FREQUENTLY ASKED QUESTIONS
ABOUT GREEN CROW

Briefly outline key dates and events in the history of your firm, including the year established and founders.  Please also include details on previous organizations which were merged or reorganized to create the current firm.

Green Crow Corporation was capitalized and incorporated in 1985 by David Crow, John David Crow and Randy Johnson. Due to the myriad of partnerships and other corporations formed over many years, the company rolled-up the many companies and partnerships into Green Crow Corporation in 1997. The only major companies not included were Green Crow Properties established later for tax reasons as the real estate development company Green Crow Timber LLC with similar but different family ownership, and Green Crow Management Services, LLC.

Green Crow Management Services was formed in 2002 to officially handle the investment and professional property management of the Green Crow companies, TIMO's, other industrial owners, and wealthy investors. GCMS now provides services to over ten different timberland organizations ranging from municipalities to a Tribal Corporation.

Please detail your firm's experience and expertise in placing and managing timberland investments.  Please include commentary on timberland analysis and due diligence, acquisitions, portfolio management, property management, taxation and accounting matters, and geographic areas in which your firm has special expertise.

GCMS provides complete timberland investment management services.  Beginning with deal identification and due diligence, then continuing with operational management, accounting, reporting, and asset disposition.  We provide a complete, integrated timberland investment service.  We have been managing timberland investments since 1983.  We now manage investments in the U.S. Pacific Northwest, New England, and in New Zealand.  We are in constant contact with the timberland market and typically review 100,000 to 500,000 acres of timberland per year for potential investment.  We perform due diligence on 50,000 to 200,000 acres per year and have acquired for our clients over 1 million acres of timberland.  We provide our clients with a diversified portfolio of timberland assets, both in terms of geography, but also from a species and age class prospective.  We manage our entire timberland asset in-house and have an extremely experience accounting staff, which has provided full accounting services for Green Crow since inception.

We have not raised or offered timberland investment products such as pooled funds.  Our investments have been typically structured as special purpose LLC's and joint ventures.  Therefore, opportunities for portfolio management services have been limited. 

In addition to being currently active in the U.S. Pacific Northwest, New England, and New Zealand several of our key employees, owners and Directors have extensive experience in the southern pine region as well as exposure to forestry practices in several other foreign countries.

Please provide details of your firm's current assets under management as of the most recent quarter end.  Include type of account (separate vs fund), size (by market value) and legal structure.   

The table below provides a summary of assets under management by investor type as of December 31, 2007.

The assets that are managed by Green Crow Management Services, LLC are not structured as a typical TIMO financial product such as a separate account or pooled funds. 

Please show the number of separate accounts, funds and total assets under management (by market value) for each year since your firm began offering timberland investment management services.

Green Crow has provided our clients direct access to timberland investments since 1987.  The majority of our clients are invested through special purpose LLC's, which could be considered "separate accounts".  We have joint partnership investments with a few clients.  Green Crow has grown markedly along with the interest in timberland as an investment, to today, where we manage $500 million dollars of timberland assets.

Do you offer separate accounts and if so, what is the minimum investment?

We consider the majority of our investors to be in separate accounts.  Five million dollars is our preferred minimum investment.

What are your goals for your business in terms of timberland funds and assets under management?

We have been growing assets under management for over 15 years.  Our plans are to continue to grow the asset base, but always keeping in mind that providing maximum returns to the investor may cause us to have a reduced asset base for specific time periods.

We do not see ourselves as competing head-to-head with the traditional TIMO model for market share.  We believe in "putting our money where our mouth is" and co-investing in selected deals on an opportunistic basis.  We hope to continue to build strong personal relationships with our clients and partners. 

Therefore, we do not wish to be in a position of forcing the placement of investment funds into marginal projects.  If and when we discover attractive timberland investment opportunities in the future we intend to bring them directly to our existing client list.

Please provide a summary of all of the firm's lines of business and the related significance to timberland investment funds and/or separate accounts.

Green Crow has the following business segments: Wood Products, Building Products Marketing, Log Yards, Rock Products, Properties, and Timberland Investments.  Since Green Crow's inception, Timberland Investments has been our largest business as measured by income.  Rock Products and Properties support Timberland Investments by creating additional value from the timberland asset.

Do you actively participate on the NCREIF Timberland Committee or other industry groups?  Do key employees sit on any boards for industry organizations or other companies?

We do not actively participate on the NCREIF Timberland Committee.  However, one of our key employees, Nick Brunet, played an important role on the first NCREIF Timberland Committee in the creation of the timberland index in the early 1990's.  The other members of that founding committee included Tracy Buran-Evans of FIA, Court Washburn of HTRG, Charlie Raper from Auburn University and others.

We participate in forest industry associations in all regions where we are active.  Randy Johnson is the former President of the Washington Forest Products Association.

Describe your investment philosophy and style.  What features of your firm and its approach distinguish it from other timber investment managers?  How has this changed over time? 

Green Crow's investment philosophy has always been to invest in the highest site quality forests possible for the most cost effective price.  We strongly believe in the value added by intensive forest management and realize that the more productive sites usually produce better long term results.  We have had and will continue to have the patience to let this philosophy grow to maturity.  Our investment style has been to utilize our extensive network of people in the forest industry, which has been created over the last 28 years of our existence, to find our target forests and ultimately the right investors for these forests.  The ability to pool resources and create consortiums of investors in an effort to maximize the success of investments sets us apart from most other timber investment managers.  As the market for timberland investments continues to get more competitive, our investment philosophy and style have proven to be successful. 

We manage our investments as separate entities through the legal structure of a LLC or Partnership.  This includes investments with one or several investors and whether Green Crow is co-invested or not.

We have concentrated on the regions we operate in because we know these areas best.  We regularly review the prospects of expanding our operating geographies to maintain our access to the best investment opportunities.

Each opportunity is unique.  What we look for is the uniqueness in each opportunity that represents additional value.  For example, a large property may have small tracts with HBU or conservation values.  We look at these smaller tracts individually to assess their value.  A property may have a specific species, or even specific logs, that, if managed properly, will provide more value.   In all our prospective properties, we look for an angle, or "investment rationale".  Sometimes this may be a buyer that is distressed, or it might be a property that has a "blemish" such as areas of low site, poor regeneration, or difficult access.  We believe these "blemishes" create an opportunity because it thins the pack of potential buyers.  A term that is used extensively in the industry is "investment grade."  We believe most properties are investment grade for the right investor at the right price; however, we believe the term has come to mean well-known, low risk, easy to understand timberland investments.  It is difficult to purchase this type of property at a price that will provide above average returns.  We achieve superior returns by focusing on unique circumstances and unique properties.

Generally speaking, one of the aspects of timberland that makes it an attractive asset class for investment is the inefficiency of the market in terms of information.  Poor data is often the opportunity.  At Green Crow we believe our experience in deal flow, due diligence and on-the-ground operations helps ensure that we build reliable information sets on all potential acquisitions before the deals are negotiated and closed. 

How do you define your investible universe, and how do you source and screen potential investments?

Starting with our philosophy to target high quality forests as investments, our investible universe is framed in by the areas that we have expertise in; the US Pacific Northwest, the US Northeast, the US South, New Zealand, as well as Chile and Brazil.  We have key personnel that have had first hand experience in all of these areas.  The sourcing and screening of potential investments in these areas starts with our key personnel in each area.  Depending on the level of due diligence required, in house expertise, as well as outside consultants, will be utilized to obtain the information required.  We are open to consider emerging markets for timberland investments, but recognize that this is not our strength.

The preferred way to source potential investments is through direct personal contact with landowners and decision makers.  Many times we create our own deal flow simply by having personnel active in the local industry.  We have been very successful over the years in finding acquisition opportunities that can be privately negotiated with both industrial and non-industrial landowners.  Traditional sources of deal flow through brokers and investment bankers are not our preference, but we have been successful with this approach as well.

Describe in detail your investment analysis and valuation framework including the depth to which growth & yield and other data functions are performed in-house.  Please provide a masked example of a timberland investment analysis performed by your firm within the past two years. 

Our valuation framework for a potential investment will vary depending on the specific characteristics of the lands. However, in all cases it will be based on several criteria including a) accurate and recent forest inventory, b) growth, yield and harvest projections, and c) market and financial data.  This information is often expensive to collect and is rarely available easily.  Again, there is no substitute for experience in a specific operational area when it comes to confirming technical and market data.  When we do no have the specific experience or skills in house, then we contract with respected local consultants to help us in our analysis. We will then model the potential future performance of this forest in a sensitivity analysis that may include several scenarios.  We will  factor in any non-forest aspects of the investment (HBU overlays, conservation easements, recreational values, leverage, etc.).  In all valuations, the specific characteristics of the target forest and its historical performance, growth and yield data specific to the forest, the silvicultural system that has been used or will be used going forward, the environmental regulations directly effecting the forest and any other specific factors influencing the forest's performance are considered.

How would your approach be modified for transactions outside the US?  What are your firm's capabilities for investing outside the US?

Where we have the expertise, such as in New Zealand, the valuation process would be similar to any domestic transaction.  When we enter a new area of investment off shore, we will retain the appropriate expertise in that specific area to assist us in the investment valuation process. 

What do you consider to be the risks of investing in timberland, including (but not limited to) environmental, social and governmental?  How do you incorporate these risks into analyses of specific properties?  How is climate change included in risk analysis?  Is there any exposure to counterparty risk?

Perhaps the most significant risk of investing in timberland is the long term stability of the forest industry.  All of the factors that effect harvesting costs, utilization, product manufacturing and ultimately the value of the forest contribute to this risk.  In our different region of expertise, this risk varies.  The risks for any specific forest are incorporated into our valuation by adjusting factors such as harvest levels, pricing, regulated buffers, costs and resale values to reflect any perceived risks now or in the future.  We do not include the risk of climate change in our valuation.  Any evidence of this type of change would be reflected directly by a forest's dynamic characteristics, such as species composition, growth rates, stocking levels and ultimately yield, which would be determined by periodic inventories. 

Any time we enter an agreement with another entity, there is potential for counterparty risk.  An example would be a long term procurement agreement having the counterparty risk of the entity buying the wood failing and leaving the pricing and volume commitment at risk.  

We are closely monitoring the developments in the carbon credit and trading proposals, especially in New Zealand.  Regarding political risk, we believe in participating in local and regional industry associations.  This ensures that the voice of forest landowners is heard in the legislature.  In addition, at the very least we are an informed landowner and manager that is more proactive than most of our competition.

What are your expectations for future returns on timber investments, and how do they compare with past returns on the asset class?  What are the key drivers of returns given your investment strategy?  What is the expected split between return from income/cash flow and capital/appreciation?

We do not see any reason why future returns on timberland investments should be any different in the future than they have been in the past.  Patience and discipline are extremely important in this overzealous market.  The key drivers for us are targeting high quality forests and having the acquisition savvy to buy them at the lowest price possible. The growth and value improvement of the timber will always be the base driver of return on investment in a pure timberland project.

Despite what we believe are some very high recent transaction prices that may be driven by lower discount rates, we are still optimistic that long term performance will be attractive to our owners and investors. 

The split between return from income/cash flow and capital/appreciation is largely determined by the age class distribution of the forest.  Also contributing to this are the expectations of the client/manager regarding future pricing and the needs of the client. Over a long time horizon and with a large pure-play timberland project (limited bare land investment characteristics and HBU) the cash flow returns will be driven by growth and the appreciation returns will be driven by changes in the discount rate.

Please describe your in-house research activities and how they benefit your clientele.  Describe any third party relationships that support or supplement your research capabilities.

Log market intelligence is an important area of data collection and analysis.  We are presently operating log yards in the Pacific Northwest and the Northeast and have operated one in New Zealand.  The majority of forest investment companies use stumpage prices to value their forest resources and, at best, use second hand delivered log prices.  We keep a constantly updated database of delivered log prices into our yards and the subsequent sales of those logs to end users.  This is very significant data to have in-house when it comes to accurately valuing a forest resource.  We have seen value fluctuations from our own operations to generic stumpage of as much as 30%.  In this market, this type of information can be the difference in making a deal work.  We also measure and monitor growth, forest development and yield on our own land and the forests we manage.

Regarding economic research, one of our joint venture investment partners is the founder and senior author the Clear Vision Report.  This is a west coast based publication that focuses on the North American forest products industry.  We also participate in RISI and subscribe to several other research publications.

In the forestry area we continue to participate in long-term field forestry research through research co-operatives in the States of Washington and Oregon.

Please outline your general views on leverage, and specific strategies for using leverage in upcoming investment opportunities.

We believe that leverage is a powerful tool that may give us the flexibility we need to act quickly when an opportunity comes our way.  We are quite comfortable using leverage in our own investments.  We understand the drawbacks of using leverage in a down market and believe it should be used with caution.  However, we believe a modest level of debt that is linked to a portion of the projected cash flow is a structure that investors should consider when designing their timberland investment program.

How has the Kyoto agreement impacted your approach to timber investing?  In your opinion, what other local, national and international policy issues are important for timberland investors to consider?

We have been monitoring the carbon credit situation since the Kyoto agreement was introduced.  We are seeing an increasing indication that State and Federal regulation of carbon balancing is coming soon.  New Zealand may be first on the list.  We consider it extremely important to stay updated and involved in the regulatory climate of all of our investment areas.  We actively participate on local and regional committees for a variety of environmental and forest industry groups.

What is your typical distribution policy?  Is re-investment of surplus cashflow permitted?

The distribution of cash flow from an investment depends on a specific client's needs.  Reinvestment of surplus cashflow is quite often the choice.

Are portfolio administration services (such as accounting and legal) handled internally?  How are service providers such as auditors, IT, etc. selected?

We employ an experienced accounting staff that will handle the administrative services for the investment.   We will select the best available outside services providers when needed (such as auditors and appraisers) upon consultation with our clients.  Green Crow does not have in-house legal council. 

What is your approach to client service?  How many client visits would you plan each year to discuss performance and strategy?  Who will provide the servicing?

We believe in openness, transparency and structuring our client reporting procedures around the desires of the client.  Each client has different expectations.  For example, in the past we have been extremely accommodating (and sometimes flattered) when a client asks for direct access to our field personnel and for special property tours.  As another example, we currently have a client that requires monthly management status reports and meetings. 

We welcome active participation by our investors.  If that included several extended tours on site, plus four or more trips to the investor's office, plus unscheduled calls and conference calls, that would be fine. Flexibility is the rule.

Please describe how potential deals are typically identified by your firm. What percentage of deals (by number and size) are off market or negotiated?

The majority of potential deals identified by Green Crow originate from our own sources and are usually not publicly advertised.  We often try to establish an "investment rationale" for each opportunity we pursue.  In other words, "what are the characteristics of this potential investment that would allow us a competitive advantage?"

Many of these deals are then negotiated. Our strategy is to focus on the opportunities we believe have the most potential to become high performing investments.  We try to avoid bidding on auctioned opportunities, because greater competition usually results in higher prices, less opportunity for thorough due diligence and decreased investment performance.  We believe in having a robust initial screening process to narrow the prospective opportunities down to a few high-potential properties.  Then we evaluate them thoroughly, letting the fundamentals of the deal drive the investment decisions not arbitrary targets.  In this way we review 20 to 50 properties per year, while actively seeking to buy a select few opportunities per year. 

What is your competitive advantage in sourcing of prospective investments? Who is your primary competition for deal flow?

Our competitive advantage in finding potential investments is our extensive network of contacts in the forest industry at a number of levels.  The entrepreneurial spirit that the company tries to instil in its employees helps our people identify opportunities during the normal course of their activities

How does your sourcing approach differ from region to region?

Our property sourcing approach does not differ from investment area to investment area, but our industry contacts will vary with the area.

What is the typical cost (in basis points) for deal due diligence, whether successful or not?

There really is no typical due diligence cost.  The characteristics of the potential investment will greatly determine the cost of the appropriate due diligence.  For example, an investment with one large tract containing pine plantations with two age classes will cost significantly less than an investment with multiple tracts of naturally stocked hardwood that has variable species composition and harvest histories.  In any scenario, the cost of doing the appropriate due diligence is always worth it, either confirming why a deal should not be completed or showing why it should.

Do you have a preferred transaction size?  If so, what is the rationale for this preference?

We do not have a preferred transaction size.  We have looked at potential investments from $150,000 to $2.0 billion with various clients.

What is your internal process for transaction review, due diligence and approvals?

Each of our regional managers is allowed a certain degree of transaction authority in order to facilitate opportunistic acquisitions. The level of this authority is linked directly to an individual's track record.  Too much bureaucracy and we would miss too many small deals.  As a general rule, however, all acquisitions need to be brought to the Investment Committee as soon as possible.  For the larger projects, the due diligence effort is centralized around Harry Bell and his team at the Port Angeles office.   We have a team approach to decision making at Green Crow.  The best way to describe the process is we have key decision makers in each investment area and across all areas of expertise.  Transaction review, due diligence and approvals will start within the specific investment area and progress to all key decision makers for the final consensus.

Please describe your firm's property management strategy and supporting rationale. 

We manage each property based on strategic discussions with the client, addressing both near and far term objectives.  Special consideration is given to maximizing returns within all regulatory constraints while maintaining a respectful land stewardship ethic.

Which property management functions are outsourced and which are provided internally (i.e. included in your firm's fees rather than passed through to the investor)?  Please be very specific.

All activities, whether considered property or investment management, are either completed internally by Green Crow or directly supervised by Green Crow employees.  Examples of internally completed tasks would be investment management planning, appraisals, financial analysis, harvest scheduling, data analysis, due diligence, check cruising, quality control, logging supervision, planting planning and supervision, GIS, and forest inventory.  Examples of outsourced activities would be silvicultural labor, road maintenance, actual planting, logging, large project cruising, etc.  Reasons for a given task to be outsourced is based purely on efficiency and cost savings.  Field data is directly shared with supervisors either daily or during a weekly operations meeting.

How are outsourced activities integrated into the property management process?  What advantages are gained by outsourcing these functions?  How is data from the field shared or automated?

Outsourced activities are either directly supervised by a Green Crow employee or audited by another contractor reporting directly to Green Crow.  A third party contractor is used in the case of field data collection in order to maintain data integrity.  The reason for outsourcing is driven by both cost, in the form on bids and negotiations based on bids, as well as allowing us to utilize the specialization or expertise of a given contractor for a specific task not internally available.  Data collected in relation to outsourced work is shared directly with the project leader who then reports to the management team.    

Who are the managers of your clients' properties?  If management is outsourced, how are managers selected?

We use a system of "area managers", each of whom is responsible for nearly all activities in their area.  Duties such as inventory, GIS, silviculture, regulatory negotiations, and accounting are centralized in our Port Angeles office.  We do not outsource any area manager work.

How often does your staff inspect properties and meet with external property managers or service providers?

Properties are inspected regularly based particularly on the level of activity in a given area.  At times the frequency of visits can be based on the level of activity in a given area.

Describe your firm's approach to marketing timber. What are your firm's competitive advantages in this area?

Our primary goal is to maximize the timber owner's "return to stump" within the operational and market conditions in place during the term of the sale.

There are two predominant forms of selling timber in any market: Delivered Log sales or Standing Timber sales.

Delivered Log sales allow the timber/landowner to maintain control of the harvesting and delivery of logs throughout the operational period. The owner (or their agent) is responsible for all operational aspects, including road construction, hiring and supervision of a logging contractor, and arranging for the sale of all log sorts to various delivery points. The price received for logs can be through direct negotiation with log buyers or via a competitive bid. In addition to price, other important terms are duration, quality and volume, all of which determine the most appropriate delivery point for a given sort (product). These types of sales work well when the timber owner has the knowledge and resources to manage the logging and conduct the marketing. They also fit with high quality, multi-species/product stands that require adherence to strict log merchandising standards.

Standing Timber sales, as the name implies, involve the advertising and sale of specific blocks of standing timber, either on a "lump sum" or "pay as cut" basis. They can be negotiated sales or, more commonly, sold via a competitive, sealed bid proceeding. As timber quality has become more homogonous and GPS technology has improved the ability to reduce area risk, lump sum sales have become more common. Pay as cut sales are less common, in part due to the increasing ratio of fiber and small sawlogs, both sold on a ton basis and much more expensive to measure on a log scale basis. Whether sold on a lump sum or scale basis, competitive or sealed bid, this method works well for owners that have fewer resources to commit to sale administration. Increasingly, timber owners are choosing to sell sealed bid, lump sum sales, thereby transferring all area, volume, market and operational risk to the buyers, while having the certainty of stumpage value up front.

Green Crow strongly believes that all of the methods of selling timber discussed above have merit, depending on the objectives and resources of the timber owner, current and forecast market conditions and timber quality. We have used all methods over the past 20+ years and consider our ability to do so a distinct competitive advantage. With offices and timberland (fee and third party managed)  in most major log producing regions of Western Washington and Northwest Oregon staffed by foresters with decades of successful timber and log marketing experience, all supported by industry standard log accounting systems, Green Crow has a breadth and depth of market knowledge that few competitors can match. 

Do you prefer to own or lease land?  What mix is typical across your portfolio?

We generally prefer to own the underlying land, though other options can be just as productive and offer unique opportunities.  We feel that owning the land gives the greatest amount of latitude to manage the property according to its full potential while also giving us the opportunity to make less encumbered decisions.

The land component of a timberland investment will bring different performance characteristics and results than the timber component.  At Green Crow we are confident that the underlying land is an attractive investment that should be included in an acquisition whenever possible.

Do you also invest in potential development projects (HBU)?  How involved is the property management team in the development process?

It is rare that Green Crow would target an investment in a pure HBU property.  However, we have sometimes included a premium in our offers that is based on the perceived HBU potential of a property. Generally it is based on a very conservative development scenario. 

The development wing of Green Crow is Green Crow Properties ("GCP"). We have found that many of the parcels we have acquired over the past 20 years have been in the "path of progress" and now contain HBU sites.  Under GCP we have been actively planning, permitting and subdividing some of these parcels in order to capture that HBU value.

However GCP's involvement in developing client lands for HBU purposes has been historically small, this arm of the company is actively involved in ongoing development projects primarily on our fee lands.  Forestland clients typically sell the land, which is in turn developed by individuals or professional real estate firms.

We also look at other values that produce cash flow.  For example, we have effectively developed rock quarries to supply the building industry that produce over a million tons per year and manage communication towers on forestland, which can produce up to $250,000 per tower per year in revenue.

We develop management plans for each property we manage with input and review of our client..  HBU is a critical part of the evaluation of many timberland properties today.  GCMS has not only been involved in HBU due diligence, but we have an ongoing program of identifying and selling HBU portions of land we manage to maximize the return.  We have four staff what are primarily responsible for HBU identification, evaluation, and sales.  GCMS has been selling HBU lands for over 15 years and has sold over 6,000 acres.

What is your approach to mitigation of loss from fire and other natural agents?  Do you carry fire or casualty insurance on any properties under management?

Regarding fire, we enforce applicable regulatory operation restrictions during potential fire season.  We require all operators to have acceptable fire prevention and suppression programs and equipment at their immediate disposal. 

Regarding loss to high wind events, we have not historically implemented partial cutting or thinning regimes due to the heightened risk of wind throw in the residual timber stand.  In the event of a situation involving damage to merchantable trees, logical harvest units can be designed to minimize waste and extract maximum value from what could be seen as damage. 

In New Zealand, fire insurance will be included as a part of our risk management program.

Describe your firm's policy on forest certification and provide supporting rationale.  Please provide the percentage of properties which are certified and by which standard.

Currently, GCMS does not manage any lands that are third-party certified.   For Green Crow lands, we are taking steps to qualify for SFI certification through the Tree Farm system.

We see no current value added for any third-party sustainable certification system at the forestland end, because we have not seen an increase in value for certified raw wood in any of our timber or log markets. However, if certification became a requirement for wood to enter the manufacturing stream, certification could then have economic value.  At this point there is enough uncertainty around future demand for certified wood products that placing an economic value on it would be very risky.

What is your competitive advantage in exiting investments? Who are your primary buyers?

Much of our resale experience to date has been in the form of "buy wholesale - sell retail".  Local retail land market savvy adds considerable value to any sales process.  Many of us continue to be surprised by the fact that "package deals" of multiple parcels or easily subdividable parcels continue to be offered for sale by both industrial owners and by TIMO's.  We recognize that some of this activity is driven by a concern about UBTI, but we believe it is also driven by a lack of understanding of the local market resale opportunities. We understand that transaction costs and the length of the sales process (10,000 acres divided into 100 acres tracts = 100 tracts. Sold +/-5 per month, the result is almost 2 years) are drawbacks that need to be weighed.  However, any sales planning process should consider the costs and benefits of a retail resale program. 

How does your exit strategy differ from region to region?

We are currently active in three regions: the Pacific Northwest, the Northeast and New Zealand.  In the past, certain of our staff, owners and directors have been responsible for large acreages in the Southeast as well; with both industrial and investment owners.  We believe that regional differences in the markets for rural land are becoming less significant than in the past.  In fact, there are more factors to consider than region when setting up a resale program.

For example, regardless of region, it is rare to find an unencumbered property (without supply agreements or conservation easements) that would not be more valuable divided into smaller ownerships.  In the case of the Crown Pacific sale of the Olympic Tree Farm several years ago, it was handled on a bulk basis by an investment bank.  This property is located at the extreme end of the Olympic Peninsula with limited options for log markets and a wet and dreary climate.  The seller and their advisors probably did not imagine any value-added by parcelization.  Green Crow was able to put together a consortium of several qualified buyers that each has its own preferences and investment objectives.  For example, the consortium included industrial, environmental and Native American groups.  We managed an open due diligence process under which each participant could view all of the data and analysis.  In the end, the group did submit the highest bid and the property was divided among several owners.  It was a unique solution, but unfortunately it was the investment bank that was credited for a successful sale. 

The point is that all investment properties and projects will have different characteristics that require careful consideration.  Some of these characteristics include region, state, timber type, remoteness, accessibility, tract configuration, market structure, historical management patterns, fiber/log supply agreements, economic cycles, etc. In other words, resale is probably the second most important part (next to purchase) of any timberland investment process and all factors need to be considered.  Regional differences alone are difficult to isolate.  In any case, it is the knowledge base of the property manager and the staff (built over many years in each specific market region) that, in our opinion, is under appreciated in the typical investment bank sale process and rarely compensated for.

What are your average selling costs (in basis points)?  If brokers are used, please provide the average commission rate paid.

In an ideal world all sales would be handled in-house as a part of the investment management fee and service contract.  However, we recognize that brokers and sales agents have their role and need to be compensated.  Selling costs will vary by the size and value of the property as well as the level of service expected.  An example of the highest possible sales fee would be the sale of a 50 acre tract in Vermont that might bring $100,000.  In that case we might use a local retail broker who will demand a 10% fee because that is the customary rate for "raw land" or commercial properties in Vermont.  We have been successful in getting that rate down to as low as 5% based on the fact that we will provide our own mapping and timber data.  We might also offer to show the property if requested.  This high rate would need to be justified by an analysis to the alternative sales strategies (such as direct advertising). 

At the other extreme, if we needed to sell a $100+ million property at auction (due to the client's specific requirements), we would approach the matter from the perspective of "what would we do?" and "what would we charge?"   We would take a lead role in the preparation of the property information, the list and contacts of prospective buyers, and management of the property showing process.  In partnership with a third party broker or investment bank, we think the sales fees could be kept below 0.5%, plus expenses.

 Do you have a preferred disposition size?  If so, what is the rationale for this preference?

Until recent years the "wholesale discount" for large scale land transactions was a significant consideration in determining optimal transaction size.  It was easy to justify the added effort and expense of a smaller scale sales program.  By smaller scale we need to consider both acreage and dollar value.  Depending on the local market conditions a "retail" sale might be anything under 200 acres and $500,000, or it might be anything under 1,000 acres and $2,000,000. 

With the current flood of un-invested capital targeting timberland, we have seen (in some cases) a reversal of that rule.  In other words, some large deals bring a "wholesale premium" (Temple-Inland, arguably). 

We are reluctant to state a preference when it comes to deal size.  Every situation requires a case-by-case review.  It would be a mistake to generalize, or "pigeonhole" a property into a specific segment of the market (as some appraisers attempt to do). 

What is your internal process for exit decisions?

In the investment management and fiduciary role, the exit decision process will be handled at the Investment Committee level.  It will be the Fund Manager's responsibility, working in communication with the investor, to continuously consider exit alternatives and opportunities.  The Investment Committee will review the data, analysis and recommendations before initiating any exit/resale actions.

How does your firm ensure that all client commitments are treated fairly and consistently?  Is there an allocation policy in place for investments with multiple investors?

Fairness and consistency is ensured via constant communication with our investors. 

By "client commitments" we assume you mean uninvested investment commitments, and that "allocation policy" refers to how a specific investor is selected for specific investment opportunities as they appear.   

For each investment that you have made, please provide the performance track record by investment account.  Please note the following:

• Date of inception

• Amount of leverage

• Method of return calculation (time weighted, IRR, etc.), formula and definitions

• Whether investment has been exited

• Which charges (including manager fees, tax, etc.) are netted from the cash flows/income

• Whether your firm had discretion in the management decisions

The question of historical performance for the timberland investments that we have been involved with is difficult for us to answer thoroughly.  The reasons for this include:

The data has not been collected with traditional TIMO performance standards in mind.  Much of the data has been destroyed or is simply unavailable.

Investments for ourselves and many of our clients are not marked to market every year through the appraisal process that is necessary for most institutional investors.

In our business we have often used a considerable amount of leverage or creative deal financing.  We often based our investment decisions on a "payback" analysis (rather than the more common IRR or NPV method) because we are a private enterprise and capital constrained. 

Even though we have often sourced deals, negotiated them, managed them and sold them on behalf of our TIMO clients, we have not officially served in an investment management capacity on those tracts.  Therefore, the credit for the excellent investment performance has accrued to the TIMO client.

The table below represents performance on the selected sub-set of the investments we've managed in the last 15 years.  We have attempted to isolate returns from cash-flow and from appreciation.  In most cases performance shown in the table are full liquidated figures, not based on appraised values. These are unleveraged nominal returns before tax.