The Role of Corporate Timberland Ownership Change in Land Use ...

The Role of Corporate Timberland Ownership Change in Land Use, Conservation, and Local Prosperity in Michigan’s Upper Peninsula Chris A. Miller, Robert E. Froese and Michael Hyslop

Prepared for People And Land

School of Forest Resources and Environmental Science Michigan Technological University

August 13, 2007

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Executive Summary The new century has ushered in the transfer of Michigan’s Upper Peninsula (UP) corporate forestlands from traditional ownerships to institutional or financial interests. Three new companies; The Forestland Group, Plum Creek Timber, and GMO Renewable Resources now represent nearly 80% of UP corporate forestland ownership. The Nature Conservancy, a conservation-oriented organization and also a relatively new presence in the UP, now holds over 30,000 acres while vertically integrated timber products companies (VITPCs) such as Mead and International Paper, have undergone essentially total divestiture of UP holdings. The goal of this project was to quantitatively and spatially assess these ownership changes across the 15 counties of the UP and to project and characterize which lands may have potentially higher value alternate use, thus indicating the likelihood of parcelization. Parcel ownership information for the UP is not in a readily available format that would allow a consistent assessment at a given point in time. Representation of actual parcel ownership was therefore limited with some ownership not indicated by data but assigned from news release or other sources. Base data utilized for the study was obtained from published county plat books, available GIS datasets, and Michigan’s Commercial Forest (CF) Hunter’s List to create spatial ownership data layers for each county at two points in time. Parcels transferring between large-tract forestland ownership (defined as greater than 10,000 CF enrolled acres) were measured along with the transfer of lands with entities outside of the large-tract category. The landscape features Great Lake shoreline, lakes, rivers, roads, and urban areas were identified as amenities that increase alternate use value and the proximity to these features of large-tract forestland holdings were measured at the two points in time and compared along with a comparison of the contiguous nature of the large-tract forest holdings. To further project lands of potential higher alternate use value, landscape features were buffered to create areas of close proximity (including adjacency) and then intersected with large-tract holdings to identify how many of these types of lands are inclusive to large-tract holdings with any associated change between sample dates. Large-tract holdings declined in all UP counties at an average annual rate of 1,682 acres/year; weighted by the county-level contribution of these types of lands to the UP total and based on county sampling periods that averaged 11 years and ranged from 7 to 16 years. Marquette County showed the greatest annual rate of decline losing nearly 4,500 acres/year over an 11year period ending in 2006. The county also leads the UP in total large-tract holdings. The smallest decline in large-tract holdings was found in Menominee County at 127 acres/year based on a seven year period. This county ranks near the middle of UP counties in total largetract holdings. Substantial portions of large-tract holdings in the UP fall within the merged buffered areas of potential higher value alternate use, ranging from 38% in Mackinac County to 64% found in three counties; Alger, Baraga, and Houghton. These portions generally decreased across the UP at an annual rate of 1,469 acres/year based on the various county sample periods and weighted by the county proportion of total buffered areas in the UP. Anticipated results of further analysis refine spatial ownership information of those lands leaving the large-tract ownership category in conjunction with refined buffer area construction to facilitate development of robust modeling tools to aid efforts in needed land use planning of UP regional scope.

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Table of Contents EXECUTIVE SUMMARY..................................................................................................................................... I TABLE OF CONTENTS ..................................................................................................................................... II LIST OF FIGURES ............................................................................................................................................ III LIST OF TABLES .............................................................................................................................................. III LIST OF ACRONYMS .......................................................................................................................................IV INTRODUCTION ................................................................................................................................................. 1 BACKGROUND ................................................................................................................................................... 1 MOTIVATION ...................................................................................................................................................... 1 GOALS ............................................................................................................................................................... 1 TERMS OF REFERENCE ..................................................................................................................................... 2 METHODS AND APPROACH ........................................................................................................................... 3 CORPORATE FOREST LAND OWNERSHIP AND CHANGE ..................................................................................... 3 LANDS AT RISK .................................................................................................................................................. 4 FOREST LANDS AND FOREST OWNERS IN THE UPPER PENINSULA .................................................. 6 FORESTS, FOREST MANAGEMENT AND FOREST CONDITION .............................................................................. 6 CORPORATE FOREST LAND OWNERSHIP ........................................................................................................... 9 CONSEQUENCES OF OWNERSHIP CHANGE ........................................................................................... 13 PARCELIZATION AND FRAGMENTATION ............................................................................................................ 13 FOREST MANAGEMENT, HABITAT, AND PUBLIC ACCESS .................................................................................. 15 LANDS AT RISK ................................................................................................................................................ 17 CONCLUSIONS AND RECOMMENDATIONS .............................................................................................. 19 LITERATURE CITED ....................................................................................................................................... 20 APPENDIX A................................................................................................................................................... A-1

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List of Figures FIGURE 1. FIGURE 2. FIGURE 3. FIGURE 4. FIGURE 5. FIGURE 6.

LAND USE LAND COVER FOR THE UPPER PENINSULA, MICHIGAN....................................6 FORESTLANDS IN THE UPPER PENINSULA, MICHIGAN.....................................................7 DISTRIBUTION OF MAJOR CFA LAND OWNERS...............................................................8 LARGE TRACT CORPORATE OWNERSHIP IN THE UPPER PENINSULA, MICHIGAN.............11 PARCELED LARGE TRACT CORPORATE OWNERSHIP. ...................................................13 POTENTIAL CORPORATE TIMBERLAND OF HIGHER ALTERNATIVE USE VALUE. ...............17

List of Tables TABLE 1. TABLE 2. TABLE 3. TABLE 4. TABLE 5. TABLE 6.

COUNTY ATLAS AND PLAT DATA YEAR. ............................................................................3 UP LAND USE/LAND COVER ..........................................................................................6 OWNERSHIP DISTRIBUTION OF UP REGISTERED CFA LANDS...........................................7 LEADING UP TIMBERLAND OWNERS. ..............................................................................9 CONTIGUOUS CORPORATE LAND HOLDINGS. ................................................................15 AT RISK CORPORATE LANDS....................................... ERROR! BOOKMARK NOT DEFINED.

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List of Acronyms AF&PA……….American Forest and Paper Association ALW………….All Wood, Inc. BF…………….Benson Forest, Ltd. BTr…..……….Bernice Pauahi Bishop Trust CCI…………...Cleveland Cliffs Iron Co. CFA…………..Commercial Forest Act CIC…………...Champion International Corp. CFI…………...Connor Forest Industries, Inc. CONS………..Conservation Owner-Type EPC…………..Escanaba Paper Co. FFO…………..Funds From Operations FLG…………..Forestland Group, LLC FSC…………..Forest Stewardship Council GMO…………GMO Renewable Resources Inc. IP……………..International Paper Co. KLA…………..Keweenaw Land Asociation, Ltd. LAND……..….Land Owner-Type LYR…………..Longyear Realty Corp., etal MD…….……..Mead Corp. MNRL….…….Mineral Owner-Type NLT…….…….Ned Lake Timber & Land Co. NP………..…..Neenah Paper, Inc. OTH..……..….”Other” Owner-Type PC…………....Plum Creek Timber Co.

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REIT………….Real Estate Investment Trust SFI……………Sustainable Forestry Initiative SJF……………St John Forest Products, Inc. & Real Estate Co. SLC……………Steiger Lumber Co. TNC…………..The Nature Conservancy TIMO…………Timber Investment Management Organization UP…………….Upper Peninsula VITPC………...Vertically Integrated Timber Products Company VUL…………...Vulcan Corp.

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Introduction Background In the Upper Peninsula of Michigan (UP), the types of private forest land owners and their primary motivations for ownership of large tracts of timberland have varied over time. Over the past century motivations have shifted away from an “expendable” paradigm and have come to generally share long-term land management characteristics, along with a history of allowable public use for recreational purposes and relatively stable provision of wildlife habitat. Changes in land use patterns and demographics, while always present, have been at a relatively slow and gradual pace in the UP. Effects of such changes have gone relatively unnoticed, lagging behind other regions of the nation in new developments. Today, the UP is at the beginning of a new era of land ownership and use. The convergence of many factors is driving these changes. Trends and developments in technology and infrastructure have made the UP less “remote”. Coupled with upward trends in urban sprawl and other population dynamics, such as age and expendable income, the demand for alternate land use plays an increasing role in assessing values placed on the UP landscape. Parallel to these dynamics of change is the trends in national and global divestitures of large tracts of timberland by vertically integrated timber product companies (VITPCs) who held these lands as strategic raw material supply for further product development. New types of owners such as timber investment management organizations (TIMOs) and real estate investment trusts (REITs), do not generally view timberland as strategic supply, but primarily as financial investments (Browne 2001).

Motivation The announcement in April of 2006 by International Paper Company (IP 2006) of its pending transfer of 440,000 acres of forestland to GMO Renewable Resources, a TIMO, essentially marks the end of large tract VITPC majority ownerships in the UP. Parcelization of large tracts often follows land transactions between owners with dissimilar ownership motivations (Wear 2005). Examples of parcelization occurring along fringe areas of large contiguous forested lands as a result of ownership change have been shown from studies of other forested regions of the nation (Hagan et al. 2005). While higher land values for alternate land uses typically triggers divestitures regardless of owner type, it is believed that owner types without conservation or long term timber supply motivations may be more willing to parcel higher value lands (Block and Sample 2001). Parcelization of large tracts of timberland generally decreases public access and may lead to forest fragmentation, which has been shown to negatively impact wildlife habitat and may bring parcel areas below a scale of commercial operability (Wear 2005).

Goals Given the recent trends in alternate land use and ownership, involvement of all interested stakeholders in a land use planning process with a regional perspective of the entire UP would help decrease any undesirable effects that these changes may precipitate and preserve the unique nature of the UP. The central goal of this study is to provide information to be used in the planning process. Geographic distribution of large timberland tract ownerships will be used

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in conjunction with other thematic layers such as public lands and various surface features to help identify those areas where alternate land use and parcelization are likely to occur.

Terms of Reference Funding for this project was provided by People and Land, a project funded by the W.K. Kellogg Foundation and administered by Public Sector Consultants and the Land Policy Program at Michigan State University. A number of partners are involved in this project, including Michigan Technological University, the Great Lakes Natural Resource Center of the National Wildlife Federation, Michigan State University, the Upper Peninsula RC&D / Natural Resource Conservation Service, and the Michigan Environmental Council. This report, as well as other project information, is available online at http://forestlands.mtu.edu.

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Methods and Approach The overall goal of this project was broken into three core objectives. The first was to compile and aggregate existing data sets to quantify ownership of corporate timberland at two points in time necessary to demonstrate pattern and rate of change. To achieve this, we would utilize and and all relevant, availabile data sets on land ownership including records available from the Michigan DNR, county planning agencies, and published documents. The second objective was to summarize baseline site conditions and management practices for corporate forest lands. This summary would be used to develop a context for current resource condition and to permit assessment of likely changes in condition that are consequential to management changes after land divestiture. The final objective was to identify lands at risk of development through geospatial analysis based on timberland ownership, condition and change data.

Corporate Forest Land Ownership and Change Ultimately, any study is limited in scope and depth by the availability of high-quality and consistent base data. The challenge in this study was that no pubic agency is tasked with maintaining current or historic spatial ownership data in a format that is readily accessible, consistent, and available free of charge. County and township property tax records are a potential source, but using them to develop a comprehensive UP-wide spatial data set was clearly impossible given time and budget constraints. Even if private owners were willing to release proprietary data, aggregating hundreds of sets in a standard spatial format was also infeasible. Some reasonably standard data were available from planning agencies in the western Upper Peninsula. The Michigan DNR does maintain records of parcels enrolled in the Commercial Forest Act (CFA) program, but the data are not available spatially. Furthermore, many corporate Table 1. County atlas and plat data year. forest land ownerships include important parcels All data were from published plat books outside of the CFA program, precisely because they except Ontonagon, Gogebic, Iron, and are at most risk to development. Missing those Baraga counties, which were obtained from WUPPDR. parcels would be a serious oversight. We deemed comprehensive UP coverage as most crucial for the County Past Present larger project. Thus, rather than focusing effort on Alger 1992 2004 obtaining detailed data for parts of the UP, we Baraga 1995 2006 decided to develop a single data layer by Chippewa 1994 2003 reconstructing ownership from published, Delta 1990 2004 commercially-available plat maps (Table 1). Dickinson 1990 2006 To build a spatial layer, we first developed a list of primary entities that define the corporate category of ownership for our study. Assuming most large tract corporate holdings are enrolled in Michigan’s CFA Program, a non-spatial dataset of enrollment information was aggregated (Table 2 and Table 3) to identify the large tract owners. We then compared the list to published county plat books from two points in time to help identify companies that no

Gogebic Houghton Iron Keweenaw Luce Mackinac Marquette Menominee Ontonagon Schoolcraft

1991 1997 1995 1994 1994 1996 1995 1996 1993 1993

2005 2006 2006 2006 2005 2006 2006 2003 2004 2005

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longer hold lands in the CFA program. Then, using a base 40’s layer, we manually coded ownership in the GIS layer, by county, by scanning each plat book page to identify ownerships of interest. Transfer of information regarding parcel ownership and CFA enrollment from published plats in creation of spatial ownership datasets was limited due to the volume and diversity of owner entities and the labeling of information. This resulted in inconsistency when identifying separate prior ownerships and attributes. For example, some prior ownership entities of larger tracts of land became generalized in the “Other” owner category. The two points in time of parcel ownership measurement and the represented time interval between collection points varied across UP counties due in part to data availability and the staggered dates of plat publications. The mean time interval between data collection points across the UP was 11.3 years, ranging from 7 to 16 years. The most current collection point varied from 2006 found for seven counties to 2003 for two counties. Given that data collection for atlas and plat books precedes publication dates, many transactions of timberland ownership were not represented. Discrepancies between the current MiDNR CFA enrollments and ownerships reported for the current sampling point of a given county resulted in assignment of ownerships by owner-type to better reflect today’s land holdings but do not represent actual land holdings. Information regarding the contiguous nature of corporate land holdings was obtained by eliminating common parcel boundaries to yield identifiable contiguous areas of corporate ownership. The resulting polygons were measured and compared using polygon perimeters in miles, the minimum, maximum, and mean polygon areas in acres, the number of polygons and the number of polygons less than or equal to 40 acres in total areas. Primary limiting factors in the data analysis were the lack of uniform sampling dates for county ownership comparisons, time constraints, the reduction in the number of corporate entities identified, and the lack of uniform zoning regulations and market data to properly identify likely alternative use lands.

Higher and Better Use Lands Using the produced spatial datasets of corporate ownership, land area with adjacencies to the landscaped features of lakes, rivers, Great Lake’s shoreline, roads, and urban areas was calculated. In a survey of 404 registered voters in the UP (EPIC-MRA 2002) regarding economic and natural resource conditions in the UP, respondents ranking conservation and recreational issues labeled forest habitat destruction and over development of lands adjacent to rivers, lakes, and Great Lake shoreline as the most significant problems. Natural amenities such as the features chosen for this study and infrastructure proximities such as roads and urban areas have been shown as an influence on population and development distributions (Gustafson, et al. 2005). Other reports and publications have shown higher parcelization of forestland at high demand and value when in proximity to these features (Benson 2006, NFLC 1994). Those lands selected in these feature adjacencies represent the corporate land with a higher probability of alternate land use conversion. Using a default distance from the given feature of 10 meters to indicate adjacency, parcels up to 40 acres in size that were within the default distance from a given feature at any point were totaled. Lakes were defined as being greater than or equal to 10 acres in size and roads were limited to State and Federal highways,

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major and minor arterials, general non-certified roads and US Forest Service roads. The calculated areas of feature adjacency are not exclusive and the interrelationships of parcel adjacencies were not identified. For example, a parcel falling adjacent to Great Lake shoreline may also be included in the reported area of parcels adjacent to roads, but not differentiated. Corporate adjacencies were tabulated for both the past and current sampling points and compared. To further project which corporate lands may have higher alternate use value based on the chosen features, buffers of a given size were constructed around each feature and those corporate lands falling within a merged buffered region were measured and compared between sampling dates and shown spatially based on estimated current corporate ownership. These lands include those reported as adjacent to features in addition to non-adjacent but “nearby” lands. Buffers were created as a coarse filter in identifying alternate use lands. The area measured was within the merged buffer zone comprised of a five-mile radius around urban areas and a quarter-mile area adjacent to rivers, roads, lakes, and Great Lake’s shoreline. Also included in the buffer zone were those isolated parcels 40 acres or less in area. These buffer sizes were arbitrarily imposed from considerations of a variety of factors such as operability issues and accessibility, and would require refinement for any given locality’s planning purposes.

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Forest Lands and Forest Owners in the Upper Peninsula Forests, Forest Management and Forest Condition

Figure 1. Land Use Land Cover for the Upper Peninsula, Michigan.

The UP land base is approximately 10.6 million acres. The relative distribution of these lands in terms of use and coverage shown in Figure 1 are further detailed below in Table 2. Forested areas make up the majority of land cover in the UP, representing approximately 8.5 million acres or 79% of the total land base. Public lands are represented in this study by federal and state ownerships or rights, excluding mineral rights, and constitute the approximately 4.2 million acres shown in Figure 2. The remaining approximate 4.2 million acres of UP forestland are owned by a mixture of entities such as private individuals, corporations, various organizations including conservation groups, and local government public bodies. Table 2. UP Land Use/Land Cover Use/Cover Forest Land Wetlands Agricultural Land Rangeland Water Urban/Developed Barren Total

Area (million acres) 8.423 0.861 0.486 0.409 0.242 0.171 0.017 10.609

Most large tract private holdings are enrolled in Michigan’s Commercial Forest Act (CFA) program. This program provides owners of timberland parcels of at least 40 acres in size an opportunity to realize tax benefits through reduced property tax assessment in exchange for adherence to an approved long-term timber management plan and free public access for hunting, fishing, and trapping. Once enrolled, penalties for program withdrawal are formulized from local assessments and help stabilize the

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Figure 2. Forestlands in the Upper Peninsula, Michigan.

long-term management objectives. CFA enrolled lands itemized under broad ownership categories are shown in Table 3. Table 3. Ownership Distribution of UP Registered CFA Lands.

Area (acres) 500,000 or more 100,000 -499,999 50,000 - 99,999 10,000 - 49,999 1000 - 9,999 less than 1,000 Total

Corporate and Organizational Ownership Number of Represented Area Owners (acres) 2 1,151,950 2 564,829 1 65,351 3 52,486 33 107,443 133 37,351 175 1,979,410

Percent of Total 53.4 26.2 3.0 2.4 5.0 1.7 91.8

Private Individual Ownership 1000 -9,999 less than 1000 Total

22 951 973

Total Upper Peninsula CFA lands Total Upper Peninsula CFA land owners Source: MiDNR Hunter List 2006

42,214 135,713 177,927

2.0 6.3 8.2

2,157,337 1,148

100 -

As seen in Table 3, 85% of the over 2 million acres of CFA enrolled timberlands are owned by eight entities, with over 50% of the total enrolled land owned by just two corporate entities. This

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study focuses on the holdings of those eight major corporate entities. A depiction of the leading CFA timberland owners in relation to total CFA enrolled lands in the UP is shown in Figure 3. 24% 19%

29%

7% 8%

7%

Plum Creek International Paper Longyear Cleveland Cliffs Other Corp/Org Holdings (166)

3% 1%

1%

1%

Forestland Group Keweenaw Land Nature Conservancy Vulcan Timberlands Private Individual (973)

Figure 3. Distribution of major CFA Land Owners.

Applicants to the Commercial Forest program must attest to their compliance with the statute and the administrative rules of the program and have filed a long-term Commercial Forest management plan certified by a Registered Forester or Natural Resources Professional. Other non-governmental forest certification programs of note are the Sustainable Forestry Initiative (SFI) of the American Forest & Paper Association (AF&PA), a US forest product trade organization and the Forest Stewardship Council (FSC), a consortium of international interests such as non-governmental social and environmental organizations and forest product interests. These programs, developed in the early 1990s, are similar in their overall goals of sustainable forestry practices (Meridian, 2001). The FSC program was developed using chain of custody principles to assure that forest products meeting the standards of certification were produced in a sustainable fashion at all levels of development. The SFI program originated to improve sustainable forestry practices in the US. Both programs have witnessed increased acceptance of certification criteria. The FSC program addresses environmental, economic, and social criteria while SFI focuses more on environmental and economic issues (Meridian, 2001). Once these programs certify a forest management practice, monitoring continues through timely audits or complaint resolution. Failure to comply with program standards may culminate in decertification. While Michigan’s CFA program imposes financial penalty for program withdrawal, FSC and SFI do not, relying mainly on market pressures to maintain certification. In the case of SFI, loss of membership to the AF&PA trade association may also occur. Conservation Easements are restrictions placed on a property’s deed regarding such issues as property development, forest management, and public access. Easements are acquired through both donation and purchase. Data regarding Conservation Easements in place on certain lands in the UP were not gathered for this study; however their existence greatly influences land use planning efforts and identification of those lands bound by deed restriction

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and the nature of such restrictions would greatly enhance interpretation of ownership data. A good example of Conservation Easements for the UP is The Nature Conservancy’s “Northern Great Lakes Forest Project” which reached agreement with The Forestland Group on 248,000 acres of UP timberland (TNC 2006) for the protection of public access, sustainable forestry practices and resource conservation of sensitive areas.

Corporate Forest Land Ownership Ownerships tracked in this study were categorized by owner type. Different owner types vary in how well they reflect the primary motivation for land ownership. However, enrollment in CFA or forest certification programs implies and to various degrees ensures a long-term forest management objective regardless of primary motivation of ownership. To a large degree companies representing a given owner-type have inter-connections to other owner-types, excluding perhaps the conservation organization (CONS) owner-type. For example, the “LAND” owner-type includes companies involved in forest management, real estate, and mineral business activities. Most entities, including LAND, have branches involved in real estate activities in addition to their primary ownership motivation. The category “Other” includes smaller ownerships of un-identified entities; however, past ownerships included in this group may have been large tract holders. This group represents a diverse set of owner-types and particular holdings both public and private. The primary companies of this study, the associated owner-type, and the total CFA enrolled acreages are shown in Table 4. For detailed county level ownership information, see Appendix A. Table 4. Leading UP Timberland Owners.

Plum Creek Timber Company, Inc.

REIT

CFA (acres) 633,900

Forestland Group, LLC

TIMO

518,050

International Paper, Inc. Keweenaw Land Association, Ltd.

VITPC LAND

419,930 144,900

Longyear, etal

LAND

65,351

Nature Conservancy

CONS

23,076

Cleveland Cliffs Iron Company, Inc.

MNRL

15,540

Vulcan Timberlands, Inc. Group Total

VITPC

13,871 1,834,618

Entity

Owner Type

Industrial ownership of timberland (VITPCs) has historically been seen as a means of assuring raw material supply for the various production facilities operated by these types of companies. These entities are typically publicly traded corporations whose primary financial concerns are after tax earnings per share, cash flow, and return on investment (Browne 2000). Timber management practices have generally been conducted with a long-term perspective. However, the announcement of International Paper’s transfer of timberland holdings to GMO Renewable Resources, a TIMO owner-type, leaves Vulcan Timberlands remaining as the last large-tract (greater than 10,000 CF acres) VITPC of our study. Vulcan has been a long-term holder of UP timberland active in timber sells with production facilities through partnership of Vulcan Bowling

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Pin Co. and Brunswick, Inc. (Vulcan 2005). The company was not listed in current SFI or FSC certification membership rosters. Vulcan has holdings in Houghton and Ontonagon Counties with the majority in Ontonagon County. Sample periods for both counties showed slightly increasing, relatively stable, ownership. Ownership by TIMOs is increasing at a higher rate than other types of owners. TIMOs represent institutional investors such as public and private pension plans, foundations, and endowments that acquiring, manage, and divest forestland. These types of companies typically have no processing facilities and therefore have no strategic timber supply to maintain. They either sell timber to the highest bidder or enter into supply agreements as part of the purchase agreement with the divesting VITPC. TIMOs are mainly concerned with building total assets, keeping management costs low, and generating comparatively better returns on investment than other companies providing the same service. The institutions they represent are interested in cash flows, portfolio diversification, and high portfolio returns (Browne 2000). Many of these ownerships are closed-end funds with a 10 – 15 year time span for holding the asset. Some funds may be re-evaluated at the end of their cycle for hold/sell decisions. Most TIMOs can be considered long-term investors realizing timberland has long-term characteristics however any given parcel may be subject to a shorter investment cycle (Wear, 2005). The type of land usually sought has high productivity with minimum non-productive land, good stocking rates with age classes that meet future cash flows and good access (Binkley, et al., 2000). With the transfer of International Paper land to GMO, the TIMO owner-type category will represent the largest holder of UP private timberland. The Forestland Group is certified by FSC, and continued SFI certification by GMO of International Paper lands was announced as part of the purchase agreement (IP 2006). The Forestland Group has holdings in all counties except Delta, Dickinson, Mackinac, and Menominee with the largest ownership in Alger County. The majority of these holdings derived from entities that were categorized as “Other”. Of primary importance were acquisitions of Kamehameha School Trust and Ned Lake Timber & Land beginning in the year 2001. International Paper lands now assigned to GMO are found in all counties except Alger, Chippewa, Delta, Mackinac, and Schoolcraft. The largest ownership was found in Keweenaw County. Another type of investor in timberland similar to the institutional investor is the real estate investment trust (REIT). The main concerns for REITs are found in growth and maintenance of the funds from operations (FFO). They look for properties that will not diminish this and harvest timber based on not introducing volatility to the FFO. This type of entity typically follows the same overall timber management perspectives as TIMOs (Block and Sample 2001). The REIT owner-type is represented in large tract holdings in the UP by Plum Creek Timber Co., the largest single timberland owner. By owner-type, REIT is the second largest holder of UP timberland. Plum Creek was the first REIT and is the largest private owner of timberland in the US with the majority of its UP holdings obtained from Escanaba Paper Co. in 2005 (Plum Creek 2006). The company is a somewhat unusual REIT in that it has involvement in processing at facilities in the Pacific Northwest. Plum Creek is SFI certified. The MiDNR reports Plum Creek CFA enrolled lands in all counties except Gogebic, with the largest holding in Marquette County. The owner-types of “LAND” and “MNRL” describe companies involved in land, mineral, and timber management. Two companies, including associated holdings, Keweenaw Land Assoc. and J.M. Longyear Corporation, were assigned the owner-type “LAND” as these companies represent long time UP land and mineral right ownerships. Keweenaw Land Assoc. traces its roots to land grants obtained from the development of the Keweenaw ship canal (KLA 2006).

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Its timberland holdings are FSC certified. Keweenaw Land has CFA holdings in six counties with the largest ownership in Gogebic County. With vast mineral discovery, J.M. Longyear became a large landholder in the UP during the late nineteenth century (Longyear 2001). Longyear holdings are not listed in current SFI or FSC certification membership rosters. This company was found in many different ownership associations. Longyear and associations have reported CFA enrolled lands in seven counties with the largest ownership in Marquette County. The Cleveland Cliffs Iron Co. (CCI) was assigned the owner-type “Mineral” (MNRL) due its iron extraction and processing operations. CCI had ancillary VITPC operations in the past (CCI 2007) but is no longer involved in forest products and has divested large areas of timberland. Currently owned lands are not listed on certification membership rosters and CFA enrolled acres are mainly found in Marquette County. The Nature Conservancy (TNC), whose primary motivation of timberland ownership is centered on conservation and preservation of lands and water (TNC 2006), was assigned the owner-type “CONS”. This type of owner is a relatively new addition to large tract timberland owners in the UP. Timberland holdings of TNC are FSC certified. The Nature Conservancy has CFA enrolled lands in Luce County with other holdings indicated in five other counties.

Figure 4. Large Tract Corporate Ownership in the Upper Peninsula, Michigan.

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A spatial representation of the leading private timberland owners by owner-type is shown in Figure 4. This figure is a generalized representation of current large tract UP timberland holdings and does not reflect actual ownerships. Viewed in this fashion, the TIMO owner-type is the leading private timberland ownership group representing approximately 48% of the large tract corporate holdings of this study. Combined with the REIT owner-type, these financial timberland ownerships account for nearly 82% of large tract corporate timberland holdings in the UP.

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Consequences of Ownership Change Parcelization and Fragmentation Parcelization has been defined as “the subdivision of land under a single ownership into smaller parcels under a diverse ownership” (Drzyzga and Brown 2002), while fragmentation refers more to physical landscape changes in the size and shape of forestlands. Parcelization has been shown as a precursor to fragmentation (Radeloff, et al 2005; Rinkus and Markham 2006). The data available for this study permit a limited assessment of the degree of parcelization occurring in the UP. Because divestitures are often into the broad category of owner-type “Other” (OTH), they do not distinguish the new owner size or category. Thus, the analysis does not provide a measure of the number of new owners involved in the transfer of corporate holdings. Future work should emphasize development of a more detailed base data layer, or

Figure 5. Parceled Large Tract Corporate Ownership in the Upper Peninsula, Michigan. The date varies by county, ranging from 2003-2006.

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focus on regional assessments within the UP. Further study is also required to track ownership and subsequent land use after initial transfer of corporate holdings and to identify and monitor smaller corporation and individual ownerships. While ownership of lands transferred out of large corporate holdings is unknown, these lands are used as an indicator of parcelization of large tract timberlands. Decreases in corporate holdings were noted in all of the 15 UP counties over the various time periods studied. All corporate entities identified divest lands outside of corporate-to-corporate exchanges in all counties in the UP (see Appendix A). However, data are not available to show any divestures of recently introduced large tract holders only reflecting some of the acquisitions by these companies. A depiction of lands parceled from corporate holdings is shown in Figure 5. This representation is a simple aggregation of ownership data from counties sampled at different dates, and should be interpreted with caution. Information regarding the contiguous nature of large tract corporate holdings was estimated and compared between past and current sampling points for each county and is presented below in Table 5. In general, decreases to the maximum area of contiguous corporate holdings were seen with the exception of the five counties Iron, Chippewa, Luce, Mackinac, and Schoolcraft. Corporate lands with adjacencies to Great Lakes shoreline in the UP generally decreased over all sampling periods. Of the 13 counties with shoreline, two began and ended their respective sampling intervals with zero frontages; Delta and Menominee. Luce, Ontonagon, and Baraga Counties showed 100% divestiture of these types of corporate lands. Chippewa, Houghton, and Marquette Counties saw slight increases in shoreline area over their respective sampling periods (9 to 11 years) with Houghton County leading at 994 acres of shoreline adjacent land while Chippewa and Marquette Counties each had less than 200 acres. Keweenaw had the largest holdings of shoreline area, approximately 1500 acres based on the current sample date of 2006, representing a decline of approximately 51% over an 12-year period. The least amount of remaining corporate shoreline area was found in Schoolcraft County (145 acres) from 2005. No increases were found across counties for corporate lands with urban adjacencies. Seven counties were constant at zero adjacent area for their respective sampling intervals. Marquette County has the largest area of adjacency with 6,623 acres from its current sampling date of 2006 resulting from an approximate 37% decline in area over an 11-year period. Keweenaw County ended its sampling period 100% divested of such lands. Delta County, sampled in 2004, showed the least remaining adjacent area (18 acres) resulting from an approximate 94% decline over a 14-year interval. All counties contain corporate land with lake adjacencies with the exception of Mackinac, which was 100% divested at the time of the 2006 sampling date. Marquette County showed the largest area of adjacent corporate lands with 22,229 acres from its current sampling date of 2006 resulting from a 26% decline over an 11-year period. Delta County had the least area (402 acres) based on a 2004 sampling date following an approximate 33% decline over 14 years. Large corporate holdings of river and road adjacencies exist for the current sampling dates of all counties. Declines in these areas were found over the various sampling periods in all counties.

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Table 5. Contiguous Corporate Land Holdings. County Alger Baraga Chippewa Delta Dickinson Gogebic Houghton Iron Keweenaw Luce Mackinac Marquette Menominee Ontonagon Schoolcraft

Year

# of Parcels

# of Parcels

1992 2004 1995 2006 1994 2003 1990 2004 1990 2006 1991 2005 1997 2006 1995 2006 1994 2006 1994 2005 1996 2006 1995 2006 1996 2003 1993 2004 1993 2005

153 142 127 110 36 30 134 113 182 135 214 155 101 109 253 251 16 27 121 108 40 24 246 259 79 81 124 89 157 132

29 23 29 25 7 5 26 13 28 18 33 32 17 9 44 53 8 14 18 17 14 5 44 45 20 25 14 4 21 19