Episode 46: Timberland Investing | Guest Brian Watts, ALC
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Welcome to the REALTORS® Land Institute Podcast, the Voice of land, the industry's leading land real estate organization.
Justin Osborn: This is Justin Osborn, Accredited Land Consultant with the Wells Group in Durango, Colorado. On today's episode of the Voices of Land podcast, we're talking to RLI member and accredited land consultant, Brian Watts. Brian is an accredited land consultant and President of the Timber Sales Division with Southeastern Land Group. He is a licensed realtor and registered forester in Alabama and Georgia. This year he served as the 2024 Alabama RLI Chapter President, and was also a presenter at this year's RLI National Conference on Timberland Investment Strategies. He specializes with assisting clients with Timberland Investment properties, hunting and recreational properties, many farm development, and rural homes with land. He, along with his wife, Sarah, and sons Bruce and John Patton, live in East Alabama just outside of Auburn and enjoy the land living lifestyle. Welcome to the podcast, Brian.
Brian Watts: Hey, Justin. Thank you. Glad to be here.
JO: Yeah, man. I'm excited. You know, I think I sometimes learn more than our listeners on these things, and I think today is gonna be the same way with learning about Timberland, 'cause I mean, we've got a lot of timber where I'm outta here in Colorado, but it's typically all on government land, and we have these, you know, big companies come in and do leases to harvest it, and it's just not something that us realtors deal much with at all. So I'm looking forward to get educated here.
BW: I know, I'm really excited because in the Southeast, that's kind of our lifeblood of what we do. That's our crop, so to speak. So, I'm glad to be on here and have the opportunity to talk with you about it.
JO: Yeah. So you've been doing timber real estate for how long?
BW: Yeah, so a little over 12 years. Actually went back to school, got my forestry degree at Auburn. And so when I graduated Auburn, I went to work with a timber company. So we would procure timber, have logging crews that would cut forest and harvest. And I did that for about three years. And so the whole wood flow dynamics from the stump to the mill, was in charge of that with the company that I was with. And then late 2015 I started with Southeastern Land Group and been there ever since. So I'm kind of on this side of the forestry world and more of a consulting role and a realtor.
JO: So you've kind of gone full circle then, as far as like, as far around as you can go in that industry. Is that safe to say?
BW: It is, it is. There's various areas of forestry that one can practice. One is a timber buyer, you know, we do a loggers and you're, you know, the day to day, you can be a forester at a mill. So these pulp mill, saw mills, what's called a procurement forester in that role. And also a consulting forester, which is more of what I'm, which is what I do now. And combine that with the real estate background as well, it's allowed people to make really good, educated decisions on buying or selling.
JO: So is the majority of what you're dealing with, are you selling land with timber leases on it or are you selling or representing buyers with the timber leases without the land attached? Or kind of educate me a little bit how that looks.
BW: Sure. Well, in the Southeast, the timber wood basket is typically East Texas to South Virginia, what's called the Southern Yellow Pine Wood Basket. And it's mostly private landowners. And so there's very little governmental lands. And so whether you're a landowner with 40 acres or hundreds of thousands of acres, you know, that's privately owned or managed by different institutions, REITs or TIMOs, you know, it's more in the, and a lot of that is pine plantations. And so obviously there's a lot of hardwood as well. But what you see, the biggest part of the industry is pine plantations, trees planted in rows and mostly owned by private individuals and families.
JO: And what's the timeframe on that? From the time those trees are planted in rows, how many years are we looking at until, I guess harvest is the right word?
BW: Right. So in general, and it's always, as they say, it depends, but in general, just usually you'll, if you plant a tree today, pine tree, you're looking at a first harvest around age 15, and that's a thinning. And some areas it might be age 12 or 13. Some areas it might be 16 or 17. It depends on your soils, your site index, the capability of how strong your soils are to produce a quality tree. And the genetics, the genetics have gotten so much better over the years. And so there are facilities that grow these nurseries that grow superior trees that grow as fast, you know, as quickly as possible. But you do a first thinning around age 15, and then that reduces the competition for the remaining trees to continue to grow.
JO: Okay.
BW: And so then in about three to seven years after that, you do another thinning, and then same sort of thing, then you wait maybe another seven to 10 years and you clear cut and you start to process over again. Now, that's a very generic but probably most common management plan. But again, it's a fine line because it depends on the landowner's objectives that they have for the property, market and mill dynamics, things like that, when to cut, or what kind of products they're trying to grow, poles, you know, for power poles, or maybe it's more of a hunting objective that they have. So trying to find the balance between a landowner's objectives and, quote unquote, the textbook way of doing things, is where we come in.
JO: Okay. So when you're talking about genetics and growing, are they like growing these saplings, I guess, like in a greenhouse and then transporting 'em out there? Or how exactly does that work?
BW: So, absolutely. Well, they're grown. You know, you've seen turf farms and in places like that. And so you have private companies that produce quality seedlings, and they find the best trees and the tree species, and basically just put 'em together, you know, the best quality genetics, characteristics of a certain stand, and they put 'em together and grow that particular type of seedling. And so that way you have superior type trees. You know, used to many, many years ago, say in the '70s or '80s, most of that was state run nurseries. And so what they did was they would have a, you know, invite the public, "Hey, bring in your seedlings for a certain amount, per bushel or something like that." Well, when you have families going out and getting pine cones from trees, where are they gonna go?
BW: The bushiest, most, you know, producing the most cones that are on the ground. Well, those seeds may not have come from the best looking trees or the most quality trees, the more bushy type trees. So when some of those were, when those were planted, you would look at a nice pine stand, but it would have knots going all the way up, had branches all up, and which is not necessarily quality for as far as structural materials, two by fours, things like that to build houses out of. And so over time you've had a lot of these universities, co-ops and private companies that have come together, and that way more of these superior trees are being made and grown.
JO: All right. Well, now, okay, I definitely understand now. I mean, being in Colorado, you start talking about seedlings and nurseries and thinning, we're familiar with that for another type of product that's grown. So now it's all kind of coming in. It's like, all right, this is no different than any other crop, we're just doing it in Southeastern Alabama, and it's getting way taller than what some people are growing out here.
BW: That's right. That's right. Yeah. Yeah, you are in Colorado. That's right. So, but, you know, because, you know, timber is a crop. It's not like the Midwest where you harvest every year, you know, this is a select, you may get two or three harvests in someone's lifetime or on a stand. And so there's a lot of preparation, there's a lot of things to do in planning for that. And so some people will time these for instance on kids going to college or maybe having some family situation to help pay for some medical bills. So some of that is looked at, obviously retirement, things like that. So people try to time these, not everybody, but a lot of times for that inflow of cash at certain intervals.
JO: So yeah, definitely what I'd call a long-term investment. You know, you're not dealing with clients that are looking for the quick money, short return. This is something that says, "All right, yes, we've got patients. Yes, we understand, you know, ROI and we're okay with it taking 15 or 20 years 'cause that's when Junior is gonna be going to Auburn and we gotta pay for that."
BW: Right.
JO: Okay. Alright.
BW: That's right.
JO: So educate me a little bit about your buyers, are these typically third, fourth generation clients that are familiar with the industry? Or is it more diversified clients that say, "Hey, I've been in storage, I've been in multifamily, I wanna get out of that and get into something where I'm not having to deal with tenants," and then you put the timber investment options in front of them?
BW: Right. I think it's a combination of a lot of different types of people. You know, you have more people that are first time landowners, in some ways you've got the generational farms that stay in the family for a period of time. People wanna add on to that. But you have a lot of people that want a different type of investment. You know, I had people that have either made money in the stock market or other different entities, this is a part of diversifying their portfolio and they're like, if we can go out and fish on a property and hunt and recreate and just be out and enjoy my investment, people wanting to do that, and it was already kind of happening. I think COVID even put it on steroids. But I think in general more and more people are seeing that as a good, tangible, long-term type deal. And I think it has changed some, you have some areas, you know, Alabama, anywhere, fill in the blank, Southeastern state, that's a bit more rural and they're always gonna be known for growing trees because of fantastic soil quality and deer hunting, turkey hunting, which is a big industry in our state as well. But then as I'm sure you guys are seeing and talking with some of the folks at the RLI conference, these growth areas, so you've got some transitional areas, you've got some areas of, you know, a lot of wooded areas, but they're not far from a college campus or a certain beautiful lake that people all wanna come and building million dollar homes on.
BW: And so that investment, the timberland investment that I'm painting with a broad brush, at one time, and some point it still is depending on where you're at, you bought it, you had a certain rate of return, X amount of years, you cut it. That's pretty much it. And more the real estate and the hunting was the add-on. Now more and more people are looking at it from a standpoint of recreation, hunting, family enjoyment, and the timber is the add-on. It's not the ultimate driver. And if you find the investment where you can do all three, because there's certain parts of rural Alabama, you're not gonna do a mini farm. You're not gonna take a hundred acres and bust it up into 10 10-acre parcels. But if you find that particular type of track in a growth area, that's the unicorn more and more people are looking for. And we've been able to help people with that.
JO: So what's the ideal size, or I guess, let me rephrase that, what's the too small size? If you have somebody that says, "All right, this is 10 acres we wanna talk about, planting some saplings, harvesting 15 years from now," are you saying, "No, that's too small, don't even mess with it."? Or are you saying, "Yeah, that's about as small as we can go, we'll talk to you."?
BW: Well, it's, I'll use it again, it depends. But, and that has grown. The other dynamic of this, and it's why people need to really do their homework on timber investing, the other component of the timber flow dynamics is how you're gonna get it to the woods. And so logging capacity continues to change and used to have so many people. My great-grandfather used to log with mules and horses many years ago. Obviously we've moved a lot further down the line since then. Just the cost of doing business and all this equipment that they have to have, it's gotta make sense, yes, for the landowner, but it's gotta make sense for the logger as well. And so they've gotta, it's all about production for them. And so when you're looking at it through a lens from an investor buyer, as I'm walking people through this, I'm like, "Okay, you want county road frontage or state highway, you want easy access."
BW: You don't want something you've gotta go two miles on a red clay road, and as soon as it rains, you're stuck out there. You don't want a lot of that. And so you're looking from that standpoint and you're looking at acreage. In general, acreage and volume is the two things that you really wanna look at. You know, would somebody come and cut 20 acres? Maybe, maybe not. If it's running five loads to the acre on the side of the road, absolutely, all day long. And that's something they can cut for wet weather logging in the wintertime, which is typically when prices go up. Now, for your answer to your question, I used to tell people 40 acres and up, you know, now it seems like, you know, 60 or 80 acres and up of timberland, not water pond house pasture, but...
JO: Sure. Well, that makes sense. I mean, that's kinda like what we're dealing with out here with the Alfalfa harvest. You know, if I've got a tenant farmer that's in the area, he may go cut eight, 10 acres, but if he's having to transport his implements and materials and everything for 20 miles, he's not even gonna look at it unless it's 160 acres on a center pivot. So it's a different crop, but it's the same mentality. So I can follow you there. Another question that came to my mind is, are you seeing... What's the word? Syndication. Are you seeing investors come in and syndicating timber deals like they're doing with multifamily? Or is it strictly kind of just your one or two off guys creating an LLC?
BW: I think it's, a lot of it, people that I deal with in general, it's families or it's individuals wanting to do that, not so much of companies necessarily or corporations, things like that. It's really the people that I deal with mostly it's people that have, are trying to move some cash or 1031 some money in, or families that are wanting to, they live, they're tired of the concrete and asphalt and the rooftops of the city and they just wanna move out and, you know, so it's kind of, I deal more with those type folks, or just have a place to go and recreate. I will say in our area, the increase of fiber optic, and more and more people choosing different ways of educating their children has been a big driver for us here where we are as well.
JO: Yeah, we've seen that out here as well. Yeah. What's some of the end product looking like? I heard you mention the electric poles. Is that the majority or are people building houses out of this? Are they doing furniture or where do you think the end product is coming out into the economy?
BW: Yeah, it's all about housing. I mean, it's lumber. It's two by fours, it's two by eights. It's, every structural component of a home is from the lumber side and obviously pulp and paper, from toilet paper to cartons, you get your soft drinks in, and things like that, and a lot of that's tied to the economy and the market. And, I know there's, as it always is, there's ebbs and flows in it. When COVID happened, people wanna get outside and start doing things. Well, the market soared and they couldn't cut it fast enough. You know, as things, housing market slowed down, you know, then that process slows down and the demand for that is, you know, and so when that happens, and having someone that can walk a landowner through that, I had several people reach out to me this year and say, "Hey, I need to cut." I said, "Let's hang on." We're experiencing record drought here in Alabama currently now. And with that it's, and with the market and everything that has slowed some, I just tell people, just hang on, because it'll cycle back around again, unless you got...
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BW: I'm sorry, unless you got like, you know, bugs or beetles or something in it.
JO: Well, that's actually a great segue to what I was just thinking about. So, you mentioned bugs and beetles, and so I am a consultant with a company called Timber Age Systems, but I'm the consultant on the real estate side of things. They've got guys way smarter than me on the timber side of things. And what they're doing is harvesting beetle kill pine here in Southwest Colorado. You know, it's standing dead pine trees that looks ugly and is a huge fire hazard. But once you start going in and you're milling it, it's gorgeous. It's got like this, you know, kind of grayish blue coloring to it when it's all finished. And these guys were geniuses. So they go in and see like this huge fire hazard. Work with the forest service to go get it harvested. Then they start milling it and drying it, and now they're building these gorgeous modular homes out of it.
JO: And I mean, they look like stick built homes, but they're made out of the CLT panels, cross laminated timber, and they're shipping these like three inch panels that look like a sheet of OSB all over the country. They're based here in Durango, and they did a project in Boulder, one in DC and one in New York. And I mean, it's kinda like what you're talking about that's right here in my backyard, and because it's all in government land, we just don't really think about timber harvest like you do. But they're basically doing the same thing at a federal level for what you guys are doing.
BW: Yeah. And you mentioned CLTs, we have one of the two mills here in Alabama, it's in Dothan that puts those together. And that's a new product. And especially when, the thought of building skyscrapers out of wood. And so that's been a really cool thing to see and, through the Auburn market.
JO: Yeah. And they're doing that over in Europe, building, you know, huge commercial buildings out of this stuff.
BW: Right. And so it's still kind of a, I would say a novelty thing right now. It's still not cost effective to start building houses per se out of that, you know, but it's another way of using wood, which we have done such a great job in Alabama and the Southeast, I think one of the previous numbers for every one tree removed, there's four going to the ground. And so there's a balance there of, you know, from logging capacity to a supply issue. So, you can never have too many markets. And to see that as an emerging market has been really a blessing. And I'll say too, you know, to your point, our state has been hit really hard with the pine beetle in certain areas, and the downside to that is there's only so many guys that, loggers that can come and cut that. And so what it also does is it floods the market and it drops prices. And so there's, again, it's all, timber flow dynamics is always so fluid. And so sometimes people have to cut just to get it cut to stop the spread. But then there's a lot of other people that's gotta get cut too. So it's kind of a, it's tough. And different parts of the state have more logging capacity than other parts of the state. And so that's why when someone's looking for a timberland investment, not just the trees and the acreage and the price, what kind of mills do we have to haul to, what kind of capacity is close by to get it to the mills? 'Cause wood is only as good as the mills you have to haul to and the people that get it there.
JO: Sure. Yeah. That makes total sense, man. Well, what kind of advice would you give to the realtors that are listening that, you know, maybe they're not real familiar with selling timber products and they wanna get more educated, they want to try to get into this niche, is it coming and working with you guys? Is it finding somebody else in the area? Like, how do they get to be Brian 15 years from now?
BW: [laughter] Well, I would say, first of all, the Realtors Land Institute offers a variety of good courses they can take. One of which is the Timberland Investment class or the Timberland class. Highly recommend that. We recently had a class, recently, that we put on this past year and I told the class, I said, "I'm looking to take a luxury home class." And of course people are looking at me, why would a forester and a land guy wanna take a luxury home class? And I told 'em, some of the most five star accommodations are on some of these land tracks. And so I was trying to relay it to them to say, "If we're gonna serve people as best we can, you know, and we're not foresters 'cause there's very few of us that are realtors and foresters, educate yourself with those classes, but also surround yourself with people who understand that, you know, foresters in your area. Get to know 'em and lean on them. And it might be some cross pollination of help. You help them, they help you kind of thing. And, because that helps the landowner. And that's what we all wanna do.
JO: Man, you hit a key word there that's important to just me and my family. And that is serve, you know, if you're gonna serve folks, you've gotta be educated. And I think that that's something that's kind of unfortunately missed in our industry. It's, you know, okay, I'm gonna just take care of this guy and move on, and I'm gonna take care of this gal and move on. But to really be a true servant in this industry is rare. And it's no wonder you're as successful as you are just talking to you. You know, having that outlook of being able to serve your clients by being one of the best in the industry is spot on 100% what I think more people should be doing in our organization. And so, you know, you hit on the classes. Listeners, you can go check out on our RLI website, rliland.com, the learning tab, we'll talk about the classes that are coming up. Highly recommend you take some of those timber classes so that you can get educated. And then if you wanna learn more about the topic, you know, reach out to somebody like Brian, reach out to somebody that understands this. You definitely do not wanna go into anything that's unknown territory without having somebody there by your side that has more experience than you do. Brian, just a couple minutes here before we wrap up. What other kind of key nuggets do you have for our listeners today?
BW: Well, I think you touched on it. It is know your market. If you're looking to invest in any kind of timberland, you know, know what your objectives are. You know, is it just timberland, you know, just from the investment standpoint or is it so many other things, you know, you're looking to build on it? Is it, you know, help paint the picture to someone that you're talking with in your specific area of what you're looking to do. And make sure that you have somebody that can walk you through that and understand the whole process, 'cause usually when I talk to people about a timberland investment track, I'll start talking about the logistics of it. You know, how are they gonna get the wood out? You know, talk about SMZs, you know, talk about stream-side management zones, you know, water areas or sensitive areas, and go ahead and start talking about that process. And it's amazing, you know, we all don't know what we don't know, and you surround yourself with people and trust people that have done that. And the result will be so much better. So I think having those resources and surrounding yourself with people is key.
JO: Well, Brian, thank you for joining us today, man. This is great. And I really appreciate you helping our listeners better understand the regional differences in timber and the impacts on investing. If one of our listeners wanted to get in touch with you, what's the best way for them to do that?
BW: Sure. They can call my cell at 334-707-4273 or email me at Brian, B-R-I-A-N@selandgroup.com.
JO: Awesome. Well, that's great. Folks, remember, 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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