Update: Buying opportunities abound in Australian forestry

*adds comments from New Forest chief executive David Brand.

Buying opportunities in the Australian forestry market have increased as the life cycle of trees purchased after the collapse of several investment schemes in the mid-2000s comes to an end, according to Tim Altschwager, director of rural and agribusiness at Colliers International, the global commercial real estate company.

Forestry land prices were pushed up artificially high in the late 1990s and early 2000s when management investment schemes were first established due to the extra demand, but also because many of the schemes bought land that was not worth the price they paid, according to Altschwager.

“Some even bought land that was not suitable for forestry but converted it,” he told Agri Investor.

Several managed investment schemes collapsed a few years later when timber and wood chip markets fell and their assets were bought up by several investors. This included Future Fund, Australia’s sovereign wealth fund; AustralianSuper, the superannuation fund; and the Australian Sustainable Forestry Investors Fund (ASFI).

Now that the typical 10-year life cycle of trees has come to an end, there are several Australian forestry assets on the market that are priced at around 50 percent lower than they were in the early 2000s, according to Altschwager.

“There are a lot of assets coming up on the market at the moment,” he said. “They changed hands when the managed investment schemes went under and now we are in the second cycle with forestry companies as well as investment firms buying them.”

The global financial crisis also wreaked havoc with the managed investment trusts placing more forestry assets on the market a few years later, according to David Brand, founder and chief executive of New Forests.

“It has taken a few years to work through the system and once that is done, that will be the end of it, but for now it is still very much a buyers’ market,” he said. “That will probably shift in over the next few years.”

Colliers International recently managed the sale of nearly 21,000 hectares of forestry land by ASFI to New Forests, a global sustainable timberland asset management firm based in Australia. This was the first acquisition for the New Forests Australia New Zealand Forest Fund 2, a 10-year stapled unit trust that closed on A$707 million ($662 million; €484 million) in March. ASFI acquired the assets from Timbercorp, one of the managed investment scheme managers that sold its assets in 2004.

New Forests Fund 2 is also buying 175,000 hectares of north-western Tasmanian land and forestry assets from Gunns Limited, the managed investment scheme management firm that went into liquidation in September 2012, according to the Gunns website. The deal should complete at the end of June, according to New Forests. Fund 2 has a three year investment period.

The ASFI sale was competitively bid by individual investors, land owners, neighbours and investment firms, some of which bid for parts of the portfolio, which comprises 68 properties across South Australia, Victoria and Western Australia. But selling the portfolio in one deal was a “far superior option”, said Altschwager.

New Forests is likely to convert some of the land from forestry back to grazing and cropping land, as it was originally used. “This will happen where forestry is not the highest and best use, which depends on a number of site-specific, regional, and market factors,” said a spokesperson at New Forests. “Our goal is to maintain a high-quality, long-term forestry estate.”

Altschwager added: “New Forests are getting back to a sustainable model that works. When they cut down the trees they will determine whether the land is suited for forestry or for conversion.”