Lyme Timber reaches $250m final close on Fund IV – exclusive

The sustainable TIMO focuses on non-core timber investments with additional revenue streams from conservation easements with its fourth fund.

Sustainable timberland investment management organisation (TIMO) Lyme Timber Company has reached a final close on its hard cap of $250 million for its latest fund investing in forest, timberland and mitigation banks in non-core timber regions of North America.

Lyme Forest Fund IV was oversubscribed and closed $75 million above its target. The fund has already deployed nearly half of its capital across four acquisitions, a representative from the company told Agri Investor. The 12-year fund has a deployment period of three years, with an option to extend for an additional year.

Lyme’s timber investment strategy combines revenue streams from working land operations like timber production, recreational leasing and alternative energy supply agreements with conservation easement sales, a US method of ensuring sustainable operations on forestland, timberland or wetlands, and protecting them from commercial developments. The company also draws returns from mitigation banking. Up to $35 million of Fund IV can be allocated to mitigation banking, which provides offset opportunities for environmental impacts from commercial development on other locations.

Brookfield Timberlands managing partner Reid Carter told Agri Investor in April that increased investment interest in timberland had placed enough upward pressure on acquisition costs for the asset manager to back away from its committed fund timber strategy in favor of a deal-by-deal opportunistic strategy.

Lyme Timber’s reliance on conservation easements, and mitigation banking, allows it to operate in regions that other TIMOs might not consider profitable while boosting returns, Lyme Timber’s director of external relations, Liz Adams, told Agri Investor. The company doesn’t typically seek acquisitions in the US Southeast or Pacific Northwest, where a glut of investment dollars have pushed up valuations. Instead, Lyme looks in areas like California, Appalachia, the northern Lake States and Florida.

“In some ways (sustainability) expands the universe that we can look at, but it also increases the revenue that we can see,” said Adams, who added that easement sales tend to equal between 30 percent and 50 percent of a parcel’s land value.

“The yield (on a timberland parcel) pre-easement might be 3 percent, but after you’ve sold an easement worth half the value of the land, the yield is now 6 percent.”

The company often partners with conservation groups to identify and acquire forest and timberland. These partnerships give the company an advantage in deal-sourcing in addition to financial support, said Adams.

The strong interest in the fund, said Adams, is in part thanks to an increasing appetite for investments that emphasise sustainability along with financial returns.

“We had many investors come to us specifically interested in impact investing and ESG. I think the general emphasis on that has percolated through and people are actively looking for opportunities that meet their financial criteria as well as their environmental concerns” she said.

Acquisitions from Fund IV include three timberland properties totaling nearly 150,000 acres in Wisconsin, California and Florida; and a portfolio of mitigation banks in West Virginia.

Lyme Timber Company has been managing forest and timberland since 1976 and launched its first pooled investment fund in 2002. Lyme’s previous fund, Lyme Forest Fund III, raised $160.4 million in commitments and acquired 12 properties with a combined 230,000 acres between 2010 and 2014. Fund IV launched in December 2014.