A change in corporate fortunes is creating some real fortunes from an unlikely place.... the deep, dark woods. In the last year some of the big land trusts, like the The Nature Conservancy
have been striking deals with state governments and timber companies to buy up easements on property held by Big Timber. But despite the size of the deals, they're pretty small compared to the vast areas the companies own. As corporate profits get squeezed, either by a drop in demand for paper products, or by cheaper timber from outside the country, the timber companies are finding the real estate business can be much more lucrative than harvesting the timber. An article orginally published in the Wall Street Journal
details how money managers are rushing into the woods in search of profits."The result is an enormous land transfer now under way. The paper companies long were the nation's largest private owners of large tracts of standing timber. "For 100 years, the industrial users owned this land. A 1980 map of landowners in Maine would be almost the same as the 1900 map," says William Ginn, an official of the Nature Conservancy, a nonprofit environmental group.
Now the national map changes almost monthly. It's a phenomenon that has financial ramifications as well as environmental ones, such as the possibility that financial investors who get in a bind might over-log or overdevelop the land.
Today, nearly $30 billion of American forest land is in the hands of financial investors, according to Hancock Timber Resource Group, a large timberland investment manager. That's six times what such investors' timberland holdings were in 1994, Hancock Timber estimates. And these investors have poured billions of dollars more into forests abroad.
In one notable sale, an investment partnership run by Grantham, Mayo, Van Otterloo & Co., a Boston money-management firm, last year bought more than 5 percent of the land in the state of Maine. Grantham Mayo oversees 2.6 million acres of timber investments world-wide.
Harvard University, meanwhile, earmarks 10 percent of its nearly $26 billion endowment for timber, a remarkable proportion for such a small and unconventional asset class as this. Although Harvard recently sold most of its U.S. forest holdings -- to another financial investor -- the university is looking for new land to buy. Yale also invests in forests, as do various pension funds, insurance companies and charitable trusts. John Malone, chief executive of Liberty Media Corp., owns 75,000 woodland acres with his wife.
The money pouring into timber reflects a global hunt for higher returns as investment cash floods the world from many sources: pension funds, central banks, hedge funds, oil-rich nations and corporations with surplus cash on their balance sheets. This has created a surge in demand for "hard assets" like real estate, timber and commodities -- in part because cash flooding into bonds has driven down returns on them.
Industry insiders say $10 billion more U.S. timberland will come to market over the next year or two, and that investors are lined up to buy it. The result of this fervor is that prices have climbed, in some cases doubling in five years, despite weakness in prices of the lumber the forests produce.
The rush is even more pronounced in certain "hot areas" that are in driving distance of major metropolitan areas. The Minneapolis Star-Tribune
has just finished an excellent series on the rush in the North Woods of Minnesota around Lake Superior. In this case, the buyers aren't money managers, but people who want a second home in the woods.On Lake Vermilion, for example, undeveloped lakeshore sells for $1,000 to $2,000 a foot. That means an average-sized lot could cost anywhere from $100,000 to $250,000. Away from the lake, 5 wooded acres go for $25,000 to $50,000.
Interestingly, one of the most important amenities is easy access to civilization. Though more and more buyers are willing to drive several hours to get to the wilderness, they still want access to some luxuries they left behind - restaurants and places to shop.
"Everyone likes to go up north and feel like they're up north, but they don't want to be too far up north," Peterson said. "They want to be able to go get a steak and a beer and all the nostalgia that goes with it."
Accessibility to roads and electricity can be even more important to an investor's bottom line. Charlie Chernak, an Ely real estate broker and a part-time land speculator, said that investors typically want to double their money after paying expenses related to platting the parcels and installing the infrastructure that's required to make it usable.
Property that was once considered too remote is now desirable (although I wonder how desirable if gasoline prices go back up). The big concern from environmentalists is that property that was mostly left intact (in between periods of ripping the heck out of it to harvest the trees) is going to be chopped up into smaller tracts that won't support the wildlife that depends upon it. Call it the suburbanization of the woods.
A number of the big land trusts in Minnesota have pooled resources to create a fund for conservation easements
, recognizing that people are going to buy the land anyway.... so there might as well be an effort to keep it as intact as possible.One such solution is the Minnesota Forest Legacy Partnership. The Partnership includes the Blandin Foundation, the Grand Rapids Chamber of Commerce, Minnesota Forest Industries Inc., the Minnesota Department of Natural Resources, the Minnesota Forest Resources Council, the Nature Conservancy, the Conservation Fund, and the Trust for Public Land.
The partnership has established a $6 million fund -- part of a planned three-year, $26 million public/private investment in these forests -- that will help ensure sustainable forestry, protect wildlife habitat and guarantee public access in the forests around Itasca County.
The fund will support the purchase of conservation easements on up to 75,000 acres of private industrial forestland in the Itasca County region. The conservation easements, once purchased from willing sellers, will be held by the state Department of Natural Resources..........
The economic vitality and quality of life of northern Minnesota communities depends on forest industries. The timber industry is the fourth-largest manufacturer in the state, creating employment in rural areas that produces more than $2 billion in wages. Moreover, the Northwoods of Itasca County is a prime destination for Upper Midwest tourism and outdoor recreation, pumping more than $100 million into the local economy and affecting some 2,700 jobs.
The continuing fragmentation of forests is one of the most pressing threats to wildlife and also greatly compromises timber management and harvesting. By protecting large blocks of forestland, we can preserve the vital connection between Minnesota's healthy forest-based industries, healthy forest ecosystems and healthy forest. By protecting our forests, we protect our way of life. Let's not miss this opportunity to pass on to our children the same Northwoods heritage we have grown to cherish.
I do find it a bit ironic that Big Timber ownership of woodlands is beginning to look more and more like "the good old days", but as Einstein pointed out, everything's relative. I applaud the effort by the trusts to use conservation easements to keep the properties intact. Because as we've seen too often, any kind of boom can too quickly turn into a bust. Saving as much as we can now, can limit the damage later.