Underwriting a 420 acre loblolly tract that's mostly pulpwood

Take an appraisal that comes back at 2,850 an acre on a 420 acre pine tract, split as bare land 1,650 and standing timber 1,200. Say the cruise puts merchantable volume around 38 tons per acre across the stand, heavily weighted to pulpwood because about two thirds of the acreage went in around 2009 and 2010. Sawtimber share is thin, so most of what's being paid for on the timber side is the option to wait, which has real value. Per ton price steps up hard at each product break as stems move from pulp to chip-n-saw to sawtimber, and that step-up plus land appreciation is basically the whole return in a case like this. Underwriting to the long-run index number people quote, roughly 10.7 percent annualized since 1987 with a standard deviation near 6.9, would be aggressive. Underwriting to mid single digits and asking whether the dirt carries the position if timber does nothing is the more defensible frame. Mill concentration is often the variable that decides these deals. Two pulp mills inside reasonable haul distance, with one of them plainly why a previous owner planted this heavily, is a real risk. If either shuts, delivered price collapses and the option to defer gets expensive, since taxes and management continue for years on inventory nobody local wants to buy. A consulting forester who won't produce a haul cost table by destination and a stumpage history isn't giving a buyer enough to underwrite on. Cash yield stays close to zero until first thinning, often three years out on younger blocks. The real decision is whether to bid land value plus full appraised timber, or bid land plus a haircut on inventory and risk losing the tract to a recreational buyer who doesn't price stumpage at all. Anyone underwriting a tract where mill count is the dominant variable should size the discount around haul distance and mill redundancy specifically, not around the regional index.