Terminal value: A crucial and yet often forgotten element in timber harvest scheduling and timberland valuation

A forest investment's returns are generated from three sources: the land's gain in value, the timber's growth in size and product class improvement, and the timber price change. Land appreciation is rapidly leading to an inverse relationship with tenure. This phenomenon has turned what was once an academic exercise of land appraisal into a practical one that incorporates the asset's terminal value. We found that failing to account for the terminal value can lead to sizable differences in forest value, although those differences diminish with increasing planning time horizons. The findings can be of use to those who conduct appraisal work for larger timberland owners because (1) land held under short holding times has offered an increasingly large share of timber supply, (2) classical models fail to capture the complexity of management decisions under this regime, and (3) “short term” holders face a terminal value risk, which we evaluate through scenario analysis.