forestry investment funds

Joseph Zorzin redoak at forestmeister.com
Wed Oct 22 19:04:59 EST 1997


Larry Caldwell wrote:

> So you buy 1,000 acres for $800,000, hold it for 30 years, which puts your
> capital cost at $3.2 million with interest at 8%.  Then you do a commercial
> thinning, take half the stems (roughly 160 trees/acre at 4 trees/mbf), which
> grosses you $6.4 million, and leaves you with the land and that much more
> standing timber.  Your gross return is roughly $12 million over 30 years, for
> an inflation sheltered APR of somewhere around 18%, and an eventual net
> payday of around $9 million.
> 

Hmmmm.... Well you live in fertile forestry land of the northwest and
I'm in the cold, forestry infertile New England... but... you are saying
that you will remove 160 trees/acre at 4 trees/mbf- which comes to
40,000 bd. ft. per acre. I think this is being rather optimistic. <G>
Most likely that thinning at 40 years will yield a far smaller volume.

One reason that foresters are cautious about appraising small trees- is
that there is a high risk that you'll never see your final product- with
storm damage, disease, fires, and hippies with spikes. <G>

Waiting for decades for a product with high interest rates and a high
risk of loss really kills the valuation. But when you're getting closer
to a harvest these negative factors almost dissapear and most foresers
will feel comfortable giving you a fair appraisal.

Having said that... if there is a long history of the timber industry
trading such land and the risk factors are quantified and growth rates
predictable.. factoring all this in should give a reasonably accurate
estimated value.

I'm not so sure that such calculations of forestry as a business
transaction should be carried out without other land values factored
into the equation as to whether or not you should plant trees and manage
the forest. Real estate value appreciation, the tax angle, and your
personal enjoyment of the land also are part of the forestry business
equation which should more than make up for the unsure growth of timber
value.

-- 
http://forestmeister.com
"The ONLY forester's web page in the otherwise sophisticated state of
Massachusetts".



More information about the Ag-forst mailing list