1. Strategies for Conserving Private Working Forests
Charles H. Collins
The Forestland Group, LLC
Cambridge, MA/Chapel Hill, NC

2. Timberland Market Trends
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

3. US Large Tract Acres Traded and TFG Acres Purchased 1997 - 2004*
*Estimates, year to date.

4. Timberland Price Indicators 1997 - 2004

5. The TIMO Phenomenon 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

6. Trend toward Timberland Disposition by Forest Products Companies
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

7. The Forestland Group, LLC (TFG)
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

9. Conservation Easements TFG Track Record
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)

10. Michigan UP Easement Key Elements
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.

11. Perspectives on Easements
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

12. Pricing of Easements
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

13. Conservation Easements Ecosystem Service Credits
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

14. Observations on Structuring Land Deals
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

15. Conclusions: Monetizing Conservation Attributes
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