Timberland, Tech, and Trends with Dr. Brooks Mendell

Join as we discuss the timberland industry with Dr. Brooks Mendell, the President and CEO of Forisk Consulting. He brings over three decades of expertise in the forest products and timber industries, with experience in consulting, operations, and research. He founded Forisk in 2004 and has supported a range of clients around the globe, from small businesses to Fortune 500 corporations. A member of the Georgia Foresters Hall of Fame, Dr. Mendell holds degrees from MIT, UC Berkeley, and UGA.

In our interview with Dr. Mendell, we discussed the dynamics of timberland investments and the impact of technology and data on this industry. Watch the full interview and catch a few key takeaways below.

Acres is teaming up with Forisk Consulting, the leader in analyzing timber markets and wood baskets, to bring you access to the timber mill database within the Acres platform! Learn more about timberland data on Acres here.

Key Takeaways

1. The Impact of Technology on the Timber Industry

Brooks Mendell: “Another big trend, of course, is always technology. It affects the entire supply chain, from what's going on at the mills, and how much wood they use, and how efficient they are in using it, to the way that forest owners manage their forests with respect to collecting data or the quality of the seedlings they're putting in the ground. 

Just to give you a sense for the change, if you compare what a private forest owner does per acre today versus what they did when I was a kid, you know, people are growing two to four times more wood per acre per year than they did. And so, when you're growing more volume in less time, it just changes the way people do things. It changes their cash flows. It changes their rate of returns. And so all these things have been quite influential.”

Key Takeaway: Technology has significantly impacted the forestry industry by improving efficiency in wood production, access to data, and forest management. This has resulted in changes to business operations, cash flows, and returns for timberland investors.

2. Two Key Considerations in Forestry

Brooks Mendell: “Two things that I always highlight are that forestry, like all real estate, but forestry in particular, has a quite important spatial component and a very important time component. In forestry, when we talk about markets, we're not really often talking about the market for Diesel Jeans, or the market for baseball bats, or for toothpicks. It's not really those end markets that we're talking about.

Sometimes, we're literally talking about a dot on the map where you put a pin, and you draw a circle around it, and you have to know what's going on in that place on the map. Or else you have no idea what the potential is or what the cash flows are going to look like from that particular investment. So that spatial element is really important. Then, tag onto that the time periods that are not months or years, but they're decades. [...] The fact that you're dealing in such long timeframes really makes the quality of that data and the quality of the infrastructure you're trying to track quite important.”

Key Takeaway: In forestry, two critical factors to consider are location and the long timeframes involved. It's about knowing what locations to invest in and being aware that these investments span decades. This makes quality of data and understanding infrastructure essential to timberland investment.

3. Why Mill Data is Critical Information for Timberland Investments

Brooks Mendell: “Because at the end of the day in forestry [...] if there's no mills, that means there's no demand for wood. And if there's no demand for wood, from an economic standpoint, there’s no value.

Now, there could be rec value, and there could be wildlife value and water quality value and all these other things. But from a pure investment standpoint, the value of your investment and your ROI is a function of cash flow. There's some appreciation, but cash flow is what's driving your year-over-year returns.

The very first thing you want to know is: where are the mills and what are they doing? So you look at where the mills are. Are they within an economic distance of you delivering to them trees or harvested logs? And can they buy those trees from you at a price that makes sense for them to turn it into something more valuable that they can sell to somebody else?”

Key Takeaway: In forestry, the presence of mills and their economic viability is crucial because they drive the demand for wood, which directly impacts the economic value of forest investments. While there are other values like recreational, wildlife, and water quality, the primary focus in terms of return on investment (ROI) is cash flow. Understanding the proximity and economics of mills is essential because they determine whether selling trees or logs to them at a reasonable price is financially viable.

4. Healthy Competition and Infrastructure Go Hand-in-Hand.

Brooks Mendell: "If you're looking at a timberland property, you're one of hundreds of forests in that market. One thing is, you like things to be competitive, but the market is not going to feed off of your forest. It needs a lot of forest. So you want to know that you're not the only game in town. Sometimes it helps that there aren't too many games in town because then you're oversupplied, but you do want to know that there is an infrastructure that is very used to planting trees, harvesting trees, and delivering them to market, that the roads and the rail are there to get those things delivered."

Key Takeaway: When considering a timberland property, it's essential to understand that you're part of a larger market, and a competitive landscape can be beneficial. Look for the presence of a well-established infrastructure for planting, harvesting, and transporting trees.

5. Advice for People Interested in Timberland and Forestry

Brooks Mendell: "Well, when I talk to people who are considering timberland and forestry as an investment or as an asset or as a market for their portfolio or for their activities, I take a step back. The very first thing I say—because, while I'm an advocate, I need to be somewhat agnostic about timber because my job is not to recruit people into the space. It's to make it easier for them if they choose to get in, right?

So, I always ask: Why do you want to be in forestry? Or what is it about timberland that's helpful to you? And if you need help answering the question, we can help you answer that question. But think about how and why timberland makes sense for you and your portfolio. A good way to get started is even to do things as simple as attending some forestry association meetings or going to a conference or doing some reading online or reading our blog or things like that. Just get some basic information to make sure you understand why."

Key Takeaway: When considering timberland and forestry as an investment, it's essential to start by understanding why it makes sense for your portfolio. Gathering basic information and attending relevant events can help in making informed decisions about timberland investments. You can also connect with Forisk Consulting to discuss your goals.

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