Outside investors buy acreage, grow problems
News analysis

MIKE FORRESTER
East Oregonian Publishing Group

March 14, 2008

Much of our most scenic, privately held land in the Pacific Northwest is being bought by outside investors. It is one of the costs of globalization and high tech communications - long distance, instant shifts of capital. But it seems to me it's a trend that places private financial gain well-above considerations of the public good.

Bob Burns, Pendleton, Ore.-based farmland appraiser, said the trend of outside investors buying farmland and forestland started in the Midwest 20-some years ago, "outside" meaning buyers from outside of agriculture and from other geographic locales. These outsiders are driven partly by a desire to abandon the volatile stock market for safer money havens and partly by desire for country retreats and rural recreation. The national credit crunch has dampened some investments. But in any case, the trend that began in the Midwest has reached the Pacific Northwest . Of course, the scenery of Wallowa County and of Central Oregon have long drawn interest and cash from outside buyers. But the trend has spread even to Umatilla County in northeastern Oregon .

n A longtime locally owned ranch just north of Pendleton recently sold to a Willamette Valley party with apparently no farm background.

n Pendleton lawyer Steve Corey said he's seen a rising number of outside investors buying mountain land in this region. Corey said one investor, from Seattle , wants to buy a cattle ranch with timber in order to conduct scientific experiments.

n Andy Vanderplatt, of Farm Credit Services, Pendleton, said a couple of ranches south of Pilot Rock have been sold to non-farmer buyers. He said non-ag buyers from Bend and from Portland have called to ask prices of wheatland because of high prices in the wheat market.

n Appraiser Bob Burns said an investor from Boise bought Umatilla County wheatland in the Conservation Reserve Program because he understood he could have a 5-6 percent return on his investment.

n Burns said that after a Grant County, Ore., timberland owner said he was open to selling, a fellow came to the owner to say that a party from Las Vegas would pay the $2 million price because he wanted to stop playing the stock market.

n Pendleton realtor Kal Garton said he continually gets calls from Willamette Valley people about buying farmland because of population congestion in the valley.

n Jim Whitney, Pendleton realtor, said recently he was working on sale of a 7,000-plus-acre ranch on the John Day River to an outside investor.

n Carter Kerns, a member of the Oregon Fish and Wildlife Commission, said an outside investor bought a ranch near La Grande just for elk hunting.

n Investors from California and the East bought former Kinzua Corporation timberland in Wheeler County for fee hunting.

n Mike Nelson, Baker City , Ore. , realtor, said interest in recreation lands in Baker County has been so high that the land inventory is down. He said farmland near Sparta that might have gone for $350 an acre 10 years ago is now listed for $1,000 and higher.

Some ranchers have been willing to keep their land on the market for three to five years until a buyer arrives on the scene.

Casey Applen, who runs the nationwide Farmseller service for Capital Press, said folks in the Northwest real estate field believe that Baker City is destined to be Oregon 's next Bend . That is, that Baker's scenery and relatively low land prices will bring to that area a population growth similar to what has hit Bend . Applen said realtors in the Northwest see two areas as especially hot now among buyers: Land north of Prineville , Ore. , and south of Couer d'Alene, Idaho . He said buyers look consistently for certain traits on a piece of land - scenery, opportunities for hunting, enough water and capable medical facilities. But one realtor observed that some outside investors are so wealthy they can employ a pilot to get them to a certain hospital.

Buyers wanting land in Oregon for hunting look for 160-acre parcels because Oregon 's hunting tags are conditioned on 160-acre units.

Those wanting land in northeast Oregon have an advantage in that rural lands there generally are priced lower than rural lands elsewhere. And those wanting scenic recreation lands in general are aided by a change in the law that allows property trades. A program called 1031 exchanges shields buyers and sellers from big tax hits by letting them roll revenue from property sales into other properties as long as they meet IRS deadlines for doing so.

It seems to me that this trend of outside investors buying farm- and forestlands brings problems.

One is that it drives up land prices on that acreage, which is important to the economies of rural communities. Once a guy with deep pockets comes to buy his country get-away, it becomes a lot harder for local farmers and woodland owners to add to their acreages. Pendleton appraiser Burns fears that the lure of riches will entice some farmers and ranchers to sell.

Those ag producers spend money in a community and take part in the life of a town.

Another drawback is that public access overall to rural lands seems to be harder to come by after outside investors have taken over. Carter Kerns, of the Oregon Fish and Game Commission, said outside landowners seldom work with game biologists on numbers, or movement of deer or elk, the way most ranchers act as partners with the state agency.

I believe that land being farmed is important for a few reasons. Farm employment helps rural economies. Experienced landowners manage the soil so as to lessen erosion. Farmland provides open space, which helps make the Northwest one of the most livable regions. Oregon 's official policy is to encourage farmland to stay farmland. A special tax assessment on farmland, geared to land income, is granted to any landowner who is trying to make a profit in farming. On farmland of 30 or more acres, gross farm income must be at least $3,000 a year to qualify.

In some cases, outside investors continue ag activity on the land and sometimes they don't. Problems come up when a person unfamiliar with farm or forest land moves in to take over. A veteran Umatilla County ag producer who sold his ranch a few years ago said sometimes an outside buyer will unwittingly hire an unqualified ranch manager who doesn't know that a rancher's neighbors can be a huge source of knowledge and help. The ag producer said it's hard for most outsiders to understand the fragile nature of soils on rangeland in this region when it comes to managing the grazing of livestock.

I can understand why a cattle rancher in northeast Oregon might want to sell. The long-time Umatilla County producer listed several factors - narrow profit margins and continuing price inflation on petroleum and other expenses, difficulty in attracting and keeping reliable employees, problems getting medical insurance, increasing debt load in the course of buying more grazing land and, finally, growing older.

Bob Burns worries especially about what's happening with outside investors buying timberland. He told of Boise Cascade selling land to an investment group, which sold it to another investment group. Kind of like the mortgage loans that were bundled up and sold, resold, resold, etc.

"They're not in it for the long term," Burns said of the investment groups.

One realtor told me a teachers' pension fund from the East Coast was one of the outside investors who had bought land in this area.

John Bliss, a member of the College of Forestry faculty at Oregon State , has started a study of what he says is a decade-long, national sell-off of timberland by wood product giants to "institutional investors." Bliss said Weyerhaeuser is the only publicly traded wood product company that has kept its timber. He said Georgia Pacific, International Paper and other giants in the industry have sold their property to pension funds, insurance funds, banks and real estate firms. Many privately owned wood products companies have kept their lands.

Bliss said his study is just getting off the ground, but he blames a few factors for the sell-off of timber to institutional investors - it's cheaper to produce timber in some other countries, federal tax policies encourage divesting, and many shareholders view timberland as a poor investment.

What is happening to these timber properties in the hands of institutional investors? Bliss said three alternatives have turned up in his study: a) intensely managed forest growth and harvest; b) some lands spun off for "higher and better uses" such as vacation homes; and c) conservation groups end up buying or leasing easements on some forested lands.

Bliss points out that alternative A reflects in part a provision in the federal tax code that says investors need some return on their investments within 15 years. On alternative B, the researcher said Montana is a good example of a place where formerly managed timberland "is being spun off at an alarming rate" into recreation and vacation facilities.

The Nature Conservancy is the most prominent conservation group under alternative C. Nature Conservancy made the news in Eastern Oregon in 2001 when it bought 27,000 acres in what's called Zumwalt Prairie in Wallowa County . The environmental group said it was attracted by the largest native bunchgrass preserve in North America . The Conservancy leases land on Zumwalt for livestock grazing and partners with Oregon State University on test plots to see effects of degrees of grazing on soil and bird life. The group says it gives its hunting tags to local nonprofit groups and says it pays local taxes. Nature Conservancy has 46 preserves and cooperatively managed sites in Oregon and allows farming and hunting only when it sees no ecological threat from those activities. As far as I can tell, the group has had fairly peaceful relations with people in Wallowa County .

Bliss said a firm named Forest Capital, based in Portland and Boston , has been a recipient of the timber sell-off by publicly traded companies. He said Forest Capital is the second largest timber owner in Oregon with offices in La Grande, Monmouth and Medford . Forest Capital was started in 2000, bought its first timber in 2002 and acquired all of Boise Cascade's timber in 2005. It owns 2.1 million acres in the Northwest, Minnesota , Texas and Louisiana .

A Forest Capital official said his firm's goal is to grow timber for long-term sustainability and long-term certification. The company also has a division called West Slope Properties, which sells to developers timberland that does not qualify for the firm's goal of long-term, sustainable timber.

Less than 1 percent of Forest Capital's 2.1 million acres is under West Slope Properties, an official said. A spokesman said prices on company forestland have risen sharply the past 12 to 15 months from $500-$800 an acre to $1,000-$1,800 an acre.

The firehose flow of capital, and the fast rise in prices, have struck me in talking to people for this article. John Bliss says it's tough for him and his researchers to keep up when timberland transactions are occurring at such speed.

A few programs on the West Coast are trying to address this trend of forestland or farmland ending up in the hands of institutional investors.

A couple of years ago, the Oregon Legislature passed the Community Forest Act which allows nongovernmental entities to issue revenue bonds to play financial roles in forestland transactions. Such an entity - the Deschutes Basin Land Trust - has been negotiating with Fidelity National Title Insurance Company over thousands of acres of forestland owned by Fidelity in Deschutes and Klamath counties. Fidelity bought hundreds of thousands of acres when the Crown Pacific firm sold off its timber.

Fidelity is considering development of a resort on the forestland. Leaders of the Land Trust would like Fidelity to sell to the Land Trust 33,000 acres near Bend and 140,000 acres near Gilchrist, south of Bend , for multiple uses: Growing some trees sustainably for cutting, forming scenic buffers, and allowing horseback riding and other types of public recreation. Under the Community Forest Act, entities in Oregon may raise funds to acquire land for community purposes or for development rights on the land. In cases where some of acquired land is being farmed, the entity may lease the ground back to the farmer.

To gain more information on that situation, call the Deschutes Basin Land Trust in Bend at 541-330-0017.

In Washington state, the Department of Natural Resources has authority to buy timberland if it's in danger of going into development and if the land is next to state-owned acreage. DNR than manages those lands for maximum dollar returns through sustainable harvest, leasing ground for communications towers etc. The returns go mostly for education programs statewide. Milt Johnson of DNR's office in Ellensburg said his agency is pursuing land exchanges to gain better positioning of parcels. His phone number is 509-925-8510.

Finally, it might be worth mentioning a 9-year-old California program that tries to help young farmers get footholds in the industry. The FarmLink program seeks to put up-and-coming farmers together with older, retiring farmers in case they can help each other. One way has been for a young farmer to apprentice with a retiring farmer so the older producer can better decide if he would like to strike a deal for the "apprentice" to take over the operation. For more info, call Kendra Johnson Davis in Davis , Calif. , at 530-756-8518.

Mike Forrester is former publisher and editor of Capital Press. He lives in Pendleton , Ore. , and Salem . 

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