VARDAMAN VIRTUAL FORESTRY COMPANY

The Most Direct Link to Knowledge Workers in the Southeast Forest Economy

A NEW MARKET FOR TIMBER BUYERS AND SELLERS

A client's unique order may have shown the way to a huge new area of timber investments. He didn't ask us to predict future returns from a specific tract of land and timber in the hope that it would be suitable for him. He went at it backwards; he specified the return from and size of his desired investment and then told us to find it. He thus sidestepped competition from the affluent city dwellers that Warren Flick wrote about at http://www.vardaman.com/greensheets/fpp241.htm, and he set a size within the range of thousands of private investors. Best of all, he chose a pure-timber vehicle that permits the most accurate estimates of timber volumes and growth and values of present and future crops.

Our client described what he wants as follows: "I think Buffett is right and that the stock market will not return better than about 8%/yr over the next 17 years. So I am taking most of my money out of stocks. I would like to invest about $50,000 in tracts like a PPICā [see below for example] with 10-12-year-old plantations. My parameters for them are these: 1) Seller's buy-back rights calculated at a minimum of 12% real per year, 2) minimum yield to me of 12% real, 3) investment divided between two separate plantations, 4) as much as possible of purchase price paid immediately. If I pay $50,000 now, I can pay an additional $12,000 annually; if I must pay $20,000 annually, I can pay only $30,000 now."

To examine details of a PPIC like he wants, log on www.se-timbersales.com. On the home page, click on Louisiana on the map and then on LA87040MMB in East Feliciana Parish. This PPIC was thinned and then fertilized after its 12th growing season and is now in its 14th. Maps, photos, and a schedule of estimated cash flows will appear when you click on various items at the bottom of the page. (With a little study, you can spot the same trees in Photos 2, 3, 6, 7, and 8 of both the 3/99 and the 12/99 sets. The heavier shade in the 12/99 photos is caused by the fertilizer.) PPMC pays the landowner $7,595.20/yr. for the right to grow these trees until 12/31/2010. It also pays JMV&CO $444.00/yr. for inspections, management, etc. At any time prior to sale of the final crop, the landowner can buy back PPMC's interest for a cost of all PPMC outlays plus interest at 10%/yr. plus the inflation rate as measured by the CPI-U, all compounded monthly. As of 7/1/00, PPMC's price for its interest was $24,259.

This PPIC illustrates what he seeks. Two of them would require a down payment of $48,518 and annual payments of $15,190. Since it is 2-4 years older than he wants and his capital would be tied up for a shorter period, even the estimated real return of 11.22% is close to his requirement. For investors like him, younger PPIC's must be available for smaller payments of both kinds and higher real returns.

He lives in Washington, DC, but his plantations can be anywhere in SE U.S. He's also a Berkshire Hathaway stockholder, but doesn't go to Omaha to check on it. He intends to use JMV&CO to manage them, but is free to switch to someone else in a heartbeat.

Please understand that the suitability of any plantation for his purposes depends entirely upon its unique characteristics, i.e., inventory of trees, minimum size of 40 acres, site index, stumpage prices in area, and access to a public road. His required real return may seem high, but in addition to the time value of money, it must compensate him for the risk of loss from storms, fire, insects, and changes in timber prices.

We've never had such an order. Finding plantations to fill it will be like looking for needles in haystacks and would have been almost impossible a few years ago because there never has been an organized market for them. Now, however, we think we can create one with www.se-timbersales.com. We need only develop standard forms for investors to list their requirements and landowners to list their plantations, all without obligation to each other. Developing it will make an important contribution to our timber economy, but we will need all the suggestions and help you can give us.

If you want to offer a plantation to him, send the facts about it to us at any address on this site. If on the other hand you are an investor like him, send us your requirements in as much detail as he did. We'll keep all names confidential until both principals authorize us to bring them together. For the time being, JMV&CO managers will make preliminary inspections and evaluations of all offerings at no cost to either party.