This presentation summarizes the evolution of investment in commercial real estate with that of contemporary timberland investment,

1. Where Trees are Tenants:
Timberland and Real Estate Investment
Who Will Own the Forests Conference
September 2016
David Lindahl, Director of Research

2. 2
… Is a good hedge against inflation
… Has long-term unlevered returns of 7-9% per year
… Provides a steady income stream and capital appreciation
… Has low or negative correlation to other investments
... Includes a continuous rotating rent roll, with high quality
tenants
… Offers pockets of inefficient markets allowing experienced
managers to add substantial value
… Provides options to invest in the public or private markets
Imagine an Asset that…

3. 3
Is it This?

4. 4
Or This…

5. 5
A Timber Harvest Schedule
2019
2023
2016

6. 6
An Office Rent Roll
Source: RE BackOffice.
Vacant
2015
2016
2017
2018

7. 7
Founders of Real Estate and Forest Economics
The forestry thinkers were way ahead in incorporating
time value of money
Heinrich Von Thϋnen
Land Use and Economic Rent
1826
Milk
Corn
Cattle
$Bid-Rent
Distance to Market
Bid-Rent = Yield – Transportation Costs
Martin Faustmann
Forest Harvesting Decision
1849
Land Expectation
Value
Stand Age
Net Present Value
One Rotation
𝐿𝐸𝑉 =
𝑦=0
𝑡
𝑅 𝑦 (1 + 𝑟)(𝑡−𝑦) 𝑒𝑡𝑐.

8. 8
 Fixed location
 Low liquidity
 Heterogeneous assets
 Information assymmetry
 Developing a sufficiently scaled portfolio
 High levels of management control
 Developing relevant and reliable return benchmarks
Similar Challenges – Real Estate and Timberland

9. 9
 Replacement of local players by national and global
companies and financial institutions
 Proliferation of global networks of market information –
replacing local and frequently privileged knowledge
 Adoption of information technologies
 Development of sophisticated forms of financial analysis
once reserved for more traditional asset classes
 Shift from traditional private debt and equity finance to
diverse and more liquid sources
Evolution of Real Estate Investment
MOST OF THIS HAPPENED OVER THE COURSE OF 20 YEARS
+
+

X
(and a grade for timber)


10. 10
80
100
120
140
160
180
200
220
240
1970 1980 1990 2000 2010
Commercial Property Prices – 1970 to 2016
Inflation-Adjusted Index
A Brief History of Institutional Real Estate Investment
Source: Geltner, Miller, Clatyon, and Eichholtz, Commercial Real Estate, 2014; Cushman and
Wakefield; Real Capital Analytics; NCREIF; US BEA; GFP Research.

11. 11
80
100
120
140
160
180
200
220
240
1970 1980 1990 2000 2010
Commercial Property Prices – 1970 to 2016
Inflation-Adjusted Index
A Brief History of Institutional Real Estate Investment
Source:
Life
Insurance
and Banks
1st REIT
Boom
and Bust

12. 12
Real Estate Investment in the Old Days…
Developer
Acquires
Option on
Land and
Obtains
Permits
Local or
Regional
Bank
Provides
Construction
Loan Other
Investor
Provides
Additional
Equity
Life
Insurance
Company
Provides
“Take-Out” or
Permanent
Loan

13. 13
60s to 80s - Life Insurers Become Finance Backbone
Source: Dohrmann, 1995; American Council of Life Insurers, Life Insurance Fact Book, various years.
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
$0
$50,000
$100,000
$150,000
$200,000
$250,000
1947 1957 1965 1977 1987
$Millions(BookValue)
US Life Insurance Real Estate Holdings
Mortgages (Mostly Commercial) Real Estate (Equity) % of Total Assets

14. 14
70s REIT Collapse – Led by Construction Lending
Source: NAREIT.
REIT Composite
1971 = 100
30
40
50
60
70
80
90
100
110
120
1971 1972 1973 1974 1975
Mortgage REITs Equity REITs

15. 15
80
100
120
140
160
180
200
220
240
1970 1980 1990 2000 2010
Commercial Property Prices – 1970 to 2016
Inflation-Adjusted Index
A Brief History of Institutional Real Estate Investment
ERISA
and Tax
Changes
Inflation
Driven
Investing

16. 16
5%
7%
9%
11%
13%
15%
2% 6% 10% 14% 18%
Source: Based on Ziobrowski and Ziobrowski, 1997.
T-Bills
Real Estate
Corporate Bonds
Government Bonds
Stocks
WITH REAL ESTATE
WITHOUT REAL ESTATE
% Risk (standard deviation)
%Return
Efficient Frontier Based on 1970-1995 Returns
ERISA and Adoption of Modern Portfolio Theory

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ERISA and MPT – Timber Joins in Later
Source: Binkley, Washburn, and Aronow, 2005.
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
0.0% 5.0% 10.0% 15.0%
Return
Risk (Std. Deviation)
Efficient Frontier of Mixed Asset Portfolio
With and Without Timberland, 1975 to 2004
With Timberland
Without Timberland
10%
Timberland
20%
Timberland
40%
Timberland

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80
100
120
140
160
180
200
220
240
1970 1980 1990 2000 2010
Commercial Property Prices – 1970 to 2016
Inflation-Adjusted Index
A Brief History of Institutional Real Estate Investment
Source:
1980s
Boom

19. 19
1980s Boom – Developers Went CRAZY
Source: FDIC; Torto-Wheaton/CBRE; Garner, 2008.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0
20
40
60
80
100
120
1975-1979 1980-1984 1985-1989 1990-1994
VacancyRate
MillionsofSq.Ft.
US Office Market Demand, Supply and Vacancy
1975-1994
Absorption (Demand - LHS) New Completions (LHS) Vacancy Rate (RHS)

20. 20
Real Estate Fundamentals
Supply cycles remain but have mitigated
Source: Clayton et. al., 2015; Cornerstone Real Estate Advisors; CBRE Econometric Advisers.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
NewSupplyGrowth
New Commercial Real Estate Supply by
Property Type
Office
Retail
Industrial
Apartment

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80
100
120
140
160
180
200
220
240
1970 1980 1990 2000 2010
Commercial Property Prices – 1970 to 2016
Inflation-Adjusted Index
A Brief History of Institutional Real Estate Investment
Bust!
-Illiquidity
-S&L Crisis
-Institutional
Writedowns

22. 22
Real Estate Capital Markets – the Achilles Heel
What were deemed the safest markets in fact were the riskiest
Source: National Real Estate Index; Lindahl, 1997.
-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
4.0% 6.0% 8.0% 10.0% 12.0%
ChangeinPrice/Sq.Ft
1989-1993
1989 Cap Rate
Tier 1 Markets
Other Markets
Manhattan
Downtown
Manhattan Midtown
Washington DC
San Francisco
Los Angeles Boston Chicago

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80
100
120
140
160
180
200
220
240
1970 1980 1990 2000 2010
Commercial Property Prices – 1970 to 2016
Inflation-Adjusted Index
A Brief History of Institutional Real Estate Investment
Source:
Multi-
Faceted
and Debt-
Fueled
Boom
CMBS
2nd REIT
Boom
Shifts in Use
of Space

24. 24
Real Estate – Structural and Technological Change
Source: Co-Star Group.
175
180
185
190
195
200
2000 2005 2010 2015
Occupied Office Space Per Employee

25. 25
Technological Change – Timber Products
Source: Latta, Plantinga, Sloggy, 2016.
5
15
25
35
1970 1980 1990 2000 2010
MillionTons
US Printing and Writing Paper Consumption
Without Internet (Modeled)
Actual

26. 26
The Birth and Rebirth of REITS
Source: NAREIT; Dohrmann, 1995.
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$Millions
REIT Equity Offerings
Secondary-Equity
IPO
Real Estate
Investment
Trust Act of
1960
First REIT Boom
Out of the
Ashes of the
1987-1990
Real Estate
Crash

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• Banks
• Savings & Loans
• Mortgage Companies
• Insurance Companies–Debt
• Pension Funds–Debt
• Commercial Mortgage
Backed Securities (CMBS)
• Mortgage REITs
• Public Real Estate Limited
Partnerships (RELPs)
• Govt. & Quasi-Private Credit
Agencies
• Pension Funds-Equity
• Insurance Companies-Equity
• Foreign Investors
• Corporations
• Other Private Equity (e.g.,
partnerships, development
companies)
• Defined Contribution
• Crowdfunding (!)
• Equity & Hybrid REITs
• Public RELPs
• Publicly Held Property
Companies
Real Estate Finance’s Four Quadrants
Private Public
Debt
Equity

28. 28
Real Estate Finance’s Four Quadrants
• Banks
• Savings & Loans
• Mortgage Companies
• Insurance Companies–Debt
• Pension Funds–Debt
• Commercial Mortgage
Backed Securities (CMBS)
• Mortgage REITs
• Public Real Estate Limited
Partnerships (RELPs)
• Govt. & Quasi-Public Credit
Agencies
• Pension Funds-Equity
• Insurance Companies-Equity
• Foreign Investors
• Corporations
• Other Private Equity (e.g.,
partnerships, development
companies)
• Crowdfunding (!)
• Equity & Hybrid REITs
• Public RELPs
• Publicly Held Wood Products
Companies
Private Public
Debt
Equity
Timberland Primary Capital Sources

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80
100
120
140
160
180
200
220
240
1970 1980 1990 2000 2010
Commercial Property Prices – 1970 to 2016
Inflation-Adjusted Index
A Brief History of Institutional Real Estate Investment
‘08-’09
Financial
Crisis
Restructured
Capital
Markets
Global QE

30. 30
Real Estate Securitization - Debt
Source: Real Estate Capital Markets Report; Lindahl 1997; Chandan Economics;
CRE Finance Council
0
50
100
150
200
250
Commercial Mortgage Backed Securities Issuance
Volume in $Billions
“CMBS 2.0”

31. 31
The Bigger get Bigger
Source: Institutional Real Estate, Inc.
$0
$20
$40
$60
$80
$100
$120
2011 2012 2013 2014 2015
Real Estate Funds Raised
$Billions
All Others
Mega-Funds
Mega-Funds defined as > $1 billion

32. 32
Real Estate Strategies
Source: Institutional Real Estate Inc.
34% 31% 18%
3%
4%
11%
Expected Capital Investment Within Plan
Sponsor’s Real Estate Allocation
2016
US Core US Value-Added
US Opportunistic Real Estate Securities
Private Debt Ex-US
Note: REITs and CMBS are often in equities and fixed
income allocations

33. 33
Real Estate is Ahead of the Game in Liquidity
Source: Institutional Real Estate; RISI; Timberlink; GFP estimates.
75%
99%
25%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
US Timber Real Estate
Commingled Real Estate and Timber Funds
by Type
Closed End
Open End

34. 34
Foreign Investment in Real Estate – Canaries?
Source: Real Capital Analytics.
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%0%
5%
10%
15%
20%
25%
30%
Investment in Major US Office Markets
Foreign Investment Share (LHS) Cap Rate (RHS-Inverted)

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“Prior to the 1990s, success in real estate was more closely
linked to one's knowledge, connections (especially with
lenders and local zoning officials), relationships and
operational skills. Today having a firm mastery of the capital
markets, knowing who the investors are and being able to
price and source each component of the capital stack is
equally important. Today more than ever, real estate and
capital have a symbiotic relationship.”
Roy Hilton March, CEO, Eastdil Secured
Mastering the Fundamentals is No Longer Enough…

36. 36
Real Estate is Still a Small Player, and Timber…
Global Assets Managed By Largest Money Managers
Source: Pensions and Investments, 2016; RISI; NCREIF.
Other
8% Hedge Funds
1%
Bonds
37%
Stocks
40%
Cash
10%
Real Estate
3%
Private Equity
1%
TOTAL ASSETS
$55.6 Trillion
• Apple - $571B
• Facebook - $361B
Market Caps:
Timber REITs
0.1%
($20-$25B)
Timber
0.1%
($40-$80B)
Total Timberland
Investable Universe
$125B - $467B

37. 37
So… Separated at Birth?
More Like Close Cousins

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 Increase liquidity
 Expand means and strategies to participate in the asset class
 Be wary of buying the same old assets in the same old places
– But also be careful of buying new assets in new places
 Pay more attention to capital markets and their impact
– But take a very disciplined approach to the fundamentals
 Prepare for more consolidation – across all parts of the industry
 Be nice to your tenants…
Some Advice From Timberland’s “Older” Cousin

39. Advising Institutional Investors
On Sustainable Forestry Investments
Throughout the World
For Over Thirty Years