Timber, like farmland, is luring high-net-worth clients as an income-producing inflation hedge that doesn’t move in step with stocks or bonds, said Don Heath, manager of the natural resources and real estate group at Regions Financial Corp.’s private wealth-management unit. Regions, based in Birmingham, Alabama, has a team of 17 foresters who locate and manage blocks that are usually 500 to 2,000 acres.
“The trick in these hard assets is buying at a reasonable price,” Heath said. Increasing competition in the last couple of years has reduced supply and pushed up prices, he said.
“If you buy it right and manage it right, over a long time horizon, you can realize average annualized returns in the five to 10 percent range,” including land and tree appreciation plus sales of harvested wood, Heath said.
Timberland gained 9.4 percent in the 12 months ended June 30, the most since the third quarter of 2008, according to the real estate council’s index of 442 properties.
‘Chugging Along’
Cash flows vary depending on when trees are ready for harvest, their size and lumber prices at the time, said Douglas Donnell, national timberland manager at U.S. Trust. Client commitments to the asset class have doubled in 18 months. Slater, the farmland investor, also bought two timber properties through the firm, he said.
Paul Young, a 53-year-old engineer and entrepreneur in Wolfeboro, New Hampshire, said he’s purchased 600 acres of timberland on his own in recent years to diversify.
“It’s chugging along and appreciating,” Young said.
Costs include property taxes and hiring a forester. A bonus, he said, is the opportunity to walk on your investment and see wildlife including moose, beavers and the big black bear he encountered in June.
Freezing Beetles