The newly formed Forestland Investment Co. looks like an ideal melding of interests and expertise in forestry economics, modern financial theory, property investing and environmentalism.
Its five principals, now working full time at the new firm, based in Chapel Hill, N.C., have spent part of their careers with forestland and property investments, academia and environmental groups.
Of the new owners:
Tom Massengale, who is the firm's president, directed the acquisition and sale of some 1 million acres of forestland and other real estate for The Nature Conservancy;
Charles H. Collins, vice president-business development, was executive director of the National Fish and Wildlife Foundation;
George Dutrow, vice president-forestlands, is a forestry economist and the former dean of Duke University's School of Forestry and Environmental Studies;
F. Christian Zinkhan, vice president-finance, is the author of numerous academic studies on timberland and modern investment theory and former associate professor of business at Lundy-Fetterman School of Business at Campbell University, Buies Creek, N.C.; and
Herbert Hoell, chairman, owned his own North Carolina real estate company with domestic and international investments in both forestland and other properties.
"We do have some unique people and expertise," Mr. Zinkhan.
The firm plans to invest in naturally grown and regenerated hardwood and pine timberland in the Southeast. "Natural forestland, as opposed to planted forestland, is significantly neglected by investors," said Mr. Zinkhan. "It's a sector of the market that takes more expertise than pine plantations. It takes more skill to analyze."
Mr. Zinkhan has taken the view that pension funds will increasingly be questioned about the impact of their timberland investment management practices on conserving this important resource.
"A lot of natural forestland has been ill-managed. You can earn institutional quality returns by good management.
"We're not going to go in and clear cut. We're going to manage it so the lands supply a sustainable level of timber. Initially, we'll clear out poor quality trees, selling them for income and freeing room for the remaining trees, whose growth is stunted by overcrowding, and accelerate their growth."
Investors tend to neglect natural forests because "the trees appear in poorer shape than plantation timber, and the growth rates are lower. Investors see the land as of little value without recognizing management regimes that could enhance value."
As a result of the neglect, he said, natural forestland tends to sell at a discounted price to their potential present value earnings under better management.
Pension funds investments in timberland are increasing. He estimates pension sponsors and other institutional investor assets managed by major timberland investment groups rose 125% since 1990, now totaling more than $3.5 billion.
Just recently, the $750 million Baxter International Inc. defined benefit fund, Deerfield, Ill., made its first investment in timberland. It hired Wachovia Trust Services Inc., Winston Salem, N.C., said Charles W. Thurman, Baxter's assistant treasurer. The fund committed $10 million to $20 million in the Wachovia Timberland Fund, he said.
The new investment will be funded gradually from cash flow, he added.
Mr. Zinkhan said his new firm, which will offer both separate accounts and commingled funds to institutional investors, will focus on mostly on oak, poplar and other deciduous forests, cutting trees gradually and letting them regenerate naturally, thus saving costs of planting.