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he decline in the value of the U.S. dollar over the past few years has motivated foreign investors to buy significant amounts of land in the United States. Land market professionals suggest that foreign purchases have contributed to the strength of land markets on a broad base. But only part of that premise is accurate.

Foreign buyers of agricultural land in this country must register their purchases with the United States Department of Agriculture (USDA). USDA publishes an annual report, Foreign Holdings of U.S. Agricultural Land, which contains information about the geographic distribution of foreign holdings and the types of land foreigners have acquired.

 

Analysis of the report reveals that foreign ownership of U.S. land did indeed increase by more than 1.3 million acres in 2006, to a total of 16.4 million acres, about an 8.6 percent increase from 2005. Of that, 15.9 million acres were classified as agricultural.

Maine and Texas lead all states in foreign-owned land (Table 1). Foreign ownership in Maine stands at 3.6 million acres, 22.6 percent of all foreign-owned U.S. agricultural land. Texas is in second place with 1.7 million acres, 10.4 percent of all foreign-owned land.

Foreign-owned agricultural holdings are divided into forest, cropland, pasture and other land categories (Table 2). For the most part, foreign holdings by type of land have changed little over the last ten years (see figure).

learly, much of the increase in foreign ownership of U.S. land through early 2006 occurred in forest holdings, which grew by 1.1 million acres, 34.5 percent of which were in Texas. In 2005, foreign investors owned roughly 308,000 acres of Texas cropland, 830,000 of pasture, and a meager 29,000 acres of forest land. By 2006, foreign-owned timber holdings in Texas increased 1,357 percent to over 424,000 acres.

The USDA reports eight companies, all of which are subsidiaries of the same Canadian parent company, were primarily responsible for this significant increase in forest ownership in Texas, Pennsylvania and Washington. According to the USDA, John Hancock Life Insurance and its subsidiaries are responsible for the majority of this activity.

ohn Hancock is indirectly owned by Manulife Financial, a leading Canadian-based financial services company. The main buyer of timberlands under this umbrella is the Hancock Timber Resource Group, one of the largest timber investment management organizations (TIMOs) in the United States.

TIMOs' investors are primarily institutional and high-net-worth individuals or families. TIMOs are not publicly traded and are essentially specialized timber private equity organizations. For TIMOs, timberland is a specialized real estate investment that happens to grow trees.

The recent increase in "foreign" ownership is actually at-tributable to TIMOs buying timberland from industrial owners. This activity vaulted Texas into the top five states with foreign-held timberland (Table 3).

Much East Texas timberland has changed hands in recent years as the major timber companies continue to sell their land holdings. In February 2007, the lone holdout, Temple-Inland, announced plans to sell 1.8 million acres of timberland in Texas, Louisiana, Alabama and Georgia.

With this additional acreage slated for the market, East Texas will see a lot of sales activity. While integrated timber companies seem to have lost interest in owning Texas timberland, a new segment of investors is coming in right behind them -
TIMOs.