Worldwide farmland and timber assets of real asset managers as well as assets managed for U.S. institutional, tax-exempt clients tumbled again in the 12 months ended June 30, according to Pensions & Investments' annual survey of real estate managers.
Both categories continued a slide that was reflected in last year's survey results. Farmland managed for U.S. institutional investors fell 12.1% to $12.4 billion in this year's survey, and timber assets declined 0.5% to $15 billion.
The top three timber managers for U.S. tax-exempt institutions all saw AUM drop in the year ended June 30. Campbell Global LLC topped the list of timber managers with assets dipping 1.1% to $3.5 billion, followed by Hancock Natural Resource Group, a unit of Manulife Investment Management Co., with assets down 6.6% to $3.2 billion, and Nuveen LLC, with timber assets down 9.7% to $2.3 billion.
But demand for timber products has been strong for the year ended June 30, managers say.
"Timberland returns in the second half of 2019 and the first half of 2020 have been supported by surprising strength in underlying markets for forest products, particularly building products, such as lumber and wood panels," said Tom Sarno, senior managing director and global head of timberland investments at Hancock Natural Resource Group, in an email.
The NCREIF Timberland index had a 0.34% rolling one-year return for the period ended June 30. Although the appreciation portion of the return was down 2.1% , that was offset by the 2.47% earnings before interest, taxes, depreciation, and amortization portion for the period.
Residential construction has boosted demand for timber-based building products, Mr. Sarno said. "U.S. housing starts recovered sharply from a brief COVID-19-related drop in March and April and are currently at pre-global financial crisis levels," he said. "The COVID-19-related increase in a home-centered lifestyle, including work from home, home-based education and entertainment, and multigenerational family living, have all contributed to the need for larger and reconfigured home space."
At the same time, the increased use of teleconferencing is allowing developers to build in more affordable suburban and rural areas rather than in city centers, which have a more limited supply of land.
These developments have helped privately held timberland investments generally sustain their value in 2020, Mr. Sarno said.