Total return on timberland can run 9 percent while cash yield sits at zero
Timberland keeps coming up as the boring asset that holds up, largely because of the return profile people cite, roughly 10.7 percent annualized since 1987 on the NCREIF index with a standard deviation around 6.9 against nearly 16 for the S&P. The pitch works on paper. It is worth stress testing against a real tract. Say the tract in question is 160 acres, coastal-influence fir type, roughly 130 acres in a single even-aged stand planted about 28 years ago, the rest in a stream buffer and a rock pit. Asking 685k, so 4,280 an acre all in. A forester's letter puts standing volume around 34 MBF per acre on the productive ground with a projected final harvest window at age 45 to 50. The structural problem is timing. Between now and roughly year 45 this tract produces one commercial thin, maybe around year 33, maybe 900 an acre net, and then nothing until the final cut. Meanwhile taxes run about 2,600 a year and road maintenance under a shared road agreement runs about 1,100. So the 10.7 percent is real in the sense that standing inventory is worth more every year as the trees grow. It is not real in the sense of anything landing in an account along the way. It is a roughly 17 year negative carry followed by a single large check, with the whole return depending on the price of logs in a year nobody can forecast. Whether biological growth counts as return or simply describes an illiquid asset in flattering terms is a fair question to sit with, especially for an investor used to monthly income. The index figure describes a portfolio of tracts at different ages held simultaneously, which behaves very differently from a single tract bought today and held to one harvest. Structuring a single-tract position to actually behave like the index generally means either buying a tract already staggered across age classes or accepting that a single stand is a different, more concentrated risk than the index implies.
