Potential Risks

Potential Risks of Investing in Timberland

A key element of the timberland acquisition strategy is the evaluation of risks associated with each individual acquisition. Assessing acquisition-related risk is a core competency of Molpus.

Timberland investing involves several types of risks unique to this asset class. Molpus evaluates each opportunity based on a comprehensive list of operational constraints, and Molpus proactively provides risk mitigation through its acquisition due diligence process and/or its active management of the timberland properties.

Please contact us so we can discuss how we manage the following:

Losses Due to Nature

Physical risks can vary by region and generally include such events as fire, tornado, hurricane and forest pests, including pine beetles. Historically, the average annual loss for physical risks for Molpus-managed properties has been extremely low. Since 1999, financial loss due to catastrophic events has been less than 0.3% on an annual basis.

Overpayment

An economic risk of concern is using too much debt leverage and/or paying too much for a timberland property. If this occurs, the investment suffers a negative impact that is hard to overcome.

Molpus uses a sophisticated, customizable, proprietary model tailored to the needs of each client and property evaluated. The assumptions used are ever evolving based on the current timber markets and needs of the client. Strong discipline in modeling timberland properties is essential in determining how much to pay for a given property. So, before selecting a manager, you should understand the assumptions used for modeling acquisitions.

Political and Environmental Pressures

Outside of the Western United States, action from political and environmental groups has not traditionally been a major factor due to the large base of private timberland ownership within states.

Decreased Consumer Demand

The demand for timber can be impacted by factors such as a decline in housing starts, substitution of other finished products such as steel or various recycled materials, substitution of other raw products, and export substitution from other countries. These factors can be offset by population growth increasing the overall demand for wood products.

Poor Local Markets for Products

Many areas with expansive timberlands have few nearby production markets. Overhead costs related to transporting harvested timber to mills may negatively impact profits. We have the in-house ability to evaluate local mill density for wood products, which promotes competitive pricing for the products harvested.

Other Risks

Risks, such as short-term price volatility, interest rate fluctuations and the lack of immediate liquidity, should be considered in any investment decision.

Additionally, the various risks listed here and associated with an investment in timberland is not intended to be a complete enumeration or explanation of all risks involved with an investment.