Farm Forestry New Zealand

Selling your forest just became easier

Kim von Lanthen, New Zealand Tree Grower November 2016.

The needs of forest owners change as time passes. Not everyone wants to keep their forest into the future. Children build their own lives, land prices rise, health fails, partners want to go their separate ways and Gold Cards start arriving in the post. For some it makes sense to sell their forests before harvest, and while the demand for immature forests and woodlots is not large, blocks quietly change hands all the time. Selling standing trees with or without land is a practical option. A new forest exchange has recently been developed to help standardise the process, and make it easier for buyers and sellers.

While international commodity prices have been soft to declining in the last five years, New Zealand log prices have been steady or increasing, albeit with a few bumps along the way.

This trend offers some promise for landowners across the country who invested a long time ago and faithfully protected their forests through storm, drought and global financial crises. Those who planted in the 1990s should now be looking forward to a good reward for their long wait − all things being equal.

Of course there are many factors affecting returns which are out of the growers’ control. Decisions around location, species, genetics, stocking and silviculture will have been made long ago. Harvest variables such as resource consents, forming or upgrading access roads and the availability of skilled contractors will fall where they may.

Better information

However, there remain two important points over which forest owners do have full control. The first is the spread of buyers that they can reach and the second is the quality of the information about their forest that they can produce. The wider you reach, the more likelihood of finding the right buyer. The better the information, the lower the risk and the more buyers that are willing to pay. Reach and risk can be within your control.

To help with both of these areas Commodity Markets has developed a specialised online exchange where forests and woodlots can be bought and sold. The exchange at www.forestx.com allows sellers to list forests and buyers to browse what is on offer by species, age, management regime, location, price, and type of sale. Examples of listings are shown below. Each is backed by more detailed information, maps and photographs that are also available

The principals of Commodity Markets are John Stephens and Kim von Lanthen, the latter is the author of this article and he has the experience of being a licensed statutory supervisor of over 150 forest partnerships, with a Financial Markets Authority licence. Supporting the exchange, the company has teamed up with Scion to provide forest owners with access to quality, specialised information they can give about their forests. Scion draws on decades of science to provide an assessment of each forest, covering more than 30 factors that help inform buyers.

Scion’s neutral description of the resource covers the local area and the specific forest. Topics they report on include the following.

The local area −

• Land resource description, maps, soils and terrain
• Wood supply forecasts for the local area to help in harvest scheduling
• Possible risks from wind and disease by locality.

The owner’s forest −

• Forest resource description and expected wood quality
• Forest productivity and growth projections to indicate future value improvement
• Indicative roading and harvesting costs.

Other sales −

• A summary of sales of similar forests and an indication of where this forest sits within the range.

The Scion report allows a seller to put comprehensive data in front of buyers, specific to their forest block. This provides transparency, reduces the cost to prospective buyers of gathering the same quality information in the due diligence process, and gives the buyers greater confidence in the seller and what they are bidding on.

In addition to this background information, the trading platform provides standard procedures for selling logs, standing trees, or trees and land. It accommodates a range of species and maturities and the options of fixed price, tender or auction. It has all been developed after consultation with a range of local and overseas buyers and investors, and is designed to give them clear information to make decisions and put bids forward. All buyers and sellers must first register with the exchange where the rules of involvement, terms and conditions of use along with privacy policy are set out in the registration document.

Site now up and running

Sellers can be confident that they are reaching a wide range of domestic and overseas buyers. Buyers can be confident that the rules by which their bid will be received and processed are clear and fair.

If you are thinking of selling your forest, you can browse the listings on the exchange to see how other forests in your region have been described. The trading platform is live, and currently has listings ranging in size from five hectares to 475 hectares, varying in price from $50,000 to an estimated $5 million, and located from the Catlins to Kaitaia.

Points to consider

Before you decide to sell or buy a forest you should look at what methods other sellers are using. For example, have they set a fixed price, are they or opting for tender or auction?

Consult your accountant or forest valuer to determine what price level is appropriate for your forest, and what type of sale method will get buyers to that level. A fixed price provides a direct signal to buyers. If you are not sure about demand and you do not want to give a price signal, consider a tender. If you know there will be buyer interest, an auction is a good means of getting the highest price from a group of competing buyers.

Take advice from a solicitor on how to document the specifics of your sale. Setting out the contract to match your own interests, settlement and the post-sale period can work to your best advantage. It is important to deal with things such as roading and access, as well as arrangements in respect of carbon liability associated with harvest. If you are keeping the land, you need to know when you will get it back for the next rotation. It may be that you want a sale without any conditions from the buyer. To control this, use a prescribed sale and purchase agreement that discourages or disallows extra conditions, and make it available to potential bidders before the sale process.

Take advice from an accountant on your tax position. Income from the sale of standing timber is assessable for tax, but there are spreading provisions that can help limit the effect.

Seller’s guide

If you decide to list your forest using Commodity Markets, there is a seller’s guide to lead you through how to register and make your listing. In addition to providing a Scion forest description report, make sure you include photographs and any reports from your forest manager that give the buyer a full appreciation of what you are selling. When the listing goes live on the trading board, be ready to take calls, answer questions and help potential buyers with due diligence.

It is probable that buyers they will want to visit the property. If you are not sure of your ability to answer the full range of questions likely to come your way, get support from a professional adviser such as a forestry consultant or forest manager.

There is no charge until the forest sells. If the sale goes ahead there is a charge 0.4 per cent of the transaction along with a further 0.4 per cent if you have commissioned the Scion report. This is a maximum of $8 for every $1,000 of sale price. For forest owners wishing to sell land and trees you should engage a suitably qualified land agent to act for you, either before or after you find a buyer.

The aim is to try and bring liquidity to forest investments and to bring new investors into forestry for the benefit of everyone in the sector. The hope is to encourage investment funds which are attracted by the returns from forestry but which need an exit mechanism for those interested only in the medium term.

Growers, farmers and other land owners should be able to sell immature standing trees to investors more easily. They will have the freedom to get forests established, manage them through their planned silviculture then realise their capital should they need it for re-investment while retaining their land and future land use options.

Kim von Lanthen is the Director of Commodity Markets (NZ) Ltd.