A Portfolio Approach Defined:
3GreenTree specializes in developing an innovative portfolio approach, where we create a diversified set of income streams customized to the property and the owner’s objectives.
Much like a balanced investment portfolio, we look to balance and optimize risks and returns so the forest business is diversified and more resilient to market downtowns; while positioned to take advantage of market upswings.
Currently, forest carbon and high quality certified timber are the leading revenue drivers in the 3GreenTree business model; however, conservation finance and investment is well established opportunity, and biodiversity offsets, water values, and other ecosystem services are emerging as potentially future leading revenue drivers. Designed and managed as a portfolio, 3GreenTree uniquely positions investments to take advantage of current and emerging revenue opportunities, while minimizing downside risk.
About the Investment:
Forest lands are currently valued only for real estate, land, and timber, but undervalued for ecosystem services. This provides remarkable opportunities to acquire assets capable of superior return on investment, all the while retaining an underlying real estate and timber asset as a backstop against risks in the newly emerging ecosystem services markets.
Carbon is projected to be the largest traded commodity in the world - at more than $2 trillion/year by 2020 - as global emissions reductions regulations are put in place and ratchet down over time. Carbon is expected to be larger than the global timber market by 2012. Biodiversity decline has been identified as a critically important issue in global environmental conditions requiring significant investment and corrective action. Water is emerging as the next critical global commodity, potentially more valuable than all other ecosystem services in the long run. Market solutions for ecosystem services have been under development for decades, but have only recently begun to solidify and begin to attract significant investment interest.
Investment structures can be custom designed, and can revolve around investment in the real estate asset or in a specific ecosystem service asset.
The primary 3GreenTree business model revenue driver is forest carbon, which 3GreenTree has projected to outperform the returns of typical timberland investments, while maintaining the advantages of the timberland asset class investing. Biodiversity has the potential to attract significant capital or revenue on a site specific basis. Other ecosystem services are site specific or nascent markets, and at this point 3GreenTree considers these supplemental sources of revenue in terms of projecting expected investment returns, yet considers these potentially significant upside opportunities.
The closest investment comparison is to timberland investing, which has attracted significant capital over the past two decades as an alternative asset class which is been poorly correlated with both equity and bond market returns. In addition, timberland is often considered an inflationary hedge. The 3GreenTree business model retains these features while further diversifying revenue sources, and adding a significant upside potential from carbon (which doesn’t exist in timber) and potentially other ecosystem assets.
The particular advantages of the 3GreenTree business model for forested properties:
1. Biological growth: forest carbon assets can behave similar to timber assets, in that the value of the asset grows over time regardless of the market, in the form of biological growth. Just as timber increases in volume and value over time, carbon accumulates in the ecosystem over time. This biological growth factor means ‘inventory’ can be stored and grown at no additional cost during market downturns.
2. Low Correlation with Stock and Bond Markets
3. Real estate backed – forest properties are backed by hard real estate assets.
4. Timber backed – 3GreenTree models for forest carbon always retain the options to return to timber revenue streams if necessary, which mitigates the risks of new ecosystem services markets.
5. Significant Additional Upside Potential – timber markets, although cyclical, are generally mature markets, with little opportunity for substantial upside in pricing. Carbon, on the other hand is a new market, with future demand being pre-determined by regulated emissions reductions. The supply of carbon offsets is uncertain, but most projections show an under-supply condition for decades, which is evidenced by the significant market price control mechanisms being developed for the U.S. regulations. However, there is substantial difference between the expected floor and ceiling prices in the U.S. (before market controls are triggered). The high side of this price curve is almost double the low side, which provides a very attractive upside potential (doubling the carbon price essentially doubles returns off of 3GreenTree projections).
So, let us show you opportunities to invest in properties or projects which provide superior risk adjusted returns.
© Copyright 2012 3GreenTree Ecosystem Services Ltd.