TPG Rise-backed JV acquires 29,000 acres of Michigan forestry

Bluesource Sustainable Forests Co. vice president Aaron Paul says the collaboration with credit-focused Oak Hill Advisors represents a ‘private equity bet on the carbon markets.’

A joint venture between TPG Rise-backed Anew and New York-headquartered investment firm Oak Hill Advisors has the acquired 29,019 acres of Michigan timberland from Lyme Timber Company for an undisclosed price.

Anew operated as corporate climate adviser Bluesource before a TPG Rise-backed merger with Houston-headquartered renewable natural gas marketing and environmental commodities company Element Markets in February. The deal created what it called the largest marketer and originator of carbon and environmental credits in North America.

The Michigan property is located in the Upper Peninsula counties of Schoolcraft, Mackinac, Alger, Chippewa and Luce. Plans call for the timber to be managed for the creation of forest carbon credits and selective logging below annual growth levels.

The acquisition is the third since October 2021, when Anew (still known as Bluesource at the time) announced the creation of a $500 million joint venture with New York-headquartered asset manager Oak Hill, called Bluesource Sustainable Forests Co. The JV is focused on the acquisition and management of more than one million acres of forestland.

BSFC vice-president Aaron Paul, who previously served as Bluesource director of forest carbon origination, told Agri Investor that prior to the partnership with Oak Hill, Bluesource’s focus was on finding landowners willing to house emissions-reducing projects on their properties.

He explained that the company would then work with those landowners of all types to inventory their forests and preform data science for carbon stocking to design forest carbon projects. After that inventory was put through an audit process which itself was verified by third parties, Bluesource was able to sell credits produced into voluntary and compliance markets.

Paul said the Oak Hill partnership represents a “private equity bet on the carbon markets” and comes after certain of Bluesource’s clients expressed desire for the firm to prove out the market.

“In a carbon-constrained world, one of the most cost-effective ways to take CO2 out of the atmosphere is to let natural forests in North America continue to grow,” said Paul. “It’s cost effective because these properties have been selling a quart of wood, 4X8 by four-foot dimensions of wood, which contain about five tons of CO2 equivalent for a total of $20. If you look at any publication by Credit Suisse or Bloomberg NEF, the price of carbon is going far beyond – already is far beyond by many measures – $4 per ton.”

In addition to the Michigan properties, BSFC also acquired 52,000 acres in Oneida, Lewis and Herkimer Counties of Upstate New York in April.

In the statement announcing the creation of the JV, Anew and Oak Hill explained BSFC will pursue direct and co-investments “designed to lead an evolution in forestry investments.” Plans call for the pair to focus acquisitions on properties where climate benefits will not occur without a change in landowner.

“The risks of managing forests for climate benefits are not well-enough understood by many timber investors to allow them to make the necessary practice changes,” they wrote.

Anew senior vice-president Jamie MacKinnon told Agri Investor the complexity of evaluating carbon projects involves more than long-term uncertainties related to government policy.

“It really relates to the fact that by doing a carbon project you are putting a long-term encumbrance on the property,” he said. “Property owners value that in very different ways and you really need to be looking at that and the ability or desire of organizations to consider encumbrances when looking at their ability to monetize the carbon value on a property.”

Credit-focused OHA manages $57 billion through funds and separate accounts focused on high-yield bonds, leveraged loans, distressed debt, structured products, private lending and real assets. Its real assets strategies include aircraft, automobiles, shipping and real estate. Among vehicles managed by the firm, which declined to comment, is OHA-ECO-US Timber AcqCo., which had not secured capital from any investors as of a regulatory filing on October 21.