Wetland Mitigation Banking with Guest Ren Martyn, ALC

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Intro: Welcome to the REALTORS Land Institute podcast, the Voice of Land, the industry's leading land real estate organization.

Justin Osborn: Today's guest is Ren Martin. Ren is a 25 year ranch broker with Faye Ranches and Steamboat Springs, and principal and developer of Finger Rock Preserve, an Army Corps of Engineers, EPA approved wetland mitigation Bank. Ren, thanks for being on, today, man.

Ren: Yeah, appreciate it, Justin. I'm happy to do this.

JO: Looking forward to educating our listeners on wetland mitigation and what it is and how it can benefit not only them, but also their clients.

Ren: Yeah. Isn't it a mouthful? 

JO: Well, tell me about this. How did you get into wetland mitigation? 

Ren: Well, of course, it's... I'll give you the shortest version I can, but I grew up in a cattle and citrus family in Florida, and in particular, wetland mitigation banking was really developed. The concept, the business model was developed in Florida for all obvious reasons. The amount of wetlands down there and the amount of development. We, in the citrus industry, we had a neighboring family also in the citrus industry in Martin County, Florida. And they're the ones who first told my father and I about this concept that you could build wetlands and that impactors of wetlands would come and possibly purchase these credits. It's a debit-credit scenario. And so, again, for example, a Department of Transportation that is expanding a particular highway and they're going to impact a wetland, they have a debit. And so wetlands are protected under the Clean Water Act, section 404 of the Clean Water Act.

Ren: And anytime you fill a wetland, you are required to offset that impact in the form of either building wetlands on site, restoring wetlands on site, restoring and/or building wetlands offsite as the permitee, or if there is a wetland mitigation bank available within that particular watershed, that permitee can purchase wetland credits. And so that's how I learned of this concept. I actually went to environmental school in Washington State, and when I started my real estate career here in Colorado, Northwest Colorado, I became aware of this site that was pretty much... A pretty common piece of agricultural land. But it had a really strong portfolio of water rights and kind of thought, "Huh, I wonder if this could... This business, wetland mitigation banking, could work here on the western slope of Colorado." Long-Winded way of kind of how that door got cracked open. And I started fanning that kind of interest, if you will.

JO: Well, I think that's awesome, man. Anytime you can find a niche in this industry it's really gonna obviously separate you from your competition and you're a prime example of somebody that's done that quite successfully. So how many years would you say you've been specifically working in the wetland mitigation industry? 

Ren: I acquired the property in 2001. It took about 20 months of going through the Army Corps of Engineers, the EPA, and then US Fish and Wildlife Service to get our wetland mitigation bank approval. And I think a lot in the AG industry will say, what are the economics? Why did this make sense? And our site, which sits in South Routt County, south of the town of Yampa, is kind of evenly geographically... It's even between the Vail Valley and to the south... And to north is Steamboat Springs. And so I could crunch those numbers. What does the AG look like? What's the hay income look like for the amount of irrigated meadow that we have, and what does the grazing component look like? And really, I took this 620-acre site and started crunching some numbers on what potentially a wetland mitigation bank could look like. And that's... And so that was kind of the first and foremost, do I keep it historically AG as it has been, or do we look at another revenue stream for a 620-acre site? And so that's really what we did. We finally got, after a long 20 months, finally got our Army Corps of Engineers approval December of 2003. And we've been selling wetland credits ever since.

JO: Man, that's great. Talk about highest and best use in this industry a lot. And that's something that I think a lot of people don't really think about is the highest and best use for a property being a wetland mitigation bank.

Ren: It's an alternative to agriculture. And I can remember here, the town of Yampa is still very traditional AG, lot of cow-calf operation. My neighbors or adjoining ranches are cow-calf and heavy on the hay side, production side. And they all thought I was crazy, here I am, instead of going in and moving, getting rid of some sagebrush land, and try and make it a higher forge area. I was, in essence, trying to act like a beaver and improving the hydrology on this site. Wetlands have to meet certain criteria to become what's called jurisdictional wetlands, obviously, to meet that criteria within my banking development plan. And on a 620-acre site, I created a development plan, a wetland development plan on roughly 250 acres. And so since that summer of 2003, we've been raising that hydraulic component, planting wetland plants, putting in a number of ponds for drought scenarios, for water storage on site. So that I have a perpetual wetland scenario. And I've been, I wear that wetland farmer hat, rancher hat ever since then.

JO: So that 250 acres, was all of that designated wetlands when you started working on this? Or did you flood some of that to create more wetlands? Kinda walk me through that process, if you will.

Ren: Great question. So as I mentioned, 620-acre site with a strong portfolio of water rights, and that was key to this particular site, looking at hydrology, looking at soils, looking at that... In the west, looking at those water rights, the majority of our water rights, our senior water rights pre-1895. In addition, the land, the portfolio of water has two storage rights in two large offsite reservoirs, here off of the Amper River. And so analyzing all those components to come up with, do we feasibly think that we can grow wetlands on 250 acres? When I started, there were roughly 17 acres of jurisdictional wetlands. And you're... That question is absolutely right. What existed when we first started? And that was 17 acres of really degraded wetlands. The place, the land had been overgrazed, the land had been leased by a neighboring rancher.

Ren: He put his cows in there, really in the winter months. And so all of that willow component, scrub shrub component was overgrazed and over impacted. And so we restored 17 acres of wetlands and then we created the difference getting to, we're somewhere around... Jurisdictionally, the paper plan called for 250. We're probably in that 245 range, something of that nature since we've been at it for such a long period of time. What was amazing is really seeing how the land changed. You put, you spread that water out, you care for that irrigation and the waterfowl came back. The riparian species just flocked to us. And today we have Canadian goose nesting on site, sandhill cranes, a lot of mallards, teal, cinnamon teal. That's every... I often have my hip boots on and wading through some of the irrigation practices, but every once in a while I stand back and go, "Wow, it's significantly changed from what it originally was."

JO: That's awesome. Now, selfish kinda ignorant question here. Hearing you talk about all those waterfowl, what are the restrictions, if any, on hunting, can you go hunting those wetlands or can you lease them out to an outfitter to hunt? Or is it strictly not an option? 

Ren: So to answer your... So a wetland mitigation banking, it's called a banking instrument. All of those rec items what you can and can't do with the land is negotiated per site specific. Again, if this is a mitigation site next to a subdivision, obviously those issues are gonna be possibly restricted. On our particular site, yes, we retained the recreational attributes and yeah, we, I do a lot of... I bring a lot of youth in to hunt there. It's...

JO: Nice.

Ren: It's some pretty easy jump shooting. A lot of father sons, we open it up for some wounded warriors that have come in and fished it and hunted it. And so yeah, I keep the recreational side. From the Army Corps and the EPA standpoint, what's important to them is simply that it's protected in perpetuity. I never could develop the mitigation banking acreage. And interesting for this site. In 2011, we partnered with the Nature Conservancy and decided to conserve the entire 620-acre site. Again, each bank site is different. But this site here in South Routt County, those are some of the intricacies of what our banking instrument and our long-term plans included.

JO: You put a conservation easement on the whole thing, but then you're still allowed to sell the credits to... I'll just make up an example here. Let's say a developer within that same watershed is gonna do a new development, and he's going to eat up 10 acres of wetlands in his development. And that would probably turn off a whole lot of uneducated developers, probably turn off their realtors as well, that may not know about this concept. So instead, you've got an educated developer, an educated agent that comes to you and says, "Okay, we need to offset these 10 acres." They then, do they buy credits for 10 acres from you? 

Ren: Yeah. Simply put, when you have the Walmart that comes in and buys a 10-acre site to develop a Walmart and parking lot, etcetera, there may be... And in the West, as you're aware, our impacts are generally very small. Florida, huge swaths of wetlands being impacted by a highway expansion. In the West, we see a lot small impacts. And so, for example, that Walmart comes in 10-acre site and as they are looking to entitle and develop their site, they hire a wetland biologist consultant, and he does a jurisdictional determination and finds that there's a one-acre site of jurisdictional wetlands. As part of his application to the Army Corps, he says, his preferred mitigation is utilizing the wetland mitigation bank that is within the service area for that particular Walmart. And it's often... It's a watershed approach.

Ren: For example, if you are impacting wetlands somewhere in that Colorado River watershed, you have to keep your mitigation within that particular watershed. And it's actually a hydrologic unit. Eight, HUC code eight is generally the hydrologic mapping area of where you can feasibly do your mitigation. So in that Walmart scenario, finger Rock Preserve is an alternative for him, and we offer a full... That's the beauty of wetland mitigation banking. His permit number transfers to me. It's a complete transfer of liability. Walmart wants to be Walmart, they don't wanna be in the wetland business and have to monitor their wetland mitigation site. When they come to a wetland mitigation bank, they get a full transfer of liability, and they move on and develop their wetlands, or excuse me, move on and develop their Walmart. I absorb their mitigation requirements and I grow, continue to grow the wetlands.

Ren: There's no real... For us realtors, there's no real estate, real property transaction. The overall, how many credits have Finger Rocks sold is a debit-credit accounting that the Army Corps and myself keep track of. That permitee, that Walmart, just wants to verify that their mitigation is complete. They can go on and fill that wetland and recognize a lot of these wetlands are already impacted, degraded because they're in the development area. So they're not functioning like normal wetlands function. And as compared to a large habitat tract like we have at Finger Rock Preserve, where those, our wetlands are functioning at a much higher level.

JO: And can you eventually run out of available credits? In that theory, I'm gonna... Or that example you just gave, I'm gonna say you've got 250 acres. The Walmart comes in, needs an acre worth of credit. Does that mean okay, now you've got 249 available acres for future and developers? 

Ren: Yep. Yep.

JO: Okay.

Ren: You can appreciate their... And within the Army Corps in the West, generally speaking, if you impact an acre, you have to mitigate for a minimum of one acre. A lot of times the Army Corps will apply a ratio. Some of it depends on the quality of the wetlands that are being impacted. And a lot of times it's, if you impact one acre of wetland, you have to mitigate for an acre and a half of wetlands. So they buy an acre and a half from us. Yes, that deduction comes off of our total available, wetland credits available. When we sell that last credit, we will close the bank. There will be no more credits available. And that site is maintained in perpetuity. Our particular scenario, and this is very common across the industry, across the US, many of these sites then get turned over to the public domain. They become outdoor education sites, open birding sites, bird watching sites for the public, and someday that'll happen at Finger Rock Preserve.

JO: Okay, well, that makes sense.

Ren: The Nature Conservancy, while they did not accept this responsibility back in 2011. There was discussion that when that last mitigation credit is sold, possibly TNC, The Nature Conservancy, will take over this site and turn it into outdoor education and continue to maintain the wetlands in perpetuity.

JO: What's cool, kind of hearing the timeline, the process and the history, 'cause I've seen those projects and developments all over the place, but I never really understood the whole concept of what all was involved to get it there. And when you said it took 20 months, this was a long time ago. I would imagine to go through the whole process now, it'd probably take three to four years. And so for somebody that wanted to get into this, I guess my question would be, what size parcel do they need to be thinking of for a minimum? I mean, if there's five acres of wetlands, it probably doesn't make sense. But if there's a 50 acre parcel and there's 10 acres of wetlands with historic water rights where they could make that larger like you did, is that worth considering? Or what would you say is kind of the minimum acreage needed? 

Ren: Justin, it all depends on the level of demand. For example, in high demand areas, you're seeing wetland mitigation banks, they get permitted for 25 acres. And again, that bank will open and close in a quicker period of time, but obviously for the bank sponsor, the economics work. Here in the West, we see small impacts. And so I have a lot of clients, we've seen a lot of clients at Finger Rock Preserve, but again, our average impact size is something like a quarter of an acre, 0.15 of an acre. So to answer your question, what I did, and this is probably germane to someone looking at a mitigation bank site, euphoria, how many impacts have been in a particular watershed area that you may obtain? You may be able to negotiate with the Corps, with the Army Corps of Engineers and get a particular watershed area where you can sell credits. And then you look at historically, how many impacts have they seen? 

Ren: So get some idea of what those economics look like and what the future may hold of how many credits you could possibly sell over X number of years. And so the economics need to work in order for a sponsor to move forward with a mitigation site. I fully recognize that this mitigation bank, the economics are very similar to cow-calf and hay operations. And just like a rancher in Routt County, this mitigation bank is gonna be here for a long period of time. Some years are better years than other years. But again, it depends on what those economics look like. And if you're close to an urban area with a lot of wetland impacts, a smaller site may be feasible. If you're out in more of the rural sector, a larger site in a longer timeframe of selling wetland credits may, likely may be the best case scenario.

JO: Well, that makes sense. Supply and demand like everything else in this industry, right? 

Ren: Yeah, probably the only good news for real estate minded folks is, you can appreciate, if you're that Walmart and you have a one acre requirement and let's say for conversation, your consultant convinces you to Walmart, you need to go and do your own wetland site. We can do this more cost effectively than Finger Rock Preserve. And I hear this all the time, "Oh, your costs are high. Your credit costs are high. We're gonna look at a permittee responsible mitigation site." In Colorado, it's very difficult to find a wet site. And generally speaking, the minimum acreage size you can find is 35 acres. Well, I've done my best to educate the Army Corps of Engineers that if it doesn't have senior water rights pre-1922 compact water rights, that particular site's not worth much. So what's it cost for a 35-acre site with senior water? Those costs are significantly going up every single year. In addition, you and I both know it's very difficult, very challenging to find those sites. And a lot of times their consultant, the Walmart's consultant will come back 30 days later and say, "Wow, you look really cost competitive as compared to permittee responsible wetland mitigation banking." But sometimes it just takes that level of education, if you will, for them to realize that what we offer is a real service in the industry.

JO: Sure. Well, yeah, that's great. We definitely see clients of all sorts, whether it's Army Corps of Engineers or developers or just investors that don't realize the deal in front of them until they learn the market a little bit more. And then they come crawling back saying, "Okay, are you still willing and able?"

Ren: Yeah, yeah. And...

JO: Question for you...

Ren: Go for it.

JO: Well, I had a question for you regarding tax benefits or tax implications. You mentioned conservation easement and that's another podcast in itself, the benefits from that. But educate me, are there tax benefits that come as a result of wetland mitigation or is it...

Ren: I did a lot of work convincing our assessor, Routt County assessor, that what we are doing is AG. And they, when I first started this business in 2003, they thought this was more... We could be assessed at a commercial rate. And I did a lot of work showing them that what we do is AG. And you can appreciate, 2003 to 2011 when I did the conservation easement, there were a lot of years where we were not conserved for agricultural conservation values. So to answer your question, keeping the property at that AG tax status was very important because what we are doing is AG. And then once we put that conservation easement, we protected those AG values in perpetuity and protected that AG classification in perpetuity. And then the conservation easement, the way the IRS treats that charitable contribution is pretty well, pretty easily, that information is available. And we took advantage of offsetting revenue for a period of time with that charitable contribution.

JO: Great. Well, I'm wrapping up here, man. Do you have anything else before I get to my ending notes that you want to hit on? 

Ren: I think that for your question regarding... For the real estate community and/or landowners out there that may look at their land and say, "Wow, I've got some natural hydrology. I've got, if I'm in the West, I've got deeded water rights." There's so many good resources out there to assist with looking at, doing the due diligence. Is your site a potential wetland mitigation bank? In addition to wetland mitigation banking, there's stream mitigation banking, there's endangered species banking. There's a lot of different credit-debit scenarios that exist here in the US. And there's great, great consulting services out there that can assist with it. One of them is the National Ecosystem Banking Association. I've been a part of it for a long time and a plethora of information out there. Anyone can always give me a call and I can point them in the right direction if they think that their site may be suitable for one of these credit-debit business scenarios.

JO: Well, Ren, thank you so much for joining us today. I hope our listeners will use the information you provided to help their clients better navigate wetland mitigation and credits, and also get in touch with you directly if they'd like to learn more.

Ren: Perfect.

JO: For more expertise on land real estate topics, be sure to check out the RLI blog, follow us on social media, and of course, tune in for upcoming episodes of the Voices of Land podcast.

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