April - June 2006
Private Forests
The Economist magazine reports that "a new breed of investor is taking over America's forests". Across America, vast swathes of land may have become more valuable for their development potential than for their timber. Since 1900, when Frederick Weyerhaeuser, a German immigrant, and 15 partners purchased 900,000 acres of land from a railway company in Washington State, big timber enterprises have held land for decades. They harvested trees for lumber or paper pulp, replanted, and patiently waited for another harvest in 50-60 years. It was a conservative, relatively safe business; the demand for wood and paper, although it has ups and downs, has remained generally strong. Investments in timber land proved a good hedge against inflation, and often did well when stocks on Wall Street fared poorly.
Now all that is changing. New tax rules, demand for building land and the influence of big investors such as pension funds have transformed the ownership of forest land. In recent years most tree-owning and lumber companies have sold their land to Timberland Investment Management Organizations (TIMOs), in which private investors pool together to buy timber holdings. Forest-products companies then buy trees from the TIMO-owned land and convert them to lumber or paper. In early April, for instance, International Paper, which is based in Connecticut, sold its 5.1m acres of American timber land for $6.1 billion to two TIMO investor groups.
Other companies, such as Plum Creek, have become publicly owned real estate investment trusts (REITs), which are also attractive to investors and reduce corporate tax. Plum Creek now owns more than 8m acres of forest land and reaps profits from timber, property and minerals. Today only two large publicly traded forest-products companies-Weyerhaeuser, based just outside Seattle, and Temple-Inland, based in Austin, Texas-still have substantial forest holdings. (Weyerhaeuser owns or leases 6.5m acres in the United States; Temple-Inland owns about 2m.)
Since 1996, 30m acres of private forest lands have changed hands, causing turmoil in the industry. Some of those most disturbed by the trend are the same greens who bitterly fought logging on federally owned lands during the 1980s and 1990s. They admit that logging in private forests, too, often wrecked the landscape. But companies such as International Paper were also diligent about re-planting trees and creating new forests that became valuable wildlife habitat and sources of clean water. Moreover, in many parts of the United States, timber companies allowed local people to hike, hunt or fish on their lands, a tradition greens fear may be lost.
The biggest current battle on this front is taking place around Moosehead Lake in northern Maine. Plum Creek owns 421,000 acres around the 117-square-mile lake, and would like to build as many as 1,000 houses, as well as lakeside resorts. The development would "fundamentally change the character of Moosehead Lake", now a quiet, rural region of hunting and fishing cabins, says Pete Didisheim of the Natural Resources Council of Maine. Plum Creek counters that it is also preserving vast tracts of land around the lake. Critics, unconvinced, are fighting a rezoning proposal which the company needs to proceed. In many other parts of the country there is fear that new forest owners will quickly log their land, and then sell the denuded ground for housing.
Others see opportunity as forest ownership changes. In Wisconsin, for instance, the Nature Conservancy and the Department of Natural Resources negotiated an agreement under which investors bought 101 square miles of land from International Paper as part of that company's big woodlands divestiture earlier this year. The land will continue to produce maple, oak and cherry lumber-all very valuable-while also remaining open for recreation and wildlife conservation. "Because these forested areas are for sale, it's a great opportunity to buy them for preservation and sustainable forestry," says Bill Ginn, who works on forestry matters for the Conservancy. Groups such as Mr Ginn's also hope to make state tax rules more favorable to owners of forests.
No doubt, in years to come, some of the forests' new owners will opt for a quick and dirty profit from their lands, selling to Boston or Seattle residents who want a place in the (former) woods. But land across much of the United States was logged during the agricultural and economic expansion of the 1800s, and has grown back. Perhaps the natural patience of forests will prevail again.
Sources: The Economist, June 10, 2006.