Thursday, June 2, 2016

How Much Does Merchantable Timber Add To The Value Of A Property Sale?

When setting up a land sale that includes merchantable timber one of the first things that needs to be done is to conduct a timber cruise and timber valuation. This is often more complex than expected as the tract is usually comprised of  stands where the timber is of like kind in terms of timber type, specie, age, quality and value.

At this point stand mapping usually done by using GPS/GIS technology. It is typical for forested tracts to be considered as a tract of land that contains acres of some quantity but in reality the whole is managed by the parts or micro managed as the various stands can be different in many ways.
The techniques of timber cruising and valuation are not discussed at this point in the post. Once all the stands have been evaluated based on forest management criteria and valued the questions becomes a little more complex.

In a property sale, especially those properties that are recreation oriented or those with near term higher and better use potential questions arise as to the contribution of the timber assets in the sale of the whole tract. In my experience this becomes somewhat difficult as the timber cruise and timber appraisal is usually based on the concept of stumpage value, as of the date of the cruise/appraisal. Stumpage value is what the timber will sell for on the stump by a harvest within a relatively short period of time at market prices and specifications on the valuation date.

The market participants and real estate professionals should realize that product shifts can occur in the near term and just because some stands are merchantable doesn't mean that they should be thinned or harvested soon after the sale. What would the well advised, astute investor pay for the property with the current timber condition on a stand level basis? The answer to these questions may be more difficult and therefore can make a stumpage value estimate inadequate to measure the true contribution of the timber when associated with the other property components which include land, improvements, personal property, etc. that are usually part of a property sale.

A term in property appraisal called anticipation is ever present in land and forest investments. The value to an investor is not necessarily based on the spot or current condition but what the investor perceives as the present value of the future benefits to be produced by the property during their future period of ownership.

I have not nor will I attempt to answer the question posed in the title above as every situation is different. These differences may include variations in tract size, timber stand opportunities and obstacles, weather and site factors, internal and external access, location to first processing points, markets for the timber and the motivations of the typical buyer, given the highest and best use of the property.

In conclusion it is wise to look beyond a stumpage value estimate as the stands while capable of producing immediate value by being cut may not be financially or biologically be ready to cut. A timber valuation by a party that wants to buy the timber should also be looked at very carefully unless it can be audited by an independent third party. The seller or buyer who is most informed will ultimately win in the deal. I guess that if one of the parties in the sale did not think they knew more than the other there would never be a deal.
These comments indicate that agents and sellers and buyers should be better prepared !  What do you think?

Thursday, April 21, 2016

Growing Season Burns- One of the best Forest and Wildlife Management Tools? I think so!

Growing season burning is one of  the best forest and wildlife management tools you can employ. Unlike winter burns which are geared more toward aesthetics and fuel reduction, growing season burns enable undesirable trees and plants to be attacked more effectively when foliage is developing and transpiration is in full gear. The potential for killing or setting back undesirables in the under story is far better than winter burns.
The picture above shows an old friend setting a flanking fire during a winter burn but firing techniques are the same.
Some lower gulf coastal plain sites are hard to burn in the winter due to dispersed fuels to carry a fire and heavy upland hardwood leaf matter which does not burn well. This tends to produce more smoke which is the greatest risk in prescribed burning to start with, in my opinion. During the growing season the daily temperature is higher and humidity levels do not vary like they tend to do in February and March. The green foliage tends to hold down the fire thus creating greater resident times for the fire to stay on the unwanted species longer.
In some rougher spots that haven't been burned for a while it may take several burns but eventually the under and mid stories can be altered. There will be great change in the herbaceous layer and grasses and plants that are more beneficial to wildlife will emerge. Predators will have a much harder time threatening turkeys and small game and there will definitely be a reduction of risk in the event of a stand killing wild fire event.
What are your experiences with growing season burns? Do you plan on doing more of them in the future. I know we are! Let me hear from you!

Saturday, April 16, 2016

One of the most difficult property situations you can deal with is a transitional tract that has an excellent stand of merchantable timber. The highest and best use of the property is not for growing timber products. Questions immediately pop up including, what does the timber contribute to the property value? Can all or some of the timber be harvested? Which trees will be left and what biological issues will be posed by the stand density once the other trees have been removed? Will timber operations detract from the market value of the property under its current highest and best use?

Would love to hear some comments on how this situation has been handled! 

Monday, May 20, 2013

Do you ever feel like you are up a tree and a bear is looking up at you? Try managing a Face Book business page!

All of the marketing experts now say that we can forget newspapers, phone books and magazine ads for promoting our businesses. Social media and internet marketing is not only the way of the future it is here right now. If you do not have a webpage, a blog and are not active in social media promotion in addition to direct networking efforts you are way behind the competition. While these methods are sometimes confusing for the most part the marketing efforts are free! I can remember advertising land and timber sales and consulting forestry services with expensive ads. I have changed my tune in that area!

I have been active as a page manager for our company Face Book page and have been asked to help promote another organization's page that I am involved in. My experiences have been all over the board and while fun and rewarding in most cases, it is the most illusive effort I have ever undertaken. 

Growth of a page is directly related to the subject matter that is covered as well as the base of potential fans that can be attracted to the page. Many discouraged me at first about trying to use Face Book for business promotion. I did not listen and with dogged determination I kept on pushing and soon learned that Face Book has the greatest business exposure and ranks far ahead of many alternate social media sites. I told them so!

Our business deals with rural real estate marketing and consulting forestry which to some is as interesting as watching hub caps rust but everyone in these industries use the internet to begin their queries for land and for professional forestry services.

Growth of a page is a trying experience as fan growth is the key to page popularity. Efforts to post topics of interest is a constant challenge as fans need you to really rock their boat or they will pass you like a ship in the night. Pictures and captions that catch their attention is a must. I have seen many posts that look like they were shot out of a cannon. Not one clue what the post meant and in many cases there were so many typos and errors.

Face Book has constantly been making changes, without our knowledge and has frustrated many users when the page format and their own personal pages do not look or work the same. I think Face Book is trying to cloak fans from seeing posts so they can start charging for exposing a post and generating revenue from advertising. Guess that makes business sense but this volatility causes one to lose confidence in the media and creates great frustration. It is very difficult to get a true reading on market response to a page with all the variables in place. It is hard to know if your message is being seen or ignored and it is very rare for a fan to actually let you know what you need to do to make the page better. Fan growth can grow in spurts and then can stall like a petrified rock.

I think it is helpful when other administrators are permitted to add page content but if they do not aggressively support your effort you should replace them. You obviously must be sure that what they post is consistent with your marketing mission. One ill placed post could cause real harm to your efforts. If this type post is made I guarantee that every fan and all the public will see and read that one!
Many of us will one day be involved in internet or social media marketing whether you like it or not. I hope some page managers will comment on this blog as we need guidance to make these things

Monday, May 13, 2013

Timber Salvage After Wild Fires or Natural Disasters: Decisions can be tough to make!

We recently had to make some tough decisions on how to salvage timber after a serious wild fire damaged the property of a client. The property is located in an area where wild fires are common during the fall and in February through May. We had performed no management on this property prior to the wild fire as we were unaware that the client owned it.  The property included a mixture of young, merchantable, growing longleaf pine with natural stocking and spacing and an older mature stand along its western boundary. The fuel loading was considerable with draped fuels. Other species included sand hill type hardwoods that were mainly of pulpwood grade. The wild fire was a running crown fire which produced a high percentage of crown scorch in the older longleaf pine stand and heavily damaged the upland hardwoods on about half of the tract.

Decision making can be influenced by many factors. Some of the questions we asked ourselves follow. These questions mainly relate to the pine timber as it was obvious that the hill hardwood could not withstand the extreme heat and bark damage. The first question was will the mature longleaf survive the fire damage? While the initial assessment looked bleak the weather remained wet after the fire and the needle structure began to reappear after most all of the needles fell to the ground. We have experienced very hot fires in longleaf stands before and have found the specie to be very resilient to fire even with crown and needle damage from flames or intense scorching.

Several what if's came to mind when trying to answer question #1. We felt that in a wet period that the trees would show signs of survival but what if a drought period came along during the summer or early fall? If a drought period came would turpentine beetles and other agents attack the residuals thus causing the older trees to succumb? We observed some beetle issues a week or so after the initial assessment was made. Didn't like that!

The third question has multiple parts and involves the current damaged stand and post thin stand composition? This stand included mature, high valued saw timber and poles. Could we afford to guess that these trees will survive and is there  any advantage to leaving them in hopes that additional volume and value will accrue? If we lightly thin the stand to remove high risk damaged trees is there enough volume in place to justify a future operation where another stand entry will be required? In other words, if the trees die later can we put together a viable operation to harvest them?

The fourth question was. What is the long term management objective of the client? We knew that answer as the client is active in longleaf pine restoration and endangered specie protection on longleaf sites. Should we reduce the stand to a seed tree density while keeping a Basal Area requirement to enhance Gopher Tortoise habitat? Can we effectively start a prescribed burning program in the future to reduce wild fire risk and implement longleaf and endangered specie recovery and enhancement?

I am sure there were more thoughts or decision factors to consider but we didn't take a chance on the stand surviving. It was thinned to a low BA to suit natural regeneration and endangered specie enhancement. We also cut all of the hill hardwood and thinned the younger natural longleaf stand on the east side of the tract.

While financial issues (timber sale prices) had some impact we did not wait long to make a decision and obtained a logger to salvage the tract. Time is of the essence in salvage operations and mills do not prefer charred wood. We now plan on getting a seed catch or even planting container longleaf stock in openings.

Forest management, especially in salvage situations, is not perfect nor is it truly a gambling deal but sometimes a less than perfect decision, if immediately implemented, is better than the perfect one deferred, where biological and financial variables are unknown. As Clint Eastwood said "Do you feel lucky?

Monday, April 29, 2013

                                             LUMP SUM TIMBER SALES: BECOMING VERY SCARCE?

Those of us who handle and supervise timber sales have had to change our ways in determining the best sale technique when selling client timber in today's market.

When I first started selling timber the dominant sale technique was lump sum sealed bid sales. Many of the sale contracts allowed the timber buyer 1 year or more to log a tract. The advantage of this was that the seller received all cash at closing. Our job then was to inspect the logging operations for contract and BMP (Best Management Practice) compliance. At closing the buyer assumed all risk from market losses due to price decreases or storm losses.
The disadvantages could be considerable as prices could increase during the contract term and it is not uncommon for buyers to have access to specialty markets, such as transmission poles, where they could merchandise products at higher value than the market specifications used in the timber cruise that was done to set up the sale. Over cuts put money in the timber buyer's pocket, especially when pine and hardwood top wood was significant. The land owner didn't get paid for  top wood/pulpwood as no volume tables exist to accurately estimate top wood volume.
Pay as cut/per ton/per unit sales are the main timber sale method we have been using over the last five years. This sale method requires much more monitoring and auditing effort on our part as loads and payments must be carefully scrutinized. Merchandising at the loader is key, so caution is needed in making sure that the logger complies with the sale contract and the product specifications as identified in the contract.  Most payments are periodic and not lump sum and prices are based on bid or negotiated prices.
In today's tough timber market environment caution is required as weather variations and mill price guarantees can create havoc between the timber buyer and the land owner. The buyer executes a contract with the land owner and has a specified time to cut the timber. In many cases the mills place quotas on the number of loads that can be delivered or can drop the delivered price which basically causes the buyer to default on the agreement/contract or absorb the shortfall. Can you imagine being a timber buyer/logger when it takes 90 normal days to log a tract when the mills will not hold prices beyond 45 days? They may say they will hold the prices firm but they will not take the wood. what difference does that make?
Unless the sale is dominated by products directly needed by a mill the pay as cut method usually brings the most money to the land owner, in my opinion. The managerial cost is higher but so is the volume that is merchandised and hauled for the benefit of the land owner. If high grade saw timber is sold the lump sum method may still be the best route.
Some trust departments or other fiduciaries are not allowed to use pay as cut sales. This lack of flexibility in timber sale management  is not smart in today's volatile stumpage markets.
It is wise to size up each sale prospect by ground conditions, access and volumes in place before the sale method is decided upon. In today's market we feel more like stock brokers than foresters as we have been playing weather and market related spot markets to capture higher prices which relates to greater revenue for our clients.
In conclusion, I think that if you have multiple products that must go to many different outlets you will do best if you use a pay as cut sale, assuming that you have all controls in place and a very reliable logger. If you have high volumes in products that appeal directly to a mill then the lump sum method may work best. Both have advantages and disadvantages that must be evaluated before you proceed to market your client's timber.

Monday, April 22, 2013

 Land Sale Contracts- Caution to Rural Land Brokers

As a broker for many years, I have learned, sometimes the hard way, to pay close attention on behalf of my client, on what is implied in provisions in a land sale contract. In most sales of rural property a generic form agreement is not always specific enough for the situation to be covered in sufficient detail. MLS or office supply store forms have limitations and should be used with caution. Be advised that contract variations between states is not unusual. If you have a significant estate would you want to use a form Will ?

Most land transactions I handle are based on Attorney prepared agreements. I just got a draft of a land sale contract that was prepared by an Attorney who represents the Buyer. On the surface the contract looked simple and straightforward but when studying several of the provisions regarding minerals, Hold Harmless and environmental issues I realized that every time I read these sections that I was more unsure of the legalize and if I really understood what I was reading. I can just imagine the confusion that some sellers and buyers have as they sell or buy very infrequently. Sometimes we interpret what we read to go along with what we want but that may not be the case.

I sent an email back to the Attorney requesting clarification of the terms and provisions and asked my client to have his personal attorney to review the agreement prior to executing the agreement. Do not be afraid or embarrassed to ask questions that will protect your client's interest. I am not qualified to be an Attorney nor are most of my clients but we are qualified to ask questions as to meaning and implication. I would rather be embarrassed up front than cause my client to sign an agreement where we made a mistake in meaning and consequence. In these and in most cases encourage them to consult with their Attorney.

I would like to hear some of your experiences .Hope you will add comments to this article!