Regional Spotlight: New England Timberland
Looking to get into the New England timberland market? Check out out our market report inside.
General Info: According to Michael Tragner of Fountain Forestry in New England, investors looking to get involved in timber have three options.
The first is what Tragner calls a “pure timber play,” where buyers seek out rural forests in excess of 500 acres with some reaching 20,000 acres. “Those are generally [properties that lie] in fairly remote areas away from hot spots, tourist areas, towns where there are job markets,” Tragner says. “Those tracts generally sell for between 95 and 105 percent of timber value.”
The second option is a mix of timber and real estate with properties ranging in size from 250 to a few thousand acres. Tragner says these properties are generally not as remote as pure timberland and hold real estate value because of location, access to road frontage, or amenities like power and water. “Those properties these day are trading between 105 to 130 percent of timber value,” Tragner says. “The rate, percentage above timber value, reflects the real estate value, the speculative value.”
The third type of property, as Tragner points out, is considered real estate that has timber on it. Properties are usually smaller and not more than 100 or 200 acres. “Although timber does play a role, it’s a subordinate role. It’s probably 40 to 60 percent of the land’s value with the rest being real estate,” he says.
Land Value:Comparatively speaking, land values in the Northeast are cheap when put up against properties in the Midwest, Tragner says. Ethanol demand has driven prices in agriculture states to several thousand dollars an acre. That’s not the case in states like Vermont, Maine, and New Hampshire.
“In terms of the Northeast, relative to what Midwest or West Coast people are used to, land is cheap here,” Tragner says. “Timber values in [New England] generally range from a low of $300 an acre up to $1200.”
Availability:Scarce. “In terms of the pure timberland properties,” Tragner says, “there is more capital chasing pure properties than there are properties available.”
In recent weeks, Tragner has sold two 3,000-plus-acre properties at full market price, and he did so before they even made it to the open market.
The Market:Tragner says the current rate of return is about 5 to 7 percent on timber, with an expected time frame of 5 to 10 years. “That’s a long time for Americans,” he says. “Generally it’s an asset appreciation type of investment. You plunk down the money, then you’re going to see that return in the form of asset appreciation.” Tragner continues, saying that some properties will be cash flow investments: “You buy it day one, then over the 10-year period, you cut enough timber to cut all of your cost.”
FYI: New England timber hasn’t suffered the pitfalls that have struck other parts of the country, such as forest fires or the Emerald ash borer, an invasive beetle plaguing Michigan.