On September 30, 2021, three firms announced they are forming a consortium to acquire the SDS Lumber Company and the Stevenson Land Company, including all timberlands and the Bingen lumber mill. The deal, which is expected to close in the next few months, involves:
- Sale of 96,000 acres of SDS timberlands to Green Diamond Resource Company, a Seattle-based investor and manager of Twin Creeks Timber LLC. Twin Creeks is a Timber Investment Management Organization (TIMO). Twin Creeks was created by Silver Creek Capital Management in 2015 as a joint venture with Plum Creek Timber which was then acquired by Weyerhauser. In 2018 Green Diamond replaced Weyerhauser as Silver Creek’s joint venture partner and became the forest manager of all of Twin Creek’s 500,000 acres.
- Sale of the SDS Lumber Company and its Bingen lumber mill to Carson-based WKO (Wilkins, Kaiser & Olsen, Inc.) The SDS mill and the WKO mill will operate under a newly formed subsidiary to be known as Mt. Adams Forest Products. Together with its Mt Hood subsidiary, WKO produces 300 million board feet of dimensional lumber annually.
- The national, non-profit Conservation Fund, which will manage the conversion of a portion of the SDS timberlands into conservation easements, to protect timberlands from future development or subdivision. No details are yet available as to what the Conservation Fund has contributed to the deal, nor which of the local area’s forests, rivers, and streams might be subject to conservation.
The announcement, which describes a complex series of timber industry relationships, is short on details and raises more questions than it answers. Until the ink is dry on the consortium paperwork, however, no one is answering questions. Below are a few of the issues raised by the deal:
Green Diamond manages the forests under its control in conformity with standards known as Sustainable Forest Initiatives (SFI). While SFI is not the most rigorous forest practice certification, all of the 550,000 acres it manages for Twin Creeks Timber are subject to SFI standards including third party audits, some conducted by Departments of Natural Resources. The acquisition and management by Green Diamond raises questions as to whether the SDS timberlands will be managed more--or less-- rigorously than they have been. This affects biodiversity, habitat protection and water quality
Green Diamond also has experience in managing its forests so as to create and sell carbon offset credits to companies that pledge to meet carbon neutrality goals. One such recent sale to Microsoft generated substantial revenues for Green Diamond. Carbon offsets are tied to the rate of growth of trees, since studies show that younger, faster growing trees absorb more carbon than older ones. This raises questions about changes in the SDS “rotation schedule” that is, the frequency of timber harvests.
Will the consortium include agreements on harvest rotation goals? SDS was maintaining a 60 year span to schedule repeat harvests, but the industry standard is quicker, with 45 year harvest rotations. This matters also because SDS currently receives only enough logs to run one shift at the Bingen mill; only half of its annual log count comes from its own timberlands.
Ideally WKO will have some ideas on how to sustainably drive enough additional logs to the Bingen mill to support a second shift, and increase the number of jobs available there. On the other hand, some worry that WKO will use the SDS timber to increase the log flow to WKO’s Carson plant, which also typically runs only one shift, and so starve the Bingen mill. The New York-based broker that helped structure the SDS acquisition, Perella Weinberg, pointed to both SDS’s harvest rotation rate and the mill’s one-shift operation as weaknesses where efficiency and profitability could be improved.
The WKO acquisition of the mill is of vital importance to the town of Bingen. Less well known, however, is the fact that SDS is the only mill in the area that routinely buys Ponderosa pine logs. WKO buys mostly fir logs, such as Douglas Fir and white fir. Without the Bingen mill, local timberland owners would have to haul their pine logs many miles further, to Cle Elum, or Pilot Rock near Pendleton.
In general, however, the consensus of opinion is that WKO’s acquisition of the mill is good news, since the company is viewed as reputable, innovative, and highly intelligent in using the latest technology to structure its business. The SDS mill, which produces plywood, wood chips and sawdust for paper mills, would benefit greatly from an infusion of capital, new equipment, and creative management.
The most intriguing player in the consortium may be the Conservation Fund, which is the largest conservation organization in the US. Located in Arlington, Virginia across the Potomac River from Washington, D.C., it is the only one of the consortium partners that is neither family-controlled nor local. None of the local leaders of environmental and conservation organizations seem to know how the Conservation Fund became involved in the consortium.
The Conservation Fund in 2020 had an annual budget of over $250 million. Their size, financial muscle and experience makes them a significant player in the consortium. In 2020, the Conservation Fund conserved over 281,000 acres, including the outright acquisition of 94,000 acres of forestland.
“Conservation” comes in different flavors. Rural landowners often sell a conservation easement, which guarantees that their lands cannot ever be sold to developers or subdivided, but leaves ownership and management with the family. Other parcels of valuable land are purchased by the Conservation Fund, which places them in a trust and later sells them to a community group, often with help from local corporations.
What are the benefits of the consortium to each of the partners? What glue holds it together? Best guess? Neither Green Diamond nor WKO had the funds or the interest in purchasing the entire SDS package. And WKO needed assurances that the Bingen mill would continue to receive logs from the former SDS timberlands; these assurances have been confirmed to be a feature of the consortium deal.
Finally, the funds these two principal parties were able to offer may have come up short. So, it seems likely that the Conservation Fund was invited to make up the third party in the consortium, contributing the balance of the funds needed and receiving in return access to valuable and unique timberlands for conservation purposes.
A final set of questions concerns the consortium itself, its durability for long term operations. As Twin Creek’s history suggests, major changes in financial structure and management can happen with surprising speed. Each of the partners in the consortium have their own corporate objectives and profit objectives. Will the consortium agreement include a mechanism for setting goals and resolving disputes? Are the partners bound to the objectives of the consortium for a fixed period? What if a party wishes to exit the consortium? Only time will tell.