December 12, 2024

By Michelle Pelletier Marshall, Global AgInvesting Media, & Scott Reaves, Domain Timber Advisors

To say that timberland deals are sprouting up all over would not be an overstatement. From last week’s news about Campbell Global, the timber investment manager owned by J.P. Morgan Asset Management, acquiring more than 40,000 acres of commercial timberland in the U.S. Pacific Northwest to November’s deals about BNP Paribas Asset Management’s (BNPP AM) new fund that boasts a target size of $500 million, and BTG Pactual Timberland Investment Group (TIG) securing $500 million for its Latin American Reforestation Strategy, the sector is steadfastly increasing its robust foray into sustainably managed timber investment opportunities.

With the promise of generating low-volatility, and steady, risk-adjusted returns with a lack of correlation with capital markets compared to most other asset types, timberland investing adds distinction to any portfolio, particularly in meeting ESG goals, and is rapidly gaining interest, investors and worldwide attention.

Almost half (44 percent) of global institutional investors invest or plan to invest in timberland, while 73 percent of global institutional investors consider or plan to consider environmental impact when making investment decisions, according to the 2024 Nuveen EQuilibrium Institutional Investor Survey. Gwen Busby, Ph.D., head of Research and Strategy with Nuveen Natural Capital, noted in an article on “Timberland’s Expanding Investable Universe” that, “Estimates of the investable timberland universe vary widely and the standards of what comprises ‘institutional’ and ‘investable’ are generally unstated or unclear. Those estimates range from US$200 billion up to US$400 billion depending on the assumptions and boundaries of the analysis.”

Dr. Bushby also pointed to the inevitable expansion of the investable universe in timber to satisfy the growing demand for wood products and the ever-increasing allure of environmental benefits offered through this investment, such as carbon sequestration opportunities.

Back again to GAI News to provide an up-to-the-minute update into the thriving timberland investment market is Scott Reaves, director of natural resources at Domain Timber Advisors, which is based in Atlanta, Georgia, and manages approximately $758 million AUM in the U.S.

Here’s what he told GAI News:

1.) GAI News: How did the timber market perform in the third quarter of 2024?

Reaves: In the third quarter, average stumpage prices across the U.S. South increased for three of the five major products reported by Timber Mart South. Pine pulpwood, hardwood sawtimber and hardwood pulpwood all experienced increases. However, pine sawtimber and pine chip-n-saw prices both decreased.

2.) GAI News: Based on this past quarter’s performance, what is your timber outlook for the rest of this year? What market factors are driving timber demand?

Reaves: We do not anticipate significant changes or disruptions in southern stumpage prices for the remainder of the year. Demand for materials is expected to remain steady, with normal seasonal variations influencing pricing through the end of the year. Timber continues to be a strong investment due to its long-term stability and potential for steady returns.

3.) GAI News: How are interest rates and inflation impacting timberland transactions and valuations?

Reaves: Despite elevated interest rates, U.S. housing starts remained steady above the 1.3 million mark, which helped sustain consistent demand for lumber. This trend is expected to continue due to demographic demand. Additionally, the land market remains resilient, with strong interest from non-institutional private buyers, many of whom trade in cash rather than debt.

4.) GAI News: Amidst the backdrop of geo-economic and geopolitical uncertainty, have you noticed an increasing number of investors exploring timber as a long-term investment option?

Reaves: Even with current geopolitical and geo-economic climate uncertainties, interest in timberland as an asset class remains robust, driven by its strong fundamentals. This includes its relative stability, which is demonstrated by a favorable Sharpe ratio and risk-adjusted return profile. Increasingly, timberland is also recognized for its ESG benefits and positive impact on biodiversity. We believe timberland investments offer steady yields and solid economic returns while delivering significant environmental benefits. These include enhancing biodiversity, such as reintroducing longleaf pine.

ABOUT SCOTT REAVES

Scott Reaves is director of forest operations at Domain Timber Advisors, LLC, a SEC-registered investment adviser and a subsidiary of Domain Capital Group. Reaves is responsible for leading the forest operations group overseeing forest planning and execution along with the development, implementation, and improvement of all enterprise information systems and related processes supporting forest operations, analysis, asset valuation, and accounting. He also manages forest inventory, stand growth projection, harvest scheduling, budgeting, and special projects for the timber funds.

Reaves earned his BS in forestry from Virginia Tech University. He is a member of the Society of American Foresters (SAF), is an SAF Certified Forester (CF), and is a member of the Association of Consulting Foresters (ACF).

*The content put forth by Global AgInvesting News and its parent company HighQuest Partners is intended to be used and must be used for informational purposes only. All information or other material herein is not to be construed as legal, tax, investment, financial, or other advice. Global AgInvesting and HighQuest Partners are not a fiduciary in any manner, and the reader assumes the sole responsibility of evaluating the merits and risks associated with the use of any information or other content on this site.