Community owned forests conference

Missoula, June 2005

A Western perspectiveTransition from integrated forest companies to TIMOs and REITs

accelerating: Boise Cascade, Crown Pacific, Rayonier

Billions rushing into TIMOs -> upward pressure on forestland prices, leading to increased pressure to cut hard and fragment on exit

Conservation transactions emerging, but still relatively small: higher forestland prices, less conservation funding, political resistance to forest conservation finance (exceptions: Pacific Forest Trust, Cascade Land Conservancy, Conservation Fund/TNC, Potlatch/TPL)

Decline of federal forest harvests: impact on diversity of mills and renewed conflict over fire risk & forest health

Continued decline of rotation age & intensification of management on industrial lands

Strong industry resistance to FSC and growing resistance to LEED green building certification

Climate for innovation not good, but some promising dialogue emerging

Building the Conservation Economy

Enhancing knowledge and understanding

PublicationsPublications

AnalysisAnalysis& Mapping& Mapping

First mapping ofCoastal Temperate Rainforest

Investing in the financial infrastructure for the triple-bottom line economy

Venture: EcoTimberVenture: EcoTimber Real estate: The Natural Capital CenterReal estate: The Natural Capital CenterThe first environmental bankThe first environmental bank

Allocation of Natural Capital Fund

Venture7%

Income11%

Partnerships19%Real Estate

63%

Growth of Natural Capital Fund

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

Pacific Northwest Forests in Decline

Decline inDecline inharvest agesharvest ages

DeclineDeclinein habitatin habitat

Decline inDecline inemploymentemployment

0

0 . 1

0 . 2

0 . 3

0 . 4

0 . 5

0 . 6

0 . 7

0 . 8

0 . 9

1

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

0

10000

20000

30000

40000

50000

60000

70000

1953 1963 1977 1987 1997

Forest management alternatives

ROADSROADSLOGGINGLOGGING

LANDSCAPESLANDSCAPES

Industrialforestmanagement

Ecologicalforestmanagement

Two views of the Dickey River

Trends support transition to ecological forestry• Capital: rise of forestland investing and socially

responsible investing• Land acquisition: forestland is changing hands• Green certification: forest and building certification

systems provide market benefits• Emergence of ecosystem service markets

Ecosystem services: key to the transition

Industrial Ecological

NPV/acre

timber sales NTFP Easements Carbon other values

The Strategy• Raise capital into open, perpetual fund• Acquire and manage forestland• Generate competitive returns for investors• Make strategic acquisitions in high-conservation value

watersheds, and restore health and productivity• Develop full range of forest products and services:

timber, non-timber, ecosystem services, recreation• Generate jobs and wealth for local residents

Status of company• Closed first round of fund

with $10.5 million and 8 investors

• Ecotrust invested $1.3 million

• Purchased 1,100 acre property on Dickey River in Washington

• Harvested 500,000 board feet of lumber

• Raise additional $65 million by year-end

• Place at least $10 million by year-emd

Structure

Influenceforest

management

Createjobs & wealth

for local residents

Key elements

Raisecapital

Measureresults

& tell story

Sell forestproducts

& services

Manageforests

Acquireland

Measureresults

& tell story

Raise capital: an expanding opportunity

Sociallyresponsibleinvesting

Timberlandinvesting

$15 billion$15 billion

Ecotrust Ecotrust Forests, LLCForests, LLC

$45 billion$45 billion

Target geography

•Significant watersheds with high conservation values

•High level of public ownership•Younger properties•Low-income communities•Potential for tribal/community partnership

Primary criteria in land acquisition

Manage forests

planningplanning

logginglogging

loadingloading

replantingreplanting

Sell certified wood: from niche to mainstream

0

1

2

3

4

5

6

($ b

illio

ns)

800

1000

1200

1400

1600

1800

2000

(thou

sand

s of

uni

ts)

Housing starts Housing starts

Certified wood marketCertified wood market

Market Connections PlacementsMarket Connections Placements

0

2

4

6

8

10

12

2003 2004 2005 (projected)

volu

me

(mill

ion

boar

d ffe

t)

Sell ecosystem services

0

10

20

30

40

50

60

70

80

1997 1998 1999 2000 2001 2002 2003 2004Fore

st L

egac

y Pr

ogra

m e

xpen

ditu

res

(mill

ions

)

Working forest easementsWorking forest easements

Project-based carbon salesProject-based carbon sales

Non-timber forest Non-timber forest productsproducts

Cumulative number of conservation banks

05

101520253035

1995 1997 1999 2001 2003

Conservationbanks

Value per acre: $3,000 - $125,000

$50 million New Market tax credit award to Ecotrust CDE

investment

income

managingmemberloan

returns

owner

tax credits

controlling entity

equity loan

retu

rns

loan

returns

QE

I

returns

Ecotrust CDE, LLC

ForestHolding 1, LLC

(QALICB)

InvestmentPartnership

Tax CreditInvestor

Economicinvestor

owner

equity equity

managing member

returns

returns equi

ty

retu

rns

Ecotrust Forests, LLC

Investor

Ecotrust ForestManagement, Inc.

EcotrustInvestor

ForestParcel

investment

Combined Ecotrust Forests, LLC and NMTC Structure

Community forestry potential