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Timberland Investment Returns: Components and Key Questions

This post includes themes and topics that will be addressed in the (virtual) Applied Forest Finance course on March 14th, 2024. Early registration ends February 29th!

Timberland values, like those of commercial real estate and farmland, derive from their abilities to generate income. As a real asset capable of growing raw material for fuel and the manufacture of solid wood and paper products, timberland readily generates cash flows for its owners. As such, the composition of these timber revenues is of great importance and interest.

As with marriage and timeshares, forestry investments require a commitment. This starts by asking, “should I get in?” If the answer is yes, then we ask, “where do I want to be locally within the sector?” The decision affects the opportunities and risks associated with each timberland investment (figure).

Direct timberland investing means buying into an operating business that produces and supplies raw material to wood-using manufacturers located within economically viable distances of the forest. It also provides income opportunities with recreational leases, cell phone towers, forest carbon, real estate, and other ventures that affect the value of the asset and the associated streams of operating income.

Timberland Investment Questions

Ranges in investment returns are partly attributable to variances in management and execution, as well as differences in local and end market factors affecting a given property. Key questions include:

  • Why do market values for this forest differ from what we estimated with our models? Land value is a function of its ability to generate income. In cases, non-timber land uses have higher returns, or the estimated timber returns for one investor differ from another, given variances in assumed yields, timber prices, costs, and discount rates.
  • How will trade affect the demand for and prices of my timber products? Most frictions identified in a strategic analysis are man-made, such as trade disputes and tax policy changes. When looking at timberland exposure to forest products imports and exports, start with localized analysis. The closer you are to a port, the more relevant the market.
  • What forest management strategy do we pursue? A former client, now retired, once advised me on the strategic analysis of silviculture investments. His advice was, “use strategies that maximize the volume of trees of reasonable quality at minimum cost and assume that technology will create the value.” Over time, this advice has held up well.


Investors hold timberlands for reasons that are largely diversifying and defensive. Market volatility reinforces the long-term timberland investment thesis as, in the short-term, timberlands can have cash flow exposures. Value is created over long periods of time through multiple sources of income, and to the extent we put arbitrary 1 or 5 or 10-year time horizons on the asset, we constrain its performance and change our understanding of the associated risks. Forest assets are incredibly resilient. Time is a strategic part of this.

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