Timberland Investing: Balancing Profit and Preservation
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The world of timberland investing is as intricate as the dense woods themselves, offering both promising rewards and potential pitfalls. For many, the concept of timberland ownership may be limited to visions of vast green forests, with trees stretching endlessly toward the horizon.
However, for seasoned investors and industry professionals, timberland is much more than a simple asset; it's a dynamic investment landscape that demands both financial acumen and environmental stewardship.
Timberland Investing: A Glimpse Into the Landscape
Timberland properties present a unique asset class, distinct from traditional real estate. These properties serve dual purposes: yielding timber as a renewable resource and acting as land assets whose value might appreciate over time.
The potential for dual streams of value makes timberland investment an attractive proposition for many.
Most of the available timberland in the US is located in the South, the Pacific Northwest, and parts of the Northeast. The South, in particular, is a significant hub for timber production, thanks to its vast pine forests.
Jack Vogel, President and Co-Founder at Natural Resource Planning Services, a Florida forestry and environmental consultancy, emphasized the quality of the American South for timberland.
"We have additional advantage [in] that we use very, very modern techniques to grow and harvest and move our timber," he said. "So probably the Southeastern United States is the best place to have a facility. Maybe in the world.”
Some of the largest tracts of timberland in the US are owned by wealthy families and corporations. Such significant land ownership underscores the sheer magnitude and potential of timberland as an asset.
Factors Influencing Timberland Investment
Several factors make timberland investment more or less advantageous. On the plus side, timber is a renewable resource, with mature trees harvested and replaced by saplings, ensuring a cycle of growth and harvest.
Moreover, timber acts as a hedge against inflation and typically does not correlate directly with stock markets, offering diversification for an investment portfolio.
However, potential risks also lurk. These include forest fires, pests, changes in timber prices, counterparty risks, and regulatory changes, especially around environmental protection.
Conservation Easements: A Game Changer
Dean Saunders, Founder, Managing Director, & Senior Advisor at SVN | Saunders Ralston Dantzler Real Estate in Lakeland, Florida, has significant experience in conservation and real estate.
He highlighted the increasing importance of conservation easements. Essentially, these are agreements that limit certain types of uses or prevent development on a parcel of land to preserve its environmental value.
Dean shared his journey, beginning in the Florida Statehouse, of conceptualizing a system wherein landowners were paid not to develop their lands. Drawing inspiration from New England states, he remarked, "I said, my gosh, this is the concept. Then when I got in the legislature, I finally said I'm gonna try to make this a reality."
His pioneering efforts, especially in Florida, led to the protection, via conservation easements, of a significant amount of land, ensuring that commercial timberland properties could be both profitable and environmentally conscious.
Land Value Plus Timber: The Recreation Value Angle
Timberland tends to be distinct from farmland, as having typically poorer soil quality, making it desirable for recreation, only with a renewable commercial yield from the sale of timber.
Conservation easements and other protections, such as mitigation banks, can tend to be more natural fits on land intended primarily for recreational use, creating a trifecta of owner benefits: recreation, conservation, and income generated from timber sales.
Recreation is big business in itself: from hunting and fishing to other outdoor uses, some large corporations have captive real estate operations on the constant hunt for recreational property.
“Recreation is really, really serious in the region for land ownership. In fact, there's a couple big real estate companies…And some of those bigger multi-state real estate firms specialize in just looking for recreational properties,” Vogel added.
Risks Unique to Timberland Investment
The timber value of land can vary considerably with distance from buyers, as transport can be costly. Paper mills, once the bane of the EPA, tend to be natural buyers but only for an approximate hundred-mile radius from the mill.
Moreover, when paper mills do shudder operations, it can lead to cascades of negative effects. From mass regional unemployment to increased crime rates and prohibitive difficulties in reopening or replacing the mill, the potential risks for nearby timber properties are significant.
There are also varying types of timber suitable for various purposes in a given stand, from pole timber, the most valuable category, to saw and chip timber, used to make lumber, mulch, pulp, manufactured board products and cellulose-derived products such as diapers and feminine hygiene items.
Final Thoughts
Timberland investing, with its rich rewards and inherent risks, demands careful navigation. Investors must be mindful not only of the potential returns but also the environmental implications and risk profile of a given property.
As timberland properties in Florida and beyond increasingly incorporate conservation easements, mitigation banks and similar tools to protect the environment, it is clear that the future of timberland investing lies in striking a balance between commercial interests and preserving the beauty and integrity of the land.
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