Investing in Timberland: A Southeast Perspective

[Music] Electric gas. Welcome to Nature Backed Zone. Tarmot, it's a pleasure to be here, very excited to be on the Nature Back podcast and get into our business and looking forward to it. To start off, tell a little bit what they saw for you, Dimberland. How the story started? Yeah, I love telling this story. I mean, this is the origin story of Southview. And I will say it was a long time coming to get to this point. It wasn't a straight line as, you know, many entrepreneurial endeavors are. But, you know, my early career was in finance, was in wealth management. Working for some of the large wealth management companies, you know, that your audience would recognize, you know, JP Morgan, Wells Fargo advisors. I did that for the first decade of my career, up until about 2017. And, you know, then I kind of caught the entrepreneurial bug. I wanted to leave the big corporate, you know, big corporate job and kind of try something a little bit more entrepreneurial. So, I left wealth management to join a startup that I had invested in to run sales and operations. I was an early investor. And we built that company over about three years. And then we sold it to a publicly traded company. So, where does the Timberland come in and all of this? Well, in 2008, a long time ago, now, my family made an investment in Timberland. And so, I got to see first-hand, you know, how the asset class worked, gained an early appreciation for it. Wow, it was in wealth management and doing that startup. And that's also where I met my business partner, Terry Myers. And so, when I had the means, you know, in those other careers, I started to do some Timberland investing with him. Just to kind of put my own money into the asset class. And, you know, I would get with Terry. We'd go look at different Timberland deals. And early on, I said, hey, you know, we need to take what you're doing here. What we're doing here, investing in Timberland in the Southeast US, and offer it to a broader set of investors. And we can get into later, you know, why it's such a difficult asset class to access. But that's the kind of a high level origin story is, you know, kind of to get into where we are today with Southview. And Southeast, the federal member correctly, that was Georgia, right? Yes, we love the Southeast US for Timberland investing. Your audience may not know this, but the Southeast has become the largest Timber producer, lumber producer, region in North America. It's exceeded the Pacific Northwest. It's exceeded Canada. And we love Georgia. And the surrounding states, North Florida, South Carolina, Alabama. It just has the strongest markets. And, you know, when you make a Timberland investment, one of the most important things is you have to be close to the mill infrastructure within 50 to 100 miles. Otherwise, moving that harvested timber to the mill just isn't cost effective from a fuel standpoint. So, very robust infrastructure there. So we love investing in the Southeast US. Coming from another Europe, you know, the paper mills and kind of timber traffic. It's all very natural for most of, you know, people like, people like me in this part of the world. But, you know, the story is about how the timber was thrown into the river, which took it to the factory hundreds of years ago. And all these kind of stuff, it's, you know, all very natural. But your neighborhood, you know, what's the forest like? Yeah, so we, the main product that we grow is softwood pine, softwood pine plantations. There's three different species that we grow. There's slash, law, blolly, and long leaf pine. And that is grown for various different products that we manufacture. I mean, you have the large, dimensional lumber, which you see at places like Lowe's and Home Depot, you know, here in the US. We also have, you know, paper mills, you know, we have, you know, processing to create the Amazon boxes that show up on our doorsteps every day. We have the ability to create bioenergy in the form of pellets, which, you know, you probably are familiar with these wood pellets, which are very popular in Europe as a biofuel. So there's a whole diverse range of products that we manufacture in the southeast from this softwood pine. And there are more, there's new technology coming online too. I mean, there is, this is not a stagnant industry, right? Some people may think of, you know, that that logger and, you know, he's out there with, you know, some, some, you know, antiquated equipment. It is not that way, right? This is a sophisticated business. You know, there's technology that goes and there's new development of products that are coming online, things like cross-laminated timber, which is being used to build semi-high rise buildings and different types of biofuel. So there's innovation happening in the space. Absolutely. Of course, the most famous lumberjack song is from Monty Python, right? Yes. And everyone thinks that when the internet came and when the office is started to use computers, we don't need paper anymore, right? Right. It's just, that's not the case. That's not the case. And there's, you know, like I said, there's innovation in the space. I mean, look, I, until now, I don't know what's, what is going to scale the, the way that timber is able to scale for a number of things, right? I mean, we build 1.5 million homes in this country in the US every year, right? That we're not going to be able to do that with cement or steel, right? Most of those homes are stick bill, right? With, with lumber that's grown in our region. So that's kind of the ballast for the industry is, is new home building and renovations. And then there are these other kind of ancillary, still large businesses that, that kind of feed off of that as well. And there was, as you said, there's definitely a lot of innovation. We've also had a few episodes on Nature Backed, where the timber companies are, let's, what are they selling? These, these forestry companies have been speaking about the innovations and some startups talking about innovations about how they use sites, streams of the paper mills or things like that to create new materials. So a lot of happening, definitely. But going back a little bit to the origin, how do you start investing in timber land? Let's see, you know, you look at the portal where they sell the land and you see that, hey, there are, I don't know, 20 acres or whatever, they've hectic, hectic, on sale and this price looks attractive and you go and buy or what's the logic? Yeah, I'm so glad you asked that question because we actually, we stay off of those sites. You know, the deals that we find for ourselves and for our investors, you know, you can't find them on the Walmart shelf, right? You can't just go and peel them down. I mean, if you're just a retail investor and you're looking for 20, 30 acres, yeah, those websites are great. Like you could find, you know, something that works for you and your family. But for what we're trying to do for our investors is is really, you know, find unique opportunities, exclusive opportunities and those come from our deep, deep network in the region. So, you know, we've been doing this for 30 years. My business partner's been doing this for over 30 years, investing in timber land in the southeast and most of the opportunities that we get just aren't available to the public. You know, they're, we're seen as very active buyers. We do what we say we're going to do. We're able to close quickly on opportunities. And so when some of these families with large portfolios are looking to divest for various reasons, maybe the third or fourth generation doesn't want to manage that timberland anymore. Right, they have other big ideas. So they want to divest the timberland portfolio. They'll come to us. You know, there are any number of life events that happen, which causes someone to want to sell their timberland. And because of our network, we're keyed into those opportunities, which is a huge edge for us. There's a little bit about the asset class. I mean, you know, you've set up a fund to invest in timberland. Is there kind of, I don't know, is there a lot of trading options for people who want to buy instruments in timberland or how does it actually work and how does it compare to the other asset classes? If you want to invest in oil or what's the good comparison? Yeah, yeah, I think it's this would be a good point to kind of set the table of, you know, what are the different options an investor has if they want to invest in. in Timberland and you know, our offering maybe isn't for everybody, right? That the really the easiest route to get some exposure to the asset class is with the public we traded timber reeds, right? So you have warehousing, rainier, potlatch, deltick, you know, you could go to, you know, Yahoo Finance and look up their ticker symbols and you know, you could go to your fidelity account and buy that today and you'll get exposure to Timberland. What I will say about those reeds is, those publicly traded reeds is they are investing in the asset class. Yes, but you are in a public vehicle. And so you are at the whims of the emotions of the public markets, right? The real benefit from the asset class comes from owning it directly and holding it directly and having that direct control like we do and like we have through our fund. So you have those publicly traded vehicles. There's also some index funds. One of them, the ticker symbol is W-O-O-D wood. There's a number one, another one called cut, C-U-T. And these are index funds that kind of track, you know, track the timberland, you know, the lumber market. So you can look at those if you want kind of a more publicly traded vehicle. Kind of on the other end of the spectrum is if you have tens of millions of dollars, right, you know, 50 million plus, you can go to these specialized groups called Timos, timberland, investment management organizations, and they will build you a custom portfolio. And they say, hey, I want to invest in the Pacific Northwest or the southeast. You know, I want to invest in these various regions. They'll build you a custom portfolio and manage it for you. But again, not all of us have tens of millions of dollars to go and kind of have that private vehicle, right? Another way you can invest in the asset class is just to go and buy it yourself, right? You can go to places like LandWatch.com and you can find a parcel of land that's kind of in your neck of the woods and you can go buy that and you know, learn about managing, you know, the timberland property yourself or work with, you know, so a forestry expert, a forest management company to help you manage that, right? So that's a way to do it. That's a little bit more hands-on though, right? You kind of have to be willing to be paying attention and have an interest in doing that. For those that say, hey, I like the asset class. I like, you know, what Southview is doing. I, you know, I'm sold on investing in the timberland asset class for the various reasons why it's attractive. And I think we need to get into that tarmo about why the asset class is attractive and we can talk about that in a moment. But for those that say, hey, I'm interested in investing in timberland. We have created this vehicle to give everybody the benefits of directly holding the asset class with much lower minimum. So basically you're getting like that T-mo-like experience for a much lower minimum. So you're essentially getting into a custom private portfolio through Southview, through our Southview timberland fund. And I can talk more about the offering and, you know, the terms of that in a little bit here. Yeah. But I said, that's up on a little bit on the topic of why would anyone want to invest in timber? Does it have some historically massively high returns or is it just the feeling of earning something which is actually growing? Yeah. So the reason I love the asset class and, you know, you remember, I came from the wealth management industry, right? So I spent a decade. There must be money, right? Yeah. I spent a decade, you know, in the more traditional financial strategies, right? Stocks and bonds, you know, different funds, different portfolios, typically in the public markets. And what I found with timberland, which is different than those public markets, is the level of control. So when you hold it directly, right, the way that we do and the way we do through our fund, is there's no one who's ever forcing us to sell the assets, right? Whereas you can be holding, you know, 100 shares of Apple stock, right? And you believe in that stock, but if the whole market says, hey, we don't believe in Apple anymore, that stock goes down, right? So when you directly hold the asset, you have ultimate control. Also when we buy our properties, we typically don't use a lot of debt. And so we're not beholden to any financial institution. The big benefit of the asset class is the biological growth. So as you and I are sitting here talking, those trees are steady growing, right? The typical grow five tons per acre per year, like clockwork, right? So it works as a great inflation hedge as well. The trees don't care. The timber doesn't care who the president is. What the inflation rate is, what interest rates are, they're just steady growing and coming a more valuable product as time goes on. So I just found in my whole career, an asset class that didn't have as much control as timber land in the outcomes. Because again, no one is forcing us to harvest our timber. If the markets aren't strong, right, we wait and allow those trees to continue growing and becoming a more valuable product. And then we go to harvesting. So you can add on top of that, right? It's a sustainable investment. So the whole ESG movement that's been huge in the last decade, right? I think there's a lot of merit to that. But we've been sitting here in a very sustainable asset class the whole time, right? When we harvest our properties, we've put them back into trees, we replant the property and start that whole cycle over again of sequestering carbon through that timber. So a lot of benefits to the asset class. And I can talk more about there are other ways that we generate income from the land as well besides timber harvesting. And I can get into those here in a moment. Yeah. I love the old comparison that for us, this like inflation hedge, it's probably very common in the industry, but I've never heard it. And I was like, wow, I never thought it like that. These are all the asset classes which are growing by nature. I mean, all you need is, but that's million years perspective. But it doesn't happen anything over the next 12 months, right? Yeah, I mean, I think that people like to make the argument that gold is an inflation hedge. That other times that it's grow, it can be inflation age because people invest in gold, but it doesn't grow. You nailed it. You nailed it. That's what I was going to finish saying. It doesn't really have much utility besides gold bugs just say, hey, they like owning it. Yeah. You know, the other types of real estate people say, hey, if I own multifamily or a single family rental portfolio or commercial, that's an inflation hedge because I can increase the rent as time goes on. But there's a limit to that. There's a limit to how much you can increase those rents. And also in the environment that we're in right now with interest rates being much higher, that's having a negative effect on those other asset classes as well, right? I mean, a lot of those businesses use a lot of debt. And as they're continuing to refinance that debt, those rates have jumped up and they're just not as profitable. So we tend to stay away from using a lot of debt just for that reason. So we don't, it doesn't affect our returns. We might miss out on some leverage, right? That comes with using debt. But for us, we're more about preservation of capital. Because again, this isn't a 10X return, right? You kind of ask the question, what can people expect? This is not a 5X or 10X type investment. We're committing to a very steady 12 to 15% return in a very stable, tangible asset class. I think we look what's going on around us in the market. Let's do a pretty nice promise, right? Yeah, it's just want to be clear that's not a guarantee. It's not a promise, right? But based on our track record, which I have a lot of case studies of 30 years of doing deals, to show, hey, we're able to hit that return pretty consistently. That's our target. The other attractive thing about our fund is we're going to be providing cash flow to our investors. Our fund is a five year fund, and I can get into more terms later, but it's a five year fund, which on the grand scheme of a timberland fund is relatively short term. I can talk more about why that is, but we're going to be providing income to our investors as well from the asset class. The five year fund at the time when trees grow, I mean, in our backyard 50s, in your warm acclimat, maybe 20 or 30s, but still hold off these two things go together. Yeah. So, in our region, because it's been such a dominant region for timberland and pine plantations for decades, when we buy land, most of the time there is established timber on the property. And so, for example, if we buy 1,000 acres, maybe 300 acres of the property are maybe 5 to 7 years old, still fairly young, maybe another 300 acres are 12 to 15 years, and then another 400 acres are 20 years plus. And so at 20 years plus, right? Right, those trees are that larger dimensional saw timber, we can harvest that immediately and create cash flow for our investors. The acres that's 12 to 15 years, they're still a market for those smaller dimensional timber, that's for the pulp markets, for the pulp wood, for the paper markets. So there's income opportunities from the pulp wood as well. So we're able to create cash flow fairly quickly. We also do a lot of opportunistic land sales as well, which is a growing industry in timber land investing is there's just a lot of people in the southeast who have moved here. The population is continuing to grow in the southeast US for a number of reasons. And people move to Atlanta, for example, and then they come down to our region in South Georgia and say, "Hey, I want 100 or 200 acres for recreation." That's a completely different buyer, not that they're not trying to get a good deal on the land, but they're typically okay paying a little bit more for the property because they're going to be using it more for recreation. And so we do a lot of those types of opportunistic land sales to increase returns as well. So the five year fund works for us. Historically, we're all about turning that money over as fast as we can, creating that time value of money. The faster that we can start generating returns for our investors, we're interested in that. The last thing I'll say is some of these bigger timber funds, these guys are managing hundreds of thousands of acres, millions of acres. So a lot of times, they may be in it for a little bit different reasons. They're targeting maybe a 4 to 6% return. They're maybe feeding bigger businesses. They may have some sawmills that they're trying to feed with the timber land that they own. And look, when you have that kind of scale, the management fees that they charge alone, that 1 to 2% on a million acres, they don't have the same motivation that we do, being a little bit smaller, being smaller to turn over the land and generate returns because that management fee is taking care of their business. Exactly. What about the risks from climate change? We've seen stories about Florida and tornadoes and whatever climate the effects it has on the region, probably a white house, maybe not only the coastline. How do you manage it? And also from the other side, if there was pine forests, some monoculture, what about the biodiversity implications? Or yes, it's nature, but here, that kind of criticism also. So, yeah, so I'll kind of take that in chunks. The first one, in terms of the natural disasters. It's something to pay attention to. I will say in the southeast US, we don't have the same fire risk that maybe some of these other parts of the country do, like in the Pacific Northwest and the West Coast. And a big reason is that is because we have really excellent forest management. We keep our forest floors very clean. We keep the understory very clean. That creates less competition for the timber that we're growing, but it also helps to prevent that fuel from being on the forest floor, which is typically the big issue, which causes the big forest fires. So we typically don't have a lot of fires in our region. It's a weather climate too. We just get a lot more rainfall, other more moisture in the southeast US. Hurricanes are concerned. They do blow through our region from time to time. There have been some historic hurricanes, which has damaged timberland in the past, no doubt. But with what we do, we try to diversify even though we're in South Georgia, North Florida, these areas, these are still very large pieces of land. And so those hurricanes can kind of move through areas. They'll kind of whip up maybe some tornadoes that damage parts of the properties. It's interesting. Sometimes you drive just recently that we had those hurricanes like Hurricane Helene. That caused some damage, but it was just so interesting. One side of the road had the timberland wasn't affected. And the other side of the road, the timber was down on the ground. So it's really kind of, it does come through there, but it's not something that's going to prevent us from investing in the actual stuff. But what about the other side of the question that biodiversity implications? Yeah. So if you think about it, because we do have these large pine plantations, they are somewhat of a monoculture, as you say. And we're focused on this region. Just think about how much of the rest of the country that we aren't, that where there isn't a monoculture. Right? So that's kind of the big, we get this sometime is, hey, you're going in your clear cutting these forests, right? Well, yes, we've designated this region in the US to provide for the rest of the country. So we have these beautiful, preserved forests in the US, which aren't used for timber harvesting, and they're non-monocultures, right? But we've designated this area in the southeast US, this infrastructure is there, right? It has to happen somewhere, right? Right. And it has to be done at scale in order for everybody to get what they want, right? If they want, you know, a new home bill, right? They want their Amazon boxes, right? This industry has to happen somewhere. And you know, the good news is it is a sustainable investment. It does sequester carbon, you know, even though it is a monoculture. But just think about how many acres of non-monoculture forests were protecting by focusing and doing it in this one region. So that's kind of my, you know, response to that question. I'm paying off just starting to slowly wrap up the fund is now open or what's the offer at the moment? Yeah, the fund is available to invest in today. We are raising a $50 million fund to invest in this asset class in the US, Southeast. We have a very reasonable minimum to get involved. It's a $100,000 minimum. Very investor friendly terms, you know, one and a quarter percent management fee. We have an 8% preferred return, which means we're going to commit to sending you an 8% distribution, right, per year, before us as the managers see any other returns, right? Anything above 8%, there's a profit split, 80% to the investors and 20% to us for any excess returns above 8%. So pretty straightforward offering. It's a five year fund. We're working with best in class service providers, our fund administrator, our legal, our fund auditor and tax. They're all deep experts in natural resources, investments. And we have systems in place for the back office, you know, for administration operations, right? So that's all buttoned up. And as important, right, we've been doing this for a long time, right? So a huge network of service providers, you know, people in the industry sending us opportunities. And you know, investors that get involved with us are going to benefit from all that experience day one, right? This isn't a concept. We're not trying to prove, you know, that we can do this with other people's money, right? We've proven that we can do this. We've been doing this a long time. So this isn't a concept. And what's the kind of, how long is it open? Yeah. So we launched the fund in the fall of last year, right? And we've been taking commitments from registered investment advisors where we have been onboarded to the Charles Schwab alternative investments platform. So we're approved on there. So we have RIAs, you know, investment advisors who are having their clients invest in the fund. We have accredited investors that are investing with us. And you know, we're targeting by the end of the year to have, you know, this $50 million raised. And we're getting there. I mean, we've made great progress since we launched this. There's just a huge interest in alternative investments, things that are uncorrelated like Timberland, things that are in inflation hedge, you know, Timberland, something that creates current income. Timberland checks all those boxes. So we have great momentum. I have to ask in spring 2025, how does this US political storm or, you know, some say storm in a water glass, others are badly hit by their policies. I would expect they probably is good for the lumber industry or the local production, right? Yeah. So a couple things. The current administration, they actually put out an executive order which came out on March 1st. And you can go to the White House website and look this up. But basically, it was for the development and the advancement of American timber production. They said, hey, we have all the resources we need here. We don't necessarily need to be importing from Canada, right? You know, the lumber because we have that product here. And so there's a big push by the administration to focus on American timber productions. That's a boon for our industry. We have the full support of the current presidential administration to grow this industry. That's a huge benefit. Another thing too is the tariffs, right? And so, specifically for our industry, and a lot of people may not know this, but President Biden actually increased the lumber tariffs on Canada in August of 2024, pretty much before he left office from 8 to 14%. So he increased the Canadian lumber tariffs by 80% basically, right, before he left office. So Biden was after that subsidized Canadian lumber because a lot of people don't know that Canadian lumber is heavily subsidized. And there's a state-owned industry. And so, in many cases, and so that lumber that comes over the border, they have huge pricing advantages because they have that government support. And so Biden put a tariff on them. And now you have the Trump administration doing a similar thing, increasing the lumber tariffs from Canada. And that's already pushing more business towards our mills in the Southeast US. And that's going to continue, right? I mean, if a builder says, "Hey, I can use Canadian lumber or I can use, you know, lumber grown in the Southeast," right? And it doesn't have the tariff, you know, the lumber grown in the Southeast. You know, they're going to go for that lumber every time. And so, and we have the capacity to meet that demand, right? Because that's the other side of it, right? Well, it's like, "Okay, if you push all that demand, right, do we have the capacity to handle that?" And we do. The US Southeast sawmills are only operating at about, you know, 75, 78%. So there's a good bit of capacity that we have to meet that demand. So, well, it might look weird or strange what your administration is doing. From outside, it seems like, at least for at least the industry, it's a very right thing to do. Agreed. Agreed. You know, look, like, you know, I'm not going to get into the weeds on the other, you know, you know, tariffs, but I know. Specifically for our industry, it's a boon. And, you know, it's, it's, you know, look, like we're, we're, you know, a lot of people don't know about, you know, what we do in the Southeast US. And this industry, I mean, you'd be surprised, you know, kind of once you get outside of the borders of this region, a lot of people just don't know how crucial this industry is to the economy. You know, and how the products that we, that we grow and that we manufacture or region affects everybody's lives on a daily basis. And so I think it's only right that, that, you know, there's emphasis and investment, you know, made, made to this region, which is, which is so important. Good. Thanks, John, for this discussion and good luck with, you know, with your next Timberland investments. Thank you so much, Taro. And if, you know, if any of your listeners want to want to, you know, reach out to us, the best place to do that is southview timber.com, right? Go to our website. You can contact, contact us through there. Feel free to send me an email directly as well. John, J, H, N, at southview timber.com. If you'd like to have a conversation about our fund or learn more about the asset class. So good stuff. Thanks so much. And good luck. Thank you, Tom. Enjoy it.