News Analysis by Citizen Sandy: The SDS sale and its aftermath

It has been nearly two years since the SDS timberlands, lumber mill, and related properties were sold to a consortium of partners in a complex and extremely sophisticated deal. The parties brought a mix of interests and combined their expertise in finance and forestry to produce a working partnership that seems to be holding together well. To recap:

• SDS owned 96,000 acres of timberlands in nearby Washington and Oregon.

• SDS owned a lumber mill in Bingen, including a fleet of barges to transport logs, wood chips, and sawdust to customers further down the Columbia, and a rock quarry on Fisher Hill Road.

• SDS owned a wind turbine project, called Whistling Ridge, in Skamania County, and had secured many of the regulatory approvals necessary to develop a wind farm.

• SDS owned other investments including several Best Western hotels, and office/retail space in White Salmon.

The acquiring entities were:

• The Conservation Fund (TCF), a national organization headquartered outside Washington D.C. that has focused on conserving forests and farmlands nationally against subdivision and development. TCF created Lupine Forest LLC to own and manage its 35,000 acres of former SDS timberlands near the Columbia Gorge. TCF used its Green Bond program whereby investors purchased bonds with the expectation they would receive their principal plus interest after ten years. TCF used its green bonds and borrowed funds to acquire its portion of the SDS timberlands, but TCF does not plan to own the forests on a long-term basis. Their local partner is the Columbia Land Trust, which plans to acquire approximately 13,000 acres of the Lupine Forest properties once they are able to raise the funds to buy out TCF. In the interim, TCF appointed American Timber Management to manage Lupine Forest properties.

• Twin Creeks Timber, LLC, another new entity, is co-owned by Seattle-based Silver Creek Capital Management and by Green Diamond Resource Company. Together they own the balance of the SDS timberlands, approximately 61,000 acres. Green Diamond, in addition to having an investment interest in Silver Creek also serves as the forest manager of the Twin Creeks forests, deciding how much timber to cut and whether to sell any holdings. Both Silver Creek Capital Management and American Timber Management are Timber Investment Management Organizations (TIMOs). TIMOs are investor funded organizations that conduct logging, sell carbon offset credits, and even sell land outright to real estate land developers, in order to generate funds to reward investors in the TIMO. There is, therefore, a focus on generating a return for the owners of timberland. Teacher retirement funds and other public pension monies play a major role as Silver Creek investors.

• The third of the acquiring entities is Carson-based lumber mill WKO, Inc. (Wilkens, Kaiser & Olsen, Inc.), which now owns the Bingen lumber mill. Part of the assets acquired by the consortium is the name and trademark, “SDS.” WKO appears to have decided that the SDS name has real value in the lumber market, and accordingly, rather than re-name the mill operation, is continuing to use the SDS name and freshen up the SDS logo on the buildings at the mill. TCF and Green Diamond agreed to send their logs to the Bingen mill for ten years, assuming the mill continues in business.

When the sale was announced in late 2021, one of the unanswered questions was whether the timberlands would continue to be open to public access. Under SDS ownership, most of its timberlands were open for hiking, hunting, fishing, and other recreational uses. (Camping is generally not allowed on timberlands unless special permits are obtained.) According to TCF, the practice of open public access will continue. Also, ranchers who previously entered into cattle grazing agreements with SDS have been renewing those agreements with TCF and Green Diamond.

TCF recently held a community tour, showing local landowners what they are doing on the timberlands they acquired along the Klickitat River watershed. A spring tour focused on the White Salmon River watershed, where TCF owns sizeable contiguous acres. The TCF goals differ from traditional commercial timberland owners such as Green Diamond. They are managing Lupine Forest to achieve the following:

• Conserve and enhance Oregon White Oak habitat;

• Improve habitat for Northern Spotted Owl and Western Gray Squirrel;

• Transition forested stands to a more fire-adapted and fire-resilient condition;

• Promote complex heterogeneous forests;

• Continue to provide recreational, water quality, and economic benefits to the community.

Of the 13,000 acres that the Columbia Land Trust hopes to acquire, roughly 7,000 are mixed forests, including significant stands of oaks. In their thinning operations, the loggers’ instructions now include “oak relief” by removing Douglas firs and pines that are growing too close to the oaks. Oaks rarely exceed 100 feet in height, but pines and firs can grow taller, blocking sunlight and eventually killing the oaks. The result is a more heterogeneous forest.

In general, loggers working in the Lupine Forests are aiming to achieve a standard of 20 trees per acre, spaced roughly 30 feet apart, and limbed up to minimize “fire ladders.” In 2022, American Forest Management treated approximately 1000 acres in this manner. In 2023, they anticipate doing another 1900 acres. This initial thinning process can result in 30 to 40% of wood removal. TCF and Ameri can Forest Management say they are moving toward uneven age management, which means the forest is not clear-cut and replanted, but rather selectively harvested. In the future with advice from the Yakima tribe, prescribed burns may be undertaken to reduce brush and undergrowth.

Gray squirrel nests are left with a protective buffer around them, usually 50 feet, but adjusted to accommodate local conditions. Surprisingly, a gray squirrel can build up to 10 to 15 nests per year. In addition, tall 10- to 12-foot snags are left standing, to provide woodpecker habitat.

While TCF and Columbia Land Trust are making no claims relating to water, they point to studies that show one of the effects of thinning forests is to increase available surface water to enhance creek and stream flows.

One of the Oregon parcels TCF acquired is a 3,600-acre parcel that comprises the watershed for the city of The Dalles. TCF and the city are looking for funding so that the city can acquire its watershed by buying out TCF’s interest. One source of funding being targeted is the Land and Water Conservation Fund, administered by the US Department of Agriculture. Interestingly, a large portion of these funds derive from on offshore oil and gas drilling royalties.

Green Diamond, whose motto is “Think and act in the long term,” identifies their goal as “continuous timber production.” As a rule, they favor even-aged management of forest lands, meaning they will replant with “a tree right for that area” once marketable timber has been removed. The amount of timber they expect to cut annually is a function of the annual rainfall in the target area that can range from 100 inches in the western part of the county to 25 inches in the drier areas. More rainfall means trees grow more quickly and produce more wood. Green Diamond asserts their overage rotation remains about 50 years, or 2% of timber cut per year. They also say they are shifting to uneven age management in some areas.

As the parties to the purchase develop the goals, staff, and procedures to carry out their missions, they continue to negotiate some of the areas where their interests overlap. One such issue is the extent to which Twin Creeks will be willing to enter into conservation easements on portions of the 60,000 acres they own that become binding on subsequent owners and bar later owners from subdivision or development. Green Diamond, which manages Twin Creeks, has in the past agreed to a conservation easement protecting 7,000 acres it owned along the Hood River Canal in exchange for a payment of roughly $500 per acre.

Finally. Other SDS assets are gradually being assessed and absorbed. The wind turbine project, for example, is “still obtaining permits” and no determination is yet final as to its ultimate ownership.

All in all, the transfer of SDS assets is a work in progress.