News: Stakes are high as timber giant plans massive land sale

Stakes are high as timber giant plans massive land sale
DANIEL CUSICK, GREENWIRE, 01/03/06

Private forest ownership in the United States is expected to continue on the path of radical transformation this year as large industrial owners of timberland quicken the pace of forest divestment -- a byproduct of industry consolidation and efforts to streamline operations.

All eyes are now on timber giant International Paper Co., whose sale of 6.8 million acres of timber holdings, much of it concentrated in the South and Great Lakes regions, has been described as a 21st century version of the Louisiana Purchase of 1803.

Secret bids on parcels of between 10,000 and 100,000 acres or more are expected to begin trickling in to the company in coming weeks, experts tracking the process say. The deals that emerge are expected to have major implications for the future of private forests, particularly on questions of conservation versus timbering and the trend of converting timberlands into suburban-style developments.

For conservation groups like The Nature Conservancy, The Wilderness Society and The Conservation Fund, the stakes have never been higher. "When they decide [to sell], they usually want to move quickly, and there's plenty of competition out there," said Bob Bendick, The Nature Conservancy's Southeast regional director in Orlando, Fla.

Among the timbering regions with special ecological value are northeast Arkansas, where the ivory-billed woodpecker was rediscovered last year after nearly a half-century of presumed extinction, and the Gulf Coast, which contains some of the most diverse plant and animal habitat in the world.

Groups like Bendick's acknowledge they face huge challenges to meet the asking price for lands that are often equally attractive for developers and other institutional investors. In Alabama alone, 1.2 million acres of IP timberland is on the market, including tracts that are prized habitat for rare terrestrial and aquatic species such as Alabama black bears.

In Texas, Louisiana, Mississippi, Georgia and the Carolinas, the for-sale tracts are equally staggering, with no fewer than 400,000 acres available in each of those states. North Carolina and South Carolina combined account for 1.3 million acres of available timberland, much of it in the fast-developing region between Wilmington and Raleigh-Durham. IP's 571,000 acres in Georgia are spread throughout the state, where small and large investors alike are rumored to be lining up.

A conservation deal in New York, conflicts in South

International Paper's largest land holdings outside the South are in Michigan (450,000 acres) and New York (278,000 acres), according to company figures. Last week, IP announced it had reached agreement with the state of New York and The Conservation Fund on the first phase of what is expected to be a 257,000-acre conservation easement for its holdings in the Adirondack Mountains. Under terms of the deal, the state Department of Environmental Conservation will pay $5.5 million to protect an initial 41,500 acres of prized recreation lands. Two additional conservation purchases are under contract and are expected to close this year, company officials said.

Rich Erdmann, executive vice president for the nonprofit Conservation Fund, which helped negotiate the deal along with New York state, described the agreement as "an extraordinary project" with "tremendous conservation outcomes."

But across much of the South, where IP and other timber companies are generally viewed as benign, mostly absentee landowners, the sell-offs are almost certain to spur more conflicts. While conservation groups are expected to acquire some key parcels, many others will go for other purposes, including residential and commercial development that is incompatible with broader conservation goals.

The trend is already well established in areas like north Georgia, where the Atlanta metro area continues to spawn new developments in once-rural counties (Greenwire, May 19, 2005), and along the Florida Panhandle, where the former St. Joe Paper Co. has dropped "Paper" from its name and converted vast areas of its forest holdings into St. Joe Co. development sites.

Another emerging trend in the Southeast is the establishment of real estate investment trusts, or REITs, essentially investment groups of 100 or more members whose primary activity is real estate deals, including the rent and sale of land for varied purposes. Chip MacDonald, an Atlanta-based real estate attorney with the law firm Alston & Bird, said such partnerships have proliferated in recent years as timber ownership has transferred from large vertically integrated companies like International Paper to smaller private owners.

'A lot of money chasing timber'

"There's a lot of money chasing timber now," MacDonald said. "It's a great resource that renews itself. And in the South, timber grows pretty fast," allowing for a faster return on investment. But MacDonald acknowledged that some timberland has simply become too valuable to grow trees. Such parcels are expected to go to developers who are willing to pay top dollar for large forested tracts, especially those adjacent to interstate highway interchanges and other arterial roads.

Amy Sawyer, International Paper's chief spokesperson at the company's Memphis, Tenn., headquarters, said recently that so far no major sales have been announced across its vast Southeast holdings. Potential buyers have been mulling IP's offerings, detailed in a "confidential information memorandum," since October when the company formally put its lands on the market.

While some observers have said International Paper wants to quickly dispose of its timber holdings and associated sawmills and other equipment, Sawyer said there is "no specific deadline" for divesting of its lands. "From here, we'll just do what makes sense based on the bids we get back," she said.

Sawyer did note that the company has organized its sales into large tracts -- "in the tens of thousands of acres" -- that would appeal more to institutional investors, conservation groups, or deep-pocketed developers rather than small private owners. IP established a separate company, Blue Sky Timber, in 2003 to handle the dispensation of small tracts.

Bendick of The Nature Conservancy said his organization is among the parties looking to strike deals with International Paper, but he could not disclose specifics of any such deals. He said ecologically valuable areas facing particular development pressure right now include virtually all of Florida as well as parts of the South Atlantic coast from Savannah, Ga., to the mouth of the Chesapeake Bay. He specifically mentioned Charleston, S.C., as "a very rapidly growing region surrounded by a lot of commercial forestland that could be on the market."

Many large sell-offs

Besides International Paper, other timber companies that have divested large forest properties in recent years include Kimberly-Clark Corp., Georgia-Pacific Co., and Weyerhaeuser.

In 2004, Weyerhaeuser quickly sold off a half-million acres of timberland in Georgia, with very little going to dedicated conservation groups. The state has since revamped its policies on land acquisition to better prepare for future timberland sales, and conservation groups are also bringing more focused attention to land acquisition.

In 2000, Seattle-based Plum Creek Timber Co. purchased roughly 4.7 million acres of timberlands from Georgia-Pacific Corp., making it the second largest private timberland owner in the country, behind International Paper. As part of that deal, Plum Creek agreed to supply Georgia-Pacific with wood for 10 years.

Major conservation purchases have been made in other states, including Alabama, where the state bought a 37,000 acres of bottomland hardwood forest and adjacent waters in the southern part of the state from Kimberly-Clark in 1999. The area is now a major draw for fishing, boating, bird-watching and other recreational activities.