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Timber Investment Management
Weyerhaeuser made headlines recently when the timber company sold 140,000 acres of forest land in Clatsop County to The Campbell Group, a timber investment management organization (TIMO) based in Portland. The Daily Astorian editorial board has raised concerns about how the land will be managed now that it's in the hands of an investment company, which may have different goals and therefore a different effect on the community than the land's previous owner:
The well being of neighboring communities isn't a major consideration. The land is just a trading card. Public access isn't guaranteed. Key management decisions are made far away.
The editorial goes on to suggest that communities themselves invest in nearby forest land the way Cannon Beach did earlier this year, when that city passed a bond measure to purchase and preserve 800 acres in the Ecola watershed.
Do you live near or work on forest land owned by an investment company? How is it managed differently than other privately or publicly owned land? Are you a TIMO investor? (Is your pension fund?) What made you decide to invest in forest land? What are your chief concerns about how that land is managed?
UPDATE 9/02/09: This academic take on TIMOs shows that the recent Weyerhaeuser sale is part of a trend over the past two decades of lumber companies unloading timber land to focus more on manufacturing and marketing.
GUESTS:
- John Gilleland: President of The Campbell Group
- Steve Forrester: Editor and publisher of The Daily Astorian and CEO of the East Oregonian Publishing Company
- Mike Morgan: Mayor of Cannon Beach
- Duane Cole: County manager for Clatsop County
Photo credit: SarahMcD ॐ / Creative Commons
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I am amazed at the hostility the hosts have toward their guest. It is obvious they believe trees should never be cut again on private land. I would think the hosts of this show could be a little less biased. Managing a forest for the long term can only benefit Clatsop county's residents. Why don't forest management critics offer specific examples of poor management, or evidence that the Campbell group will clear cut Clatsop county then leave.
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Hostility? I hope our questions aren't coming off as hostile. We're just trying to understand the Campbell Group's plans.
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I used to work for a small private timber company based in North Bend, Oregon that was family-owned. It was managed by foresters and it was managed with a long-term view to creating productive forests. Shareholder value for the family was important, but did not pre-empt substantial current investment that would deliver long term returns.
Since being purchased by Campbell Group, the focus has changed to delivering short-term value for the shareholders. It has been a dramatic change with, I expect, lamentable long-term consequences. Once again, short term profits have won over wise long-term decision-making.
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How exactly has the forest management changed, from your perspective?
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Do big timber-holding companies have leverage over state and local governments such that they can work around local forest preservation and management law?
Should local loggers in Oregon be concerned that their jobs will be taken by employees working for the large timber-holding companies? We see how many people are being laid off by corporations cutting costs in this bad economy.
The large timber-holding company reminds me of U.S. manufacturing jobs being shipped over seas, only this time it's the investors who are the profit-seeking "foreigners".
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I believe the changes have been in every aspect of forest management. The former owners spent a great deal on weed control, controlled burning, fertilizing, thinning, and planting genetically superior seedlings with extreme care and high front-end investment. Because they had done such a good job of creating quality forests, the purchase price was the largest per acre price obtained in any forestland sale up to that point.
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The gentleman from Campbell is a liar, and his secret cabal of investors will run the land into the ground. Industrial forestry is death.
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Do you have any reason to call John Gilleland a liar?
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I don't agree that industrial forestry is death. However, I do believe that the further away from the land the managers are, the less respectful and wise the decisions will be.
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How do you feel public land management has influenced decisions on private land? Do you feel the closure of public lands to timber harvest has put to much burden on private lands to produce forest products. It seems to me public lands could greatly influence local economies and private landholder decisions.
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The greatest pressure on private timber companies is a high price for logs, which will motivate the company to log every last stick, if there is any way to justify it. The greatest pressure on investment companies with forestland is to deliver steady high returns because they are competing with other investment opportunities.
Yes, public land managers can have a huge impact on local economies because they can make decisions based on outputs other than high dollar returns. But I don't foresee them getting back in the game any time soon, given the current political realities.
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The 900lb Gorilla I have not heard on the air, is that we as
tax payers are paying for this. The Campbell group tax rate
is 17% Weyerhauser marginal rate is 35%. How can they
compete?
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You're right, we didn't get to that in the show. I haven't dug into it very much, but you might learn more from the OSU report on the changing ownership of forests. It's linked to above (and here.) A quote from the report's press release:
“A lot of this was driven by very tough global competition and changes in tax laws,” said Erin Kelly, an OSU forestry doctoral student. “The tax laws were created at the federal level for business in general and had little to do with forestry. But the end result was that ownership of timber lands was dragging down the bottom line for the big forest product companies.”
More favorable tax situations were enjoyed by real estate investment trusts (REITs) or timber investment management organizations (TIMOs) which provided mechanisms that helped avoid corporate taxes and long-term capital gains. At the same time, large public companies faced cost-cutting, mergers and acquisitions, a drive for maximum efficiency and improved profits.
I just talked to John Bliss, the OSU professor who is leading a five year study on forest ownership. He says the full report is not online yet, but he'll get us some more information about the role taxes play.
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Rayman, you're right that tax rates are lower for timberland investors than for old timber companies (Vertically-Integrated Forest Products Companies, VIFPCs). This is because the VIFPCs are taxed as C-Corporations (see page 5), which means they are taxed at the shareholder and corporate levels. This is referred to as "double taxation." Both REITs and TIMOs avoid this double taxation.
In addition, the long-term capital gains rate is beneficial for corporations (see page 4). Basically, this rate places a cap on taxable income.
Other policies, as well, have encouraged the ownership transition, including a federal act from 1974 (ERISA) that mandates portfolio diversification for pension funds and has led many pension funds to look to timber as an alternative investment. But taxes are, indeed, a primary reason that the timberlands are changing hands.
-Erin Kelly
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What leverage do the residents of Oregon have when large timber management firms do not practice "safe forestry"? I hear about third-party standards and certification bodies, but this sounds like a complex mesh is being developed to obfuscate access to private land owners and their management of natural resources. Here we go again.
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I used to be a forester in California, and the paperwork required to complete a harvesting is much smaller for Oregon than for California. However, the paperwork requirements would be the same for either an investment firm or a timber company. The only time it is much easier to harvest is if you want to build a house, unfortunately, which causes a state of permanent deforestation.
I am glad that the land will still be used as forest land. That is preferable to selling it off for development into "ranchettes", or vineyards, as has happened in California. There are always arguments about the best way to manage a forest, and that would be an interesting and contentious show.
I'm curious about how seedling survival has changed with new management and less weed control? Usually weed control = pesticides and people get very upset about that too. I'd love to hear a show discussing how people would manage their own forest if they had to tackle the challenges faced by forestry managers in today's reality (with neighbors living out in rural areas, getting trees growing faster so more quickly regenerate a forest vs. allowing weeds to compete which results slower regeneration.)
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I just wanted to comment that Steve Forrester, editor of the Astorian, is an example of how crucial is the local paper for its watchdog and investigative role on behalf of the community. I don't know if anything can replace that personal and interested focus on what is going on that we might not otherwise know about.
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Good morning,
I am a retired extension forester with background in research and teaching. I have worked in Oregon and Washington. I offer the following observations. One, The questioning of Gilleland did come off as a bit pointed. Two, readers should know that while the Mayor of Cannon Beach regarded Weyco as "homegrown", the first thing Weyco did after aquiring Oregon's Willammette Industries was to liquidate WI's standing sawtimber as quickly as possible to pay for the acqusition. Weyco also subdivided their Snoqualmie Tree farm north of Seattle. Three, Erin Kelly summarized the current effects of tax laws on industrial timber managment far better than I could; right on. Four; industrial timber managment is driven by financial return, tempered by social concerns as effected by state forest practice rules, local mores and the like. Oregon has very good forest practice rules. Five, I am a bit acquainted with the Longfibre holdings in Hood River County, I'd guess what is being harvested to be mostly second growth, likely third growth in many areas. Moral here, trees usually grow back even when harvests are left unattended, though planting and weed control offers far more certainty of successful reforestation especially on droughty sites or when aggressive weeds (unwanted vegetation) are present. Six, the current focus on old growth on public lands has led to ignoring thing like managment for meadows and early seral species such as humming birds, butterflies and of course deer and elk.
Bottom line; forests are a renewable resource that provide a wide range of things we humans want. Timber harvesting can usually be integrated with those other goals or even aid achieiving them. Replacing forest with houses or asphalt, or not thinning trees (aka fuel) in fire prone east side forests, however..... As long as the forest ground stays intact, managment options are good.
Best, Wecanoe
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The problem with industrial forestry, whether it be the old industrial firms or the new TIMOs, is that it is financially driven. A financial rotation is practiced which provides maximum return to investors. I'm sure the Campbell Group is an excellent manager of capital who happens to direct that capital toward the enterprise of industrial forestry and land development opportunity.
Financial return forestry is a highly constrained management regime requiring the shortest possible rotation (relative to site productivity) with a corresponding pressure to lower costs. Industrial owners with high site lands (i.e. Clatsop County) practice a 45 year rotation across their fully regulated forest estate. Which means average stand age is 22.5 years! This, in an area whose ecology has a historic range of variability for stand replacement disturbance of over 300 years. The large wood biomass of the historic forest is replaced by a depauperate plantation landscape. Aquatic systems suffer with the loss of the large wood forest. As the stream recruitment of large wood suffers under financial return forestry, stream habitat health declines. Today, stream health by any measure is catastrophically poor across Clatsop County industrial forests. Poor aquatic conditions in turn then become a glass ceiling for salmon abundance. All of what I say has been well explored in the scientific literature and was reported on by the Independent Multidisciplinary Science Team (IMST) formed by Governor Kitzhaber as part of the Oregon Plan.
The Campbell Group will likely do no worse or better as the current industrial owner. The colonization of coastal forestland by eastern capital seeking return continues. The facts of the matter about financial forestry were not addressed in the program. Many of those facts are available on the Coast Range Association's website. They're report Forests That Work explains financial forestry:
See: http://coastrange.org/ftw_frame.htm
The economics of financial forestry is clearly explained in a CRA report here: http://coastrange.org/FRNpaper2.htm -
As a sixth gen. Oregonian I am appalled by the destructive results of current industrial forestry practices. The Public later bears the costs of remediation, clean water, etc.
We need to consider controls over ownership that promote responsible-sustainable logging.
Otherwise, what we will see next, as Wall St. buys our forests, and treats the land as a commodity, is a manufactured demand they be allowed to sell these lands for development and housing.
rand dawson Siltcoos Lake
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Proper managing of investment is what ought to do by most investors. There is a continued threat in the economy. In fact the housing markets are also in trouble. The immediate reaction by mortgage companies to the housing market collapse was to tighten credit. They pulled in the reins so much that almost no one who needed money could get it. This seemed a justifiable reaction considering the magnitude of the economic turmoil. One problem with looking back too long is that the economy doesn’t move forward. The role of appraisers now has become one of defender of the bank. They seem to have swung too far the other direction and are being reactive to the crisis the same way they were reactive to the greed that caused it. The truth remains that no deals equal no money for anyone.
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Timberland is akin to a zero-coupon bond. You have to wait for the investment to “mature” before you get paid and stay in student loan debt. And since commercially viable trees grow at different rates in different places, maturity can take anywhere from 30 years domestically to 65 years in Canada and Northern Europe.
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I currently live in Bend, but am originally from Michigan, a state where many jobs in the Upper Peninsula rely upon the timber industry. The trend in Michigan right now involves a partnership between the Nature Conservancy and the State of Michigan coming together to purchase thousands of acres of land from International Paper, the worlds largest paper and forestry products company. The overall goal of this transaction is to protect important ecological and recreational recources, including shoreline along Lake Superior and many of the states rivers.
Here's a link to one of the news releases: http://phx.corporate-ir.net/phoenix.zhtml?c=73062&p=irol-newsArticle&ID=244604&highlight=
- Nate Wyeth