This article appears in the August 2006 Forestry Source newsletter (published by the Society of American Foresters) and was originally published in the March/April 2006 issue of The Western Forester, a publication of the Oregon and Washington state chapters of the SAF.
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By Richard N. Smith
As more forestland moves from being owned by forest products companies to being held by financially-oriented buyers, the question on the minds of many foresters is: “What does this mean for me?”
During the last decade, integrated forest products companies have been scaling back their forestry operations – the result being fewer career advancement opportunities for foresters, more challenging work environments, and sagging levels of job satisfaction. As these companies increasingly sell their lands to real estate investment trusts (REITs) and timberland investment management organizations (TIMOs), many of the foresters I know say they are confused and disillusioned by the direction the profession is taking.
With that in mind, the question I believe they should be asking is: “What behaviors and skills do I need to exhibit and demonstrate to succeed in this new and emerging environment?”
As someone who has worked for both integrated forest products companies and in the forest investment business for many years, here’s how I might address that question.
For the most part, the days of internal forestry specialization may be over unless you work in a private, integrated company that has made a long-term commitment to both forestry and manufacturing. That means foresters need to make a choice – generalist or specialist – and understand the consequences.
In my experience, REITs and TIMOs are not forestry driven organizations. They are investment and financially-driven entities, which means, as a general rule, they do not directly employ as many specialized forestry experts to advise them on every aspect of their operations as traditional, integrated forest products companies once did. With a few exceptions, they tend to build core forest management functions in-house and acquire specialized silvicultural, research and systems expertise from service providers. Consequently, if you are silviculturalist, a biometrician, a forestry information systems expert, a forest engineer, a geneticist, or a wildlife biologist, your options for being employed by a REIT or TIMO organization may be more limited than would have been the case in the previous land ownership paradigm.
If working for such a firm interests you, however, broadening your credentials and resume’ to include and reflect experience in other forestry disciplines may be wise. Alternatively, joining one of the forestry-consulting firms that are blossoming around the REIT and TIMO industries, or starting your own firm, may be appealing options.
REITs and TIMOs generally rely on well-rounded foresters to oversee their lands, so if you are a traditional field forester/generalist your career options may be bright in the new ownership environment. However, to capitalize on available opportunities, one must demonstrate knowledge about every aspect of operating a forest – from growing trees in a cost effective manner to selling them for the highest possible price – because REITs and TIMOs generally look for people who have market knowledge, communications skills and leadership presence.
Just to emphasize this last point, working for a TIMO or REIT is an entrepreneurial undertaking. Sophisticated investors who invest through TIMOs and who own REIT shares value people who make and save them money… and who perform their duties as if they are making and saving it for themselves (TIMO and REIT compensation systems are often set up to encourage such behavior). Among other things, this means managing costs and quantifying the benefits of all activities in a financial sense (establishing the likely return on investment from a thinning or fertilization application). It means streamlining decision-making by avoiding bureaucratic processes (empire building is a career killer). It means emphasizing creativity and flexibility in addressing day-to-day problems and challenges. Finally, it means prioritizing activities in an investment context by defining risks and opportunities, developing plans, taking action, assessing the results and learning from successes and failures. In short, it means being an investment disciplined forester.
To behave this way, senior-level TIMO and REIT foresters must have a broader perspective on things like supply, demand and pricing dynamics. They also must understand the specific relationship between their actions and the financial goals and objectives of their clients and investors.
Finally, because they tend to run leaner than most integrated forest products companies, TIMOs and REITs place a very high premium on operational efficiency. Finding new and better ways to operate forests can mean the difference between out-performing and under-performing a client or investor’s benchmark (the tools used to measure their financial performance against the broader market – like a REIT’s stock price or the NCREIF Timberland Index). Innovation and technology have to be priorities and TIMO and REIT foresters have to be comfortable operating in an environment that sometimes can be fluid and chaotic.
TIMO and REIT foresters must be able to build and manage financially-focused operating budgets because they are charged with reaching annual profit and loss targets. They also are regularly asked to analyze acquisition and disposition opportunities and to manage related due diligence processes. Consequently, they must have knowledge of accounting, the ability to analyze financial data and projections, and the ability to operate in a balance sheet context.
TIMO and REIT foresters must embrace technology because the need to be more efficient and cost effective is driving those who manage forests on behalf of investment oriented owners to not only use it, but to envision new ways of using it. While basic forestry research may not be getting the same amount of attention from REITs and TIMOs as was the case when most private, industrial forestland was owned by integrated companies, such organizations are leading the way in terms of finding systems and approaches that allow foresters to practice every aspect of their daily activities more efficiently. The innovations are coming in everything from telecommunications and remote inventory proofing to timber security and regulatory compliance. TIMO and REIT foresters have to be committed to using technology and innovation to gain a competitive edge.
TIMO and REIT foresters must have strong negotiation skills because they are directly tasked with structuring and executing contracts and agreements with a wide range of groups and individuals, from wood buyers and transaction partners to governmental agencies and conservation organizations. In many instances, this work is done with little, direct involvement, oversight or support from upper management or legal staff. As a result, negotiation skills are almost a pre-requisite for anyone who wants to manage a lot of land for a forest investment-oriented entity.
TIMO and REIT foresters must have an understanding of HBU values because the need to capture non-timber revenue and returns is increasingly a major priority for their investors and clients (some even argue that TIMOs and REITs are becoming more like land companies than they are forestry companies). No forester wants to sell land, particularly to a developer, but given the narrow goals and priorities of most TIMO and REIT investors, there is often no choice. That means foresters who are managing their lands need to have the ability to recognize, quantify, market and capture HBU values. This can include selling land not only to those who would build on it, but also land and conservation easements to public agencies and environmental organizations.
Finally, TIMO and REIT foresters must have presentation skills and a strong public presence because few such organizations employ communications professionals at the regional or local levels. In most instances, their area foresters fill this role and must be adept at a range of related functions, from public speaking and news media relations to working with both friendly and hostile community groups. For foresters, many of whom went into the profession for the solitude it historically provided, these responsibilities can prove challenging. However, they are of growing importance because at the end of the day, the actions, behaviors and sensitivities of field foresters can dictate the extent to which a TIMO or REIT has a social license to conduct business, which can have a direct, long-term impact on its financial performance.
So back to the original question: What does this mean? For an experienced forester, it probably means adjusting to changes in forest ownership patterns will require some additional growth and expansion of one’s credentials and professional capabilities. For a new forester, especially someone still in forestry school, it means that understanding the art and science of business, of law, of finance and of societal and personal interaction will be as important to one’s future career success as understanding the traditional biological sciences associated with the profession.
In closing, the new world is a challenging place for foresters. As daunting as it may seem, however, it will present new and exciting opportunities for those who are willing to expand their view of what it means to be a forester.
Richard N. Smith is a forester and president of Forest Systems, a firm based in North Easton, Massachusetts that provides a range of consulting and forest management advisory services to major forest owners and investors. He previously headed the Hancock Timber Resource Group.
Rick Smith can be reached at 508 230-0402 or at rsmith@forestsystems.com