Ecotrust Forest Management (EFM), a forestland investment management and advisory company has deployed over a third of its second timber fund, the $60 million Ecotrust Forests II.
The fund, which closed in December 2014 on $60 million after targeting $50 to $70 million, is capitalised in equity, debt and tax credits in a “layered structure”, Amrita Vatsal, a director of EFM, told Agri Investor.
Out of the $60 million, $42 million is in equity, $10 million is in debt and $8 million is from Federal New Market Tax Credits, which gives equity investors a credit of approximately 25 cents for every dollar invested into low-income or economically-distressed communities in the US.
“When we are making acquisitions, we bring in investors’ equity along with their debt and we are also able to use the tax credits as a source of capital to fund acquisitions,” Vatsal said in an interview.
Investors who participated in Fund II are primarily family offices, high net worth individuals, foundations, endowments and a public institutional investor in the State of Oregon, Vatsal told Agri Investor. They include the State of Oregon’s Growth Board, Meyer Memorial Trust, the second largest private foundation in Oregon, and the Seattle-based Russell Family Foundation. Vatsal said investors come from all over the country and many of them are returning investors from Fund I. Fund I, an evergreen, perpetual fund, is currently on $30.5 million and due to open again at the end of the year, according to Vatsal.
“[Our Investors] are nationwide and they are attracted to timber assets in the Pacific Northwest primarily because of how commercially valuable and interesting the species are that live up here,” Vatsal said. “And [the region’s] exposure to the Chinese, Korean and the Asia Pacific markets.”
Much of the wood produced from the forests in the Pacific Northwest goes to domestic mills but an increasing portion of that wood is being exported to China, Japan and Korea for construction. “When the domestic market suffered from the financial crisis in 2008, the export market provided a layer of protection [to timberland investors].”
According to Vatsal, the $10 million raised in debt and roughly 25 percent of the equity part of Fund II is invested. To date, the fund has acquired 18,500 acres across six properties in four transactions with the most recent deal closed in March, which is a 900-acre timberland property in the State of Washington.
“It is an important property and an interest to people who are interested in farmland because the property is surrounded by organic farmland and the forest parcel contains a really important water source for the farm,” Vastal said. The particular forest parcel is good for conservation-minded entities to convert it to a community forest. Vastal noted that this is the last remaining piece of timberland in the community.
EFM plans to fully invest Fund II by 2019 and the average holding period of each parcel is about three to seven years, Vatsal told Agri Investor. “Our investment strategy is to purchase commercially valuable forestland in the Pacific Northwest including Oregon, Washington and Northern California, Idaho and Montana.”
What differentiates EFM from other timberland management firms is that it not only looks at owning timber with great return potential, it’s also looking for assets that have great ecological value. “That’s important to us because by identifying properties that have unique ecological context we will be able to identify potential exits from the beginning when we acquire the property,” Vatsal said. Ecotrust’s revenue streams come from timber, biomass, carbon and improved habitat and water quality credits.
Fund I, which was closed during the Fund II capital raise, will reopen at the end of the year and Ecotrust plans to double its size.