Ecosystem Investment Partners has scored an early milestone in a complex California deal that shows how GPs are capturing the growing natural capital opportunity set.
Raccoon Creek is a property in Placer County, California, about five times the size of Central Park, that was formerly permitted for gravel mining that never got under way.
It includes 1,299 acres in active agricultural production and 2,536 acres of vernal pool grassland complex, alongside smaller parcels devoted to oak woodlands, a riparian complex and habitat for steelhead and salmon.
Managing partner Nick Dilks tells Agri Investor Ecosystem Investment Partners purchased the property in 2024 from its former owners, Western Aggregates, after being made aware of ambitious public sector plans for conservation in Placer County.
"We knew it was going to be very complicated to acquire, given the past ownership. That fits us pretty well. We can come in and really be value-add by solving a complicated land problem," says Dilks, who co-founded Baltimore, Maryland-headquartered EIP in 2006.
"In addition to just having capital, we pride ourselves on knowing how to do these conservation deals."
Placer County announced in early August that it had recorded easements on the entire 4,245 acres as part of a plan that will preserve open space and protect shrimp habitat. In the statement announcing the easements, it highlighted approvals formalized earlier in the year for payments of $28 million for conservation easements and up to $33 million for a restoration agreement for the property.
EIP did not disclose the price it paid for the asset but Dilks confirms to Agri Investor the $36 million fee reported by The Registry is accurate. Capital was drawn from Fund IV, which closed on $454 million in 2020.
If the firm is able to secure the full $61 million Placer County has put aside for the property for conservation easements and restoration costs, it would represent revenue for EIP before it has exited the property, which will in time also benefit from asset appreciation.
Dilks says Placer County has already made an initial payment of $15 million to EIP for easements related to endangered species habitat protection, and is likely to pay the remainder sometime over the next two to three years as development fees accrue.
The initial payment marks an important milestone, he says, for an investment that differs from the firm's traditional focus on wetlands and streams, but which similarly relies on public-private partnership.
"As good as a county government may be, it's really tough for government to go out and negotiate complex land deals," Dilks says.
"Our ability as a private investor to come in with our investors' funds and quickly and creatively move to get the property acquired and then work with the county on the back side of that to meet their mitigation needs, that's the thing that's probably pretty innovative here."
Placer County has an agreement with state and federal authorities that allows it leeway in determining a schedule for how it will charge conservation fees on developments including solar facilities, residential housing, pipelines and others in an area close to Sacramento, a city among the fastest-growing regions of California.
Rather than selling the credits directly to developers as was typical of its other investments, EIP is selling development rights for Raccoon Creek as easements to Placer County itself, which is using money accumulated through fees on developers for conservation.
"We did not buy this speculatively. We had a very specific set of understandings around what the property could produce in terms of mitigation needed by the county," Dilks says.
"We're buying the property with the assumption they are going to accrue enough impact fees over time to pay us for the mitigation and for us to make a return on our investment."
EIP will likely sell the underlying land to private ranchers and recreational landowners that are willing to abide by the restrictions of Placer County's conservation easement, after undertaking measures that could include improvements to wetlands and restoration of salmon habitat.
The nature of the asset and departure from EIP's previous revenue generation model demonstrates how fund managers are tailoring their approach to tap the evolving natural capital opportunity set.
By aligning private capital with public conservation mandates, EIP is showing how habitat restoration is becoming a bigger and more investable asset class in its own right.