sense of knowing how to make money in real estate. They are in a smaller market with not as many players, and they find small niches," said Andy Code, a Resource investor and partner in a Chicago-based $2.5 billion private-equity investment firm.

   That strategy has been so successful that the company raises money for its funds in as little as 10 days and already has commitments for $300 million for its next fund. Leininger said the company attracts investors through referrals and repeat business from existing clients. Investments in the funds aren't sold to small investors.

   Jess Correll, chairman of Kentucky-based insurer UTG Inc., called Leininger and Resource "very disciplined. They don't overpay and see opportunities that others don't see." Correll and his company have invested more than $20 million in Resource in the past three years.

   Dennis Fitzgerald, a former car dealer in Colorado Springs and Pueblo, has been a Resource investor since 2000 and, after looking at its strategy, determined that its management has "to be either real smart or lucky to make it work. Evidently they're both."

   Resource finds its investment properties through a network of partners who operate the farms, orchards, quarries and timber operations it acquires, Leininger said.
   The operating partners retain an ownership stake, giving them an incentive to boost profits.

   "These entrepreneurs have not had access to capital like those in technology" and other industries with higher visibility, Leininger said.

   "Our edge is that we identify key partners that can add value into a lifetime relationship, which gives us access to deals that never (formally) go on the market."

   In its three investment funds, Resource owns 30 properties in 13 states including a coal mine in Indiana, a sand quarry in Alabama, a limestone quarry in Texas, an orange grove in Florida, an apple orchard in Washington and timberland in northern California.
   "We seek out areas where there is no other capital to improve the property and bring out the underlying value," Geisz said.
   "Where we are looking, there is a lack of competing capital, and that puts us in a position to make advantageous acquisitions."

   High commodity prices have made such deals harder to find, so Resource is looking internationally for agricultural land and domestically for semirural property that could be developed when the nation's housing market begins to recover, Geisz said.

   "We have not encountered a market like this, where property is available at such attractive values. It is a new market phase no one has seen before," Geisz said. "We are looking for land that affords the opportunity for development so we can market it in the next cycle."

   Resource also is looking at acquiring agricultural property in Brazil partly to benefit from the rapid growth in production of alcohol from grain, and may even dedicate part of the company's next fund to Latin American properties, Leininger said.

   As it grows, Leininger said Resource is trying to expand its 15-person staff with more investment professionals, property managers, a staff accountant and a paralegal, but he notes that Berkshire Hathaway Inc. manages $276 billion in assets with a small staff.

   Leininger started his financial career as a clerk at the Chicago Mercantile Exchange and started trading options on Eurodollars, which are deposits in dollars at banks outside the U.S. He left the exchange after five years and bought a cattle ranch in western Oregon.

   After two years in Oregon, his wife wanted to move back to Chicago, so Leininger returned to futures trading for five more years, spending summers in Oregon.

   He kept the ranch and sold off some of the timber, giving him insight into how agricultural property could produce profits from more than just crops and livestock.

   Leininger began investing in northwestern U.S. timber with a few partners and moved in 1996 to Colorado Springs, where he started Resource Land Holdings.
   He hired Patsch, a recent college graduate with a degree in accounting, who would become a partner in 2002.

   Geisz previously was partner in a Los Angeles leveraged buyout firm, moved to the Springs in 1997 and met Leininger through Young Life, a Springs-based youth ministry. He joined Leininger in some of his early investments and became a partner in Resource in 2000.

   "Having worked in LBOs (leveraged buyouts) with a high degree of risk, I found it attractive to look at a grapefruit grove in Florida located on a freeway," Geisz said. "I eschewed agricultural investments in the past, but this seemed like a safe place to put money with profit potential as well."

   A key part of the corporate culture of Resource from its founding has been charitable giving. All three partners have pumped profits from Resources into Christian charities such as Young Life and Washington-based humanitarian organization World Vision.
   "We are not a Christian company, but we want to have an impact on the community in how we model our faith," Leininger said.

   "We want to create wealth that can be used in Christ-centered ministries, and causes such as schools, hospitals and prison ministries."

CONTACT THE WRITER: 636-0234 or wayneh@gazette.com

RESOURCE LAND HOLDINGS LLC AT A GLANCE

 
Founded: 1998

Headquarters: 523 S. Cascade Ave., Suite E

Partners: Joe Leininger, a former Eurodollar trader on the Chicago Mercantile Exchange who started Resource Land Holdings LLC after 10 years making personal investments in resource real estate in the Northwest; Aaron Patsch, who joined Resource in 1998 as a recent college graduate and became a partner in 2002; James Geisz, an attorney who joined Resource in 2000 after running a leveraged buyout firm in Los Angeles.

Operations: Started and manages three funds that invest in real estate for agricultural, mineral and timber uses. The first fund totaled $20 million and made its first investment in 2001; the second fund totaled $51 million and made its first investment in 2003; the third fund totaled $175 million and made its first investment in 2005; company plans to raise $300 million for its fourth fund later this year.

Holdings: Among the 30 properties in 13 states owned by the fund are an apple orchard in Washington, a sand quarry in Alabama and vineyards and timberlands in California.

Web site: www.rlholdings.com/home2.html
   SOURCE: Resource Land Holdings LLC