Are Trees an Attractive Investment?

Right now I am, probably, hiking through the Routt National Forrest in northern Colorado.

And because of that I thought it could be interesting to talk about the buying of investment forest land.

Back in November of 2022 Oak Hill Advisors LP, a subsidiary of T. Rowe Price, bought 1.7 million acres of forest for about $1.8 billion.

Back in February of 2023 JP Morgan Chase bought 250,000 acres in the Southern pine belt for more than $500 million.

Buying timberland has become more attractive for long-term investors because trees are not only worth something when cut down, but also when left standing.

Because of new corporate sustainability pledges, companies are buying up carbon offsets, anyway they can.

These offsets are tradable certificates that represent the reduction of CO2 in the atmosphere.

One of the easiest way to obtain these certificates is by leaving vast amounts of CO2 absorbing trees standing.

The guys on Wall Street of course see this as an opportunity to make easy money. If all you have to do is buy some forest land, leave it, and rake in carbon offset certificates that ExxonMobil, GM, and Ford will buy off of you, it becomes a very attractive investment.

JPMorgan also included the asset class “Timberland” in their 2023 Guide to the Markets, which can be found here. In that article they state “We anticipate strong cash yields for timberland assets in 2023 as well as rising prices and yields in 2024 and beyond.”

Oak Hill Advisors LP said only 10%–20% of the revenue from their timberland properties is expected to come from logging, which means 80%-90% is expected to come from carbon offsets.

Even if carbon offset certificates become less attractive, their is still a drastic need for new construction in the US, where wood is a vital material.

Currently access to strategies like these are very limited, but it’s an interesting story none the less.