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A SQUARE Timber Special

Friday, February 29, 2008
Timber Special.

A SQUARE :: 29Feb08 A SQUARE Timber Special
Category Timberland
Author Sona Blessing
In the special I’ve attempted to distil and do justice to the distinguished speakers - who collectively have 300 years of timber investment related expertise. Below briefly are the issues that left their mark on me…
  • The dynamics of the timber investment opportunity set in the US are changing - increasing market efficiencies (including information flows) and excessive liquidity have exerted downward pressure on yields - which has encouraged the use of leverage.
    The ability to perform, in many cases, is being tempered by a manager’s skill set in financial engineering.
  • F. Christian Zinkhan, Managing Director, The Forestland Group LLC, observes a “trend toward unbundling the asset’s attributes.
    • Greater likelihood of carving out “higher - and - better use”, HBU, components during acquisition process
    • Buying and selling just timber cutting rights
    • Monetisation of conservation attributes through sale of conservation easements or areas with special resources
    • Selling the surface while maintaining timber cutting rights."

  • High-energy timberland investments: allocate timberland to harvesting wind energy; using fire “the burning process” to generate heat and electricity (biomass electricity, wood pellets, bio fuels). As Jack Lutz, Forest Economist, Forest Research Group, summed it up “There may be much money to be made in energy from wood. But current and near-future products rely on low priced wood. Cellulose - based energy products compete with oil- and gas-based energy products. Wood also competes with other sources of cellulose as feedstock.
  • The scope of investing in timber is going global!
    Investors are scouting inefficient markets - and timber investment opportunities overseas. It is important to review the investment, fee structure - and the tax implications as/for a foreign investor. The significance of “on-the-ground intelligence”, and conducting a due diligence, should not be under estimated. Where would you assume corruption is higher: in Argentina or Nigeria? Ecological and environmental implications and concerns need to be well understood. If in doubt, consult the experts.
  • Place in the portfolio: diversification benefits, as an asset:
    The biological growth of trees is independent to how financial markets behave
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