Memorandum from CNR Faculty Jan 24. 2013 | Comments (4)
TO: Mary Watzin
Dean, College of Natural Resources
CC: David Ashcraft & Jennifer Viets Catalano, Natural Resources Foundation
Brenda Brickhouse, Natural Resources Foundation Board
DATE: 14 January 2013
FROM: Department of Forestry and Environmental Resources Faculty
RE: Prospective Hofmann Forest Sale
The sale of the Hofmann Forest is apparently being considered now, and the process has not provided time or a means to deliberate and develop a position statement by faculty of the Department of Forestry and Environmental Resources. Given this, and the timing of the Natural Resources Foundation Board meeting in January, we have circulated the attached petition opposing the sale among many faculty and staff in the Department and College. Signatories represent a vast majority of our Department. A large number of the faculty in Parks, Recreation, & Tourism Management and in Forest Biomaterials also have expressed opposition to the sale.
We oppose the sale of the Hofmann Forest for three reasons:
- The Hofmann Forest has great value for our core missions of research, teaching, and engagement.
- The Hofmann Forest has legacy, strategic, and symbolic value as the largest university forest in the U.S., and probably the world.
- We doubt seriously that alternative assets will yield more sustainable returns with less risk.
Teaching, Research, and Engagement
The teaching, research, and engagement values of the Hofmann are manifold and increasing, and the degree to which our students, faculty, and institution have benefited from Dr. Hofmann’s foresight is incalculable. At various times, the forest has been the base for summer camp, work-study students, and faculty research. Much research has been conducted on the forest, and it has grown dramatically during the last decade. Students and visitors increasingly use the forest for meetings and projects now that new quality infrastructure, buildings, and lodging on the forest complement the land estate. We manage the Hofmann as a working forest, demonstrating a wealth of technical professional skills, and that we can be good stewards and profit from forestry at a large scale, in challenging physiographic conditions.
Teaching involves undergraduate students in direct visits to the forest for summer camp, periodic class visits during the week or on weekends, uses of the forest for case studies, graduate student research and housing, examples for classes in Raleigh, and more. Research includes long-term hydrology, wetlands, and genetics experiments, periodic wildlife monitoring and research, forest biomass harvesting trials, and a basis for forest management and economics analyses. A variety of local, state, professional, and international visitors come to the forest to see both typical southern forest management and innovative management in the making. Local residents use the forest heavily for hunting leases and contribute to its management by helping maintain the roads. We also have contributed to the community by providing the site for a major forest park to Onslow County across from the Hofmann Forest headquarters in Deppe, which is used heavily by the public.
Legacy, Strategic, and Symbolic Value
Dr. Hofmann demonstrated uncommon vision and acumen when he purchased such a large forest on behalf of a new School of Forestry 79 years ago in August 1934. He anticipated its value to the School for teaching and income, and perhaps research and demonstration. Since then, a series of Deans, Forestry Foundation Boards, and Hofmann Forest staff have created a working forest that is a showplace for sustainable forest management. This legacy is a gift passed to us by generations of leaders; we should be as wise to continue that precedent and retain and improve the forest during changing times.
The forest has immeasurable strategic and symbolic values. Successful sustainable forest management is clearly the ideal that we profess. We have the legacy of the first School of Forestry in North Carolina; the mantra of one of its founders, Gifford Pinchot, regarding the best use for the greatest number in the long run; Aldo Leopold’s Land Ethic; and the modern paradigm of sustainable forest management that we teach and practice. As with all of our school forests, the Hofmann is a major part of what makes us unique in the nation, indeed the world, and positions us as leaders in natural resources management, research, and education.
While the Hofmann has been a difficult forest to manage on a modest budget, our steady progress and recent success have enhanced our reputation as a Department and as a College. Keeping, managing, and profiting from the largest managed university forest epitomizes our credo and ethical principles. Selling it would be an act of hypocrisy in the eyes of our students, our alumni, and the public; a public relations disaster; and permanently damage our reputation.
Investment Returns
Selling the forest has been proposed by our representatives who believe that we will receive greater annual returns from interest generated from the proceeds, and that the sale will significantly increase the University or College total endowment value. While the endowment total would increase, the investment returns are not likely to be superior. To some degree, we feel the argument is a red herring in light of the Hofmann’s value to our core mission, as well as its legacy, strategic, and symbolic values. Nevertheless, this premise deserves rebuttal based on other views.
First, the prospect of increasing the College and University reported endowment levels may appear attractive, but achieving it by the sale of the Hofmann would offend forestry and college alumni and faculty who literally have sweat equity in the forest. Many of these individuals helped build the Hofmann estate and could be prospects for admittedly much smaller donations to the program, as well spokespersons for our programs, perhaps to other large donors. We will lose much of their good will, support, and donations if we sell, and some will just write us off in the future. They will presume we have enough money, and that we violated their trust in us as managers.
Another key is whether one believes that the real rate of return will be better for stocks, bonds, and traditional asset classes, or for forests. You have received various University analyses that suggest “monetizing” (selling) the forest would yield greater returns. We also have done analyses periodically of returns from the Hofmann Forest. There is little empirical evidence that a typical portfolio of stocks and bonds has provided attractive returns in this century, or will do so during the next decade. Nor is there any reason to believe that the University or Foundation will beat the market. Forestry has also not been stellar lately but never fell as much as stocks; almost nothing could be worse than the prospects for bonds and savings accounts.
Dr. Watzin received a memo about empirical modern financial asset returns that suggested they have approached a 0% interest rate during the last decade, and may not perform much better in the next decade. As another empirical example, the Dow Jones Industrial Average reflects the average returns for the whole economy. The Dow increased from a relative peak of 11,500 in March 2000 to a recent high of 13,600 in October 2012, or an 18% increase in 12.5 years, or a 1.35% per year compounded average. Inflation averaged 2.4% per year during this period, and was only that low because housing prices depressed the overall CPI index drastically. So adjusted for inflation, the Dow lost at least 1.0% per year in this century. The University is no more likely than any other investors to receive anything better than those low average returns in the long run. Thus we would have to rapidly deplete the principal to achieve the presumed 4% to 6% annual payouts promised by the Foundation managers.
In contrast, the Hofmann Forest generated a positive net cash flow each year and real rates of return of more than 6% per year, not including land prices. Based on current land prices—which we do not actually need to incur—the net returns are a modest 2% or 3% real, which is still superior to stocks and bonds. Furthermore, there are many examples of university foundations that have lost half or more of their value in the stock market, and never recovered after 2008.
Forest products companies divested timberlands due to Wall Street pressure to monetize assets for short-term gains and corporate tax disadvantages, but divestiture generally has not improved their performance. Conversely, the Hofmann does not face pressure from external analysts, and pays no income or property taxes, which is a tremendous advantage. Agricultural and forest land are attractive assets with potential returns equal to or better than traditional financial assets. That is why TIMOs and REITs are still actively seeking these investments on behalf of institutional and wealthy investors.
Even if we were to accept the decision to sell, this is definitely not the time. Prices for forest land are depressed, along with markets for housing, lumber, and land development. But almost everyone believes that land prices will rebound, and coastal regions of North Carolina will lead the way. A recent major strategic planning exercise for eastern North Carolina was held in Trenton on October 24, 2012 (PlanItEast.org). It estimated that one million new people could move into Southeastern North Carolina by 2050. The projected infrastructure, land, and land value impacts of this forecast were staggering. If this forecast is even remotely close, the Hofmann will become far more valuable for sale if we so chose at a later date, or for protection of ecosystem services and academic merits, which we now advocate.
Concerns have been expressed about the risk of total and catastrophic loss to fire, hurricane, insects, or disease. These risks are quite small, and especially for such a large property. Our active management reduces greatly most insect and pathogen risks, and the North Carolina Forest Service trains on the Hofmann to learn how to prevent fires. We are covered. Hurricanes can and will hit, but we have and can salvage the damaged timber.
Even if all the stated premises and financial benefits held water, slightly better returns to CNR do not justify sale of the Hofmann. In addition to the immediate revenues, the Forest provides many other ecosystem services to CNR and the local community that are not reflected in the appraisal or financial arguments, all of which will only increase in value through time. A temporary lull in timber production will be over soon enough. However, opportunities for enhanced management, research, extension, and teaching will last forever if we retain ownership, distinguishing us from all of our peer institutions, and demonstrating our core values as professional resource managers and the value of sustainable forest resource management.
Conclusions
The faculty and staff of the Department of Forestry and Environmental Resources who have signed the attached petition oppose the sale of the Hofmann Forest. Furthermore, we would like a role in these deliberations, such as a representative on the Natural Resource Foundation Board.
The financial, professional, and personal investments that our University and College faculty, staff, and alumni have made for almost 80 years—through depressions, wars, real estate booms and busts, the rise and dissolution of vertically integrated forest products firms, hurricanes, and more—have made the Hofmann Forest an unparalleled global example of successful professional management for sustainable development. The value of the Hofmann for teaching, research, and outreach—NC State University’s core missions—are substantial, increasing, and irreplaceable. There are priceless legacy, strategic, and symbolic reasons for us to keep and manage the Hofmann Forest.
The Hofmann Forest may be the most secure long-term investment possible. The forest will always produce wood and water, sequester carbon and protect biodiversity, and provide opportunities for teaching, research, and engagement that are central to our mission. Selling the Hofmann for short-term financial gain provides no certainty that any of the assumed large interest payments will really occur, or that the principal will even be preserved. On the other hand, we know that our forest revenues are apt to be reasonable and steady and forest values increase over time. Sale will contribute to more unsustainable land use, which violates our mission, our ethics, and the mandate as land and financial stewards to manage the Hofmann in the best interest of the College and Department.
Thanks for your consideration and support in this decision.
The sale would be a myopic, major blunder. The economics likely don't make any sense, once you consider besides depriving the University from an important, irreplaceable laboratory. I imagine you could substantially improve the endowment by selling the stadium, the chemistry labs, or the brickyard, but those actions would make about as much sense as selling the Hofmann Forest.
This sale would be totally hypocritical. For a College of Natural Resources to sell this major NATURAL RESOURCE because it feels investments are best put elsewhere is embarrassing to say the least. Why don't we just toss out our whole curriculum and switch to business management and investing if this is what really matters. Let us please remember what we stand for and what our mission is as a college. Let us be leaders in natural resource management. As an alumni, I'm extremely disappointed with and embarrassed by this new turn of events.
1999 Alumnus
Please don't do this. Not everything needs to be about money.
1990 and 1996 alumnus
Selling this asset would be harmful to the College. Timberland is very difficult to come by with stiff competition among buyers. NCSU can sell this, probably at a fraction of true market value, but could not hope to ever acquire such an asset again.