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Silver Creek talks teaming REITs and pension funds

The firm's managing director Bob Ratliffe tells us why the timberland joint venture charges no carry and why its first investment is in the American south.

Twin Creeks, a joint venture investment vehicle between real estate investment trust Weyerhaeuser with four institutional investors, the State of Oregon, the State of Washington, the Alaska Permanent Fund Corporation and the State of Maine Public Employees Retirement System, has now closed on its first timberland acquisition.

We talk to fiduciary asset manager Silver Creek’s managing director Bob Ratliffe to find out how involved investors were in creating the joint venture, why there is no carried interest and why the fund has so far focused assets in one region.

What makes your vehicle different from the usual fund models for timber?

The most important change was for an institutional investor to be able to partner directly with a large operating company. You have the benefit of [their] scale, their team’s capabilities and their timberland. The Weyerhaeuser team will operate our new timberlands and do acquisitions going forward, which Silver Creek has oversight in approving.

We think the fees are lower than a typical timber fund. All in, fees from us and Weyerhaeuser are under 100 basis points. Weyerhaeuser owns over 20 percent, and [as the REIT is aligned in the investment] there are no carried interest or performance fees.

How important was it for you to keep fees low and innovate?

We probably could have charged more, but we wanted to change the model.

Investors are finely sensitive to fee structures, […] and increasingly so. The California Public Employees’ Retirement System has had a big push to demand transparency on total paid fees, and the Australians are also very fee sensitive.

We worked closely in planning with the investors. Our business partners had to go through a lot of legal effort. We have a property management agreement, a contribution agreement, an LLC agreement, the private placement memorandum. They all had to be sent out for comments, so there was a lot of back and forth.

The way people are trying to change investment models now is by trying to do open-end funds, which is probably the logical next step. The investment period for [Twin Creeks] is three years and the life of the fund is fifteen years. There is a presumption that we will get to the end and […] keep going, but one of the investors had to have the option of a stop date. We are not done [with this vehicle], and this isn’t the one and only [vehicle].

Does having Weyerhaeuser on board put you at an advantage when it comes to acquisitions in the US?

Time will tell whether our set-up [gives] us to more access to timberland and competitive pricing. Plum Creek wanted to do this [deal] and made the initial $560 million portfolio available.

I doubt there will be a timberland transaction of size the Weyerhaeuser team won’t see. Their size and skillset is working to our advantage.

Over the next several years we have to get invested, the question will become whether the market is our friend here or whether it is difficult to get transactions done.

Does buying a large scale tract of timberland across five states limit your ability to be geographically diverse?

Timberland in the north-west is probably fully priced and won’t have the benefits of housing recovery that we will see in the south-east.

The way Plum Creek operated the timberland […] was by really managing the supply chain; delivering timber to the mills in the specs they wanted it when they wanted it. Southern timberland fits that strategy much better. We would not be opposed to own the right timberland for the right price in the north-west, and I am sure we will take a look at assets up there.