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Forestland Investments

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					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
Forestland                                         US Large Tract Acres Traded and
Group                                                   TFG Acres Purchased
LLC                                                         1997 - 2004
                            6,000
                            5,500

                            5,000
                            4,500
        Acres (thousands)




                            4,000
                            3,500
                                                                                                                        *
                            3,000
                            2,500
                            2,000

                            1,500
                            1,000

                             500
                              -
                                      1997        1998          1999    2000        2001         2002         2003   2004

                                                          TFG Acres Purchased   US Large Tract Acres Traded



                                    *Estimates, year to date.
                                                                                                                            2
The
Forestland
Group
                                  Timberland Price Indicators
LLC                                      1997 - 2004
                6


                5


                4
        Ratio




                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
                The TIMO Phenomenon
Group
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   Trend toward Timberland Disposition
Group           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
                 The Forestland Group, LLC (TFG)
Group
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
                                                                                                                                                                       Cambridge Office
                  Fund III             332,528 Acres                                                                                                                                       #
                                                                                                                                                                                           Y
                  Fund IV              968,308 Acres                                                                                   #
                                                                                                                                       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                        Acreage by State
                                                                       Southern Regional Office                                      Michigan              553,308             Acres       36%
                                                                                                                                     West Virginia         404,099             Acres       26%
                                                                                                                                     New York              160,628             Acres       11%
                                                                                                                                     Virginia              137,591             Acres        9%
                                                                                                                                     Pennsylvania           69,766             Acres        5%
                                                                                                                                     Tennessee              66,139             Acres        4%
                                                                                                                                     Texas                  66,478             Acres        4%
                                                                                                                                     Missouri               22,180             Acres        1%
                                                                                                                                     Maryland               22,090             Acres        1%
                                                                                                                                     North Carolina         19,504             Acres        1%
                                                                                                                                     Vermont                 8,844             Acres        1%
                                                                                                                                     New Hampshire           8,666             Acres        1%
                                                                                                                                     Delaware                1,358             Acres        0%
                                                                                                                                     Kentucky                1,071             Acres        0%
                                                                                                                                               TOTAL 1,541,722                            100%
                                                                                                                                     April 15, 2005
April 15, 2005
                                                                                                                                                                                                 7
The
Forestland           Conservation Easements
Group                      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         Michigan UP Easement
Group                       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    Conservation Easements
Group            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        Conclusions: Monetizing
Group             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

				
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