Transcript Forestland Investments - Convention on Biological Diversity

The
Forestland
Group
LLC
Strategies for Conserving Private Working
Forests
Charles H. Collins
The Forestland Group, LLC
Cambridge, MA/Chapel Hill, NC
The
Forestland
Group
Timberland Market Trends
LLC
• High volume of deals- driven by industry
dispositions.
• Growth of Institutional Investors (TIMOs) and
other new participants
• Significant pressure from rural/recreational real
estate buyers
• Supply of timberlands: Has been steady; pace
expected to continue in the near future
• Pricing of timberland expected to increase relative
to timber pricing
1
The
US Large Tract Acres Traded and
TFG Acres Purchased
1997 - 2004
Forestland
Group
LLC
6,000
5,500
5,000
Acres (thousands)
4,500
4,000
3,500
*
3,000
2,500
2,000
1,500
1,000
500
1997
1998
1999
2000
TFG Acres Purchased
2001
2002
2003
2004
US Large Tract Acres Traded
*Estimates, year to date.
2
The
Forestland
Timberland Price Indicators
1997 - 2004
Group
LLC
6
5
Ratio
4
3
2
1
0
1997
1998
1999
2000
2001
2002
2003
2004
Southern Timberland $/acre to Timber Mart South Pine ST
Northern Timberland $/acre to TFG Hardwood ST
3
The
Forestland
Group
The TIMO Phenomenon
LLC
• TIMO’s: Established in the early 1980’s
• Trend: Sale of timberland to TIMO’s by forest
products companies
• Today: There are about 20 TIMO’s with about 13
million acres of U.S. timberland
• Today: At least six TIMO’s have more than one
million acres
• New Trend: Private equity firms are buying
timberland & mills from forest products
companies
4
The
Forestland
Group
Trend toward Timberland Disposition
by Forest Products Companies
LLC
• Majority of Disposed Land: Acquired by TIMO’s and
REIT’s
• Some Immediately Acquired by “Traders”: Often
parcelized and retailed into the marketplace
• TIMO’s and REIT’s: Some participate in retail land
marketplace. Question: What is ultimate disposition of
TIMOs’ timberlands?
• Potential Outcome: Increased fragmentation of timberlands
and reduction in some forest ecosystem services
• One Market Response: Purchase of conservation easements
on some timberland
5
The
Forestland
Group
The Forestland Group, LLC (TFG)
LLC
• TIMO formed in 1995
• Focus on naturally regenerating hardwoods, with some
softwood forests
• Five funds closed to date—Heartwood Forestland Fund V,
L.P. launched in 2005
• Over 1.5 million acres acquired across 14 states in the first
four funds—largest and most diversified hardwood
portfolio in the nation
• Investment fiduciary with long-term objective of achieving
competitive returns while managing properties using
sustainable forestry principles
6
The
#
Y
Heartwood Forestland Funds
Forestland
Great Lakes Regional Office
Group
Fund I
53,830 Acres
LLC
Fund II
187,056 Acres
Fund III
332,528 Acres
Fund IV
968,308 Acres
Cambridge Office
#
Y
#
Y
Parkersburg Office
North East Regional Office
Property boundaries in yellow.
Parcels smaller than 500 acres do not show at this scale
!.
Forestland Operations
Chapel Hill Main Office
#
Y
!.
#
Y
Southern Regional Office
Acreage by State
Michigan
553,308
West Virginia
404,099
New York
160,628
Virginia
137,591
Pennsylvania
69,766
Tennessee
66,139
Texas
66,478
Missouri
22,180
Maryland
22,090
North Carolina
19,504
Vermont
8,844
New Hampshire
8,666
Delaware
1,358
Kentucky
1,071
TOTAL 1,541,722
Acres
Acres
Acres
Acres
Acres
Acres
Acres
Acres
Acres
Acres
Acres
Acres
Acres
Acres
36%
26%
11%
9%
5%
4%
4%
1%
1%
1%
1%
1%
0%
0%
100%
April 15, 2005
April 15, 2005
7
The
Forestland
Group
Conservation Easements
TFG Track Record
LLC
TFG has consummated working forest
conservation easements in four states:
-Michigan: 250,000 acres (150,000 acres closed)
-New York (110,000 acres)
-Maryland (22,000 acres)
-Delaware (over 1,000 acres)
8
The
Forestland
Group
Michigan UP Easement
Key Elements
LLC
•
•
•
•
Participants: State of Michigan, TNC and TFG
Combination: Sale of fee acreage and easement
Fee: 23,000 acres; Easement: 250,000 acres
Working Forest Conservation Easement: FSC Certification
or Prescriptive Guidelines
• Subdivision Restrictions: 25 No Development Units
(NDUs) over 222,500 acres; 40 Restricted Development
Parcels (RDPs) over 27,500 acres w/ 4,500 acres in
Privacy Zones; RDP’s reduced easement price.
• Public Access: Permanently provided on majority of land.
9
The
Forestland
Group
Perspectives on Easements
LLC
• Preferred Scenario: Monetization of conservation
attributes as an alternative to a higher-and-best use (HBU)
sale; working forest conservation easement allows for
forest management
• Preferred Approach: Customization of features over
national standards
• Preferred Forest Management Guidelines: Certification or
flexible guidelines rather than rigid standards
• Preferred Monitoring Benchmarks: Adopt simple
behavioral guidelines rather than “fuzzy” outcomes-based
contractual features
• Desirable Partner Characteristics: Professionalism,
pragmatism, local knowledge, transparent objectives
10
The
Forestland
Group
Pricing of Easements
LLC
Owners need to be compensated for the loss of
options:
-Option to sub-divide
-Option to develop
-Option to prescribe silvicultural practices at one’s
discretion
-Option to lease exclusive recreational rights
11
The
Forestland
Group
Conservation Easements
Ecosystem Service Credits
LLC
• Evolution: Toward increased separation,
trading, and pricing of property right
attributes
• Ecosystem Services Examples: Carbon
sequestration, wetlands mitigation, and
water quality
• Distinguish: Current markets for ecosystem
services vs. perpetual rights
12
The
Forestland
Observations on Structuring Land Deals
Group
LLC
• Movement toward the “stripping” of property
rights for compensation—timber-cutting rights,
recreational rights, ecosystem services (?)
• Careful due diligence needed regarding potential
conservation attributes
• Communications and Partnerships needed among
Timberland investors, public agencies,
conservation groups
13
The
Forestland
Group
Conclusions: Monetizing
Conservation Attributes
LLC
• Strategic Consideration for Investors: Strip property of some
layers of rights and concentrate capital allocation on “pure
timber” play
• Remember: Even “out-of-the-money” options have value when
time remains—property rights are perpetual!
• Financing Easements--Bridging the Monetization of
Conservation Attributes: TIMO’s represent a likely source for
short- and intermediate-term risk capital
• Financing Easements—”Joint Capital” for Purchasing
Timberland and Conservation Attributes: Wealthy
conservation-minded individuals and selective foundations
14