The debate

Joseph Zorzin redoak at forestmeister.com
Mon Dec 1 20:14:55 EST 1997


Larry Caldwell wrote:
> 
> In article <3481FF86.6D00 at forestmeister.com>,
> Joseph Zorzin <redoak at forestmeister.com> wrote:
> 
> > Larry, you're living in a fantasy land about this appraisal issue.
> > You're a good conservative believer in the capitalist system, right?
> > Capitalism doesn't have any mercy. Something is worth what's it's worth,
> > not what you THINK it's worth; at least not for appraisal purposes. To
> > you it may be priceless, but the appraiser has to come up with a value
> > based on what the forest is worth NOW, not in 20 years. Why can't you
> > comprehend this? Your thinning investment will increase FUTURE values of
> > the forest and if you were to sell the property you could try to
> > convince the buyer of this fact; but at this point in time the trees are
> > worth what their worth.
> 
> Joe, you're just flat-assed wrong.  Roseburg Lumber didn't pay $263 million
> for a bunch of cut-over Louisiana Pacific land because there was
> $200 million worth of timber on it.  They bought established, managed
> plantation based on its estimated future productivity.

I'm no expert on forest appraisals. But if you ask a forester to
appraise your timber and you're NOT a humongous forest ENTERPRISE then
the forester is going to just tell you what the timber is worth NOW.

Regarding the Louisiana Pacific land- that is a huge going concern-
there is a difference- it's a huge business and there almost certainly
are other assests as part of the business- and in such a case the future
yields of the business certainly should be factored in- but that's
because it's an entire operation- not your relatively small woodlot.
There is a comparison with appraising an apartment house. Do you simply
based the appraisal on the current market for that building or base it
on speculated profits. This is a philosopical issue; depending on why
the appraisal is being done. Both are right- depending on such things as
who might be interested. If a huge real estate holding company is
interested, they really are concerned about the long term profitability
rather than the short term market value of the building. This is why the
valuation on the Louisiana Pacific property is based more on long term
profitibility- short term market trends are discounted. But on small
properties the appraiser will usually have to focus on the immediate
market value because the property isn't a self sustaining enterprise of
vast scale.

> 
> Any time you appraise a tract at current merchantable value, you are
> perpetuating the 19th century Rape It And Run version of capitalism.
> It has little relation to the value of forest land at the beginning of
> the 21st century, and would mean even less if the supposed experts in
> forestry would start promoting small woodland management.

It's a matter of definition. When you ask for an appraisal you're asking
what the timber is worth now. But when your operation is so big that it
is an entire business proposition- then such business assessts as "good
will" and other intangibles get factored in. That big property isn't
just the timber- it's an entire ENTERPRISE that can sustain an entire
industry; so the view is ENTIRELY different because there is a fuller
range of possibilities.

If I ask someone to appraise a piece of antique furniture, the appraiser
will tell me what it's worth NOW. If I say, "but in 30 years it will be
worth triple because nobody makes this furniture anymore", do you think
the appraiser has a right to factor that in? The appraiser will tell me
what the furniture is worth if sold on the open market today. But that
doesn't mean that I'd have to sell the furniture at that price. I could
negotiate with a prospective buyer and TRY to get more out of him by
bragging about how valuable it will be in 30 years.

> 
> Here's an example for you.  Let's say you open a restaurant.  The building
> costs you $150,000, and furnishings and equipment cost $50,000.  You spend
> a few grand on advertising, and run a little negative cash flow on your
> help until you get known, but after you spend $250,000 and every waking
> hour for the first 2 years, you're showing a net profit of $150,000 a
> year.
> 
> You really want to open a fancier place, so you put "Joe's Place" up
> for sale for $525,000, figuring to sell for at least $500,000.  You'll
> get it, because that's a very reasonable price for a restaurant netting
> that much.  Any appraiser would tell you it's worth that, based on
> projected future earnings.
> 
> How would you feel if all the appraisers decided it was only worth
> $250,000, because that's all you had in it?  How many new restaurants
> do you think would open if all it was was a 0% savings account and a
> lot of blind hard work?

The appraiser is telling you IN YOUR CASE, what they honestly think you
could sell the timber for NOW; that's all. There not criticising your
wonderful efforts; and they may not be denying the validity of future
yields; only that in their opinion, based on their research, that if you
were to sell the land NOW given all the work you've done; that's how
much it would sell for. I think you're taking this too personally.
Regarding the restaurant- sure it may sell for half a million- not
necessarily on logic, but that's what the marketplace does in the
situation of restaurants. Not all businesses operate with such nice
logic. You may or may not be able to convince forest land buyers of your
logic; but the appraiser can't assume that you will be able to. The
appraiser has to be able to back up what he says with the reality of the
market place for similar land with similar trees. It's not a put down of
your efforts- it's facing reality. Timber land and restaurants are NOT
comparable- because of the GREAT RISK in dealing with yields that are
decades away, unlike the restaurant whose yields are NOW. When you apply
compound interest rates to future yields, they have a way of shrinking
fast; when the risk factor is so great.

Nobody EVER said that the markeplace and/or capitalism was FAIR or
HONEST or MORAL; but we can't deny that it does work. And it's obviously
not fair that it doesn't factor in all your hard work; but that's the
reality of the marketplace; not the fault of the forest appraiser; which
is not to say that a VERY smart real estate agent couldn't get you what
you think it's worth.


> 
> Then you have the *GALL* to criticize small landowners for not managing
> their land, when all it means is getting screwed by the system and
> making some other guy rich 30 years from now!  Sorry Joe, that's dark
> ages forestry by some clown who is in trouble when he runs out of
> fingers to count on.

When I criticize landowners for not managing their land, it isn't
because they don't work toward that profit 30 years down the road; it's
because they don't take advantage of the TREMENDOUS tax savings they
could earn NOW; and because I've seen MANY landowners sell timber direct
to a logging firm that RAPES the land and doesn't pay a fair price;
whereas if the the landowner retained a COMPETENT forester; he could IN
THE SHORT TERM; find himself MUCH WEALTHIER and HAPPIER with a nicer
forest; NOW not in 30 years. That I consider foolish; not that I want
landowners to take the moral high ground and be nice landowners for the
benefit of mankind. The SMART selfish position is to retain a competant
forester NOW and see what benefits will accrue NOW.

> 
> Sure, anybody can take $250,000 and 2 years hard work and start a
> successful restaurant.  The point is, they didn't.  Sure, anybody
> can take $25,000 and 100 acres and 10 years of hard work and turn
> the land into a productive plantation.  The point is, they didn't.
> 
> Now is your chance to educate me all about capitalism.  Why is the
> value of a restaurant based on projected future earnings, but not
> the value of forest land?  Be thorough.  The actions of millions
> of small forest owners depend on your answer.

You're using fine logic. But what makes you think the marketplace works
on logic? If we wanted to use logic we'd build a socialist utopia; but
we don't because logic has no place in the real world. Your logic is
correct, but the marketplace doesn't work this way. How about the
marketplace for steel workers in Pittsburg??? What if you were a 50 year
old guy who worked in the steel plants for 30 years, then US Steel shuts
down the plan. Is that fair? Is that logical? No, but that's reality in
our system. Capitalism is NEVER fair. Is it fair that Bill Gates is
worth 40 billion dollars while millions of Americans have no health
insurance and work at minimum wage jobs? Your land is worth what the
marketplace says it's worth and that's what the forest appraiser is
telling you; but you want him to tell you what you want based on logic.

> 
> How often have you developed a chart of projected wood volume over
> the next 25 years for an appraised plot, estimated management expenses,
> and projected return based on proposed purchase price and target
> stumpage price?  That's the information that a prospective timber
> manager needs.  How often do you give it to him?

How does anyone but God know what the value of timber will be in 25
years? Not knowing these values; they could be much lower; it's
impossible to come up with current values for such future HYPOTHETICAL
profits without severely discounting them because of risk.

> 
> When you think "buyer" you're still thinking logs on the deck, not
> forest management.  That's why when cheerleaders like kat start
> talking about how wonderful foresters are, I don't see it.  It's
> still the same old Cut And Run game it was 50 years ago, with a
> new line of BS attached.
> 

Many are into cut and run. I agree; but not all. They don't cut and run
with a wise landowner who won't let this happen; but this is a different
issue from your complaint about appraisers not giving you the values
you'd like. But; why worry about this appraisal issue so much? Why is it
so important to you if you really are concerned about the future? Then
don't worry about what the appraisers tell you. Why do you care? Is this
an ego thing? Do you need to feel that you are producing value and you
need the appraiser to put it in writing for you? Or is it because you're
trying to get a bank loan? If that's the case then complain about
bankers - the penultimate capitalists- who HATE risk. Blame them, not
the forester.

So, in conclusion, I'm not defending all foresters; many have a small
minded perspective and a short horizon. But they mostly are just
technicians trying to do a job. You as the landowner sets policy. If you
want a long term perspective, then I'm sure you can find a forester who
you can work with. You can't put down the entire profession. We could
also get into attacks against doctors, lawyers, teachers, software
companies, labor unions, the mafia, Las Vegas, policitians, real estate
speculators, bureaucrates, industrial polluters; the world's full of
crooks, bums and incompetants. But the real money grubbing types seldom
end up in forestry; there are easier ways to make money.

But since this debate probably won't go away soon; I'm going to talk to
a friend of mine who is both a forester AND an MAI land appraiser. For
those of you who don't know what an MAI is; it's the highest you can get
in the appaising business. This friend appraises huge forest parcels-
thousands of acres at a time- all over the eastern half of America. I'll
see what he says.

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