A growing demand
We have always believed that timberlands are a wise investment. First, there is the pride of ownership and the pleasure of being in “your” woodlot. As a financial investment, timber grows, and as it grows, it becomes more valuable. Not only is sawtimber (sound trees typically measuring at least 12 inches in diameter at breast height) more valuable than pulpwood but, because of efficiencies and better utilization, one thousand board feet of large material are generally worth more than one thousand board feet of smaller material. Furthermore, as undesirable trees are removed, better growing opportunities are provided for the healthier and more valuable trees.
The ownership and management of private timber properties ranges from the small woodlots of only a few acres, to ownerships of hundreds or hundreds of thousands of acres. Thirty years ago most of the large privately held forests were owned by vertically integrated forest products companies (VIFPCs). For a number of reasons, since the 1980s these VIFPCs began to transfer their ownerships and, in many instances, the buyers were Timber Investment Management Organizations or Real Estate Investment Trusts (REITs). Timber Investment Management Organizations (TIMOs) own and manage timber assets on behalf of various private investors including pension funds, endowments, etc. REITs are publicly traded companies that own and manage timber assets. The growth in these ownerships has been substantial. It is estimated that in 1985 TIMOs and REITs owned less than $1 billion in timber assets. By 2005 it was estimated that together they owned over $25 billion in timber assets.
Currently, there is high demand for timber, and stumpage values are generally improving. Also,TIMOs and REITs have a considerable amount of money available to be invested in timber assets. While originally these investors were able to purchase timber assets from VIFPCs, now it is more likely that they buy from and sell to each other.
So what does all this mean for current timberland values? On the upper end there is considerable demand from TIMOs and REITs for larger ownerships generally of 5,000 acres and more. There is also considerable demand for smaller properties of less than say 200 acres. This market would be to individuals for personal reasons and timber buyers if the property contains significant timber. The market for the medium size properties of 200 to 5,000 acres is still somewhat strong. Tracts of this size are more likely to be sold to high net worth individuals and sawmills, however, with recent economic difficulties sawmills are just starting to get back into this market, and some TIMOs are lowering their acreage requirements and buying smaller properties.
A well-managed woodlot of any size can be an excellent timberland investment in a variety of ways. With hardwood timber markets recovering, hardwood timber prices increasing, and demand from the larger investment sector continuing to be very strong, timberland investing can provide diversity and increasing value to any portfolio.