Is Timberland Overpriced? If So, What to Do?

It’s a rainy, miserable Saturday afternoon. I’ve just spent several hours looking through some 1,200 timberland listings on LANDFLIP.com.  I’ve also scanned other Internet sites.  Dozens and dozens — hundreds, even — of 100- to 300-acre properties are listed in the Southeast and to a lesser extent in the North. They are priced mainly in the $2,000- to $4,000/A range.

I’m looking for timberland investments. These tracts don’t pencil out at these prices.

If all of these properties are moving lickety-split from seller to buyer in a couple of months, then keep the prices where they are. If, however, they are not moving, then the current economic situation (layoffs, high fuel prices, credit tightness, uncertainty, loss in stock value, etc.) suggests (loudly, not quietly) that sellers reduce their prices and offer some seller financing.

No one likes to be the bearer of bad news. But the pricing range is so obviously out of kilter with buyers that I felt I should say the obvious.

I advise timberland investors to screen in properties where at least 70 percent of the purchase price can be captured immediately in the sale of merchantable timber. Certain situations have arisen where this ratio can be reduced, but they always involve selling land. I’m looking for timberland investments that can be managed and held for timber production, not land flips.

I have seen dozens — nay hundreds– of bogus timber inventories over the years. These inflate volumes and values through many different ways. If a seller does not provide a hardwood sawtimber inventory along the lines of a breakdown by two-inch diameter class by individual species with the cruise parameters and abbreviations spelled out in what still passes for American English, I routinely lower the timber volume/value by 25 percent, and lean toward assuming that more downside is coming. (Planted pine is a different story.)

So the question becomes for the timberland investor, when are prices likely to scale down and what might drive them in that direction?

I think current prices are market for two years ago and maybe for two or three years in the future. They are not market today–and will not be again for a couple of years.

What will drive them down? Reality rearing its ugly head. Timberland priced at HBU value for second homes worked in the past when HBU buyers were out there, able and willing to do the deal at those prices. Sellers, I think, need to reprice for timberland buyers, given that the HBU buyers are staying home.

What are your thoughts?