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Seeing the Forest for the Trees

In 2007, Bank of America worked with the Redwood Forest Foundation, a private, nonprofit organization, to develop an innovative financing approach that would seek to restore and protect 50,000 acres of timberland in the USAL Redwood Forest in Northern California.

The complex transaction involves a coastal area in Mendocino County where development pressures are increasingly threatening the preservation of open space. Once covered by ancient redwoods and Douglas fir, the dense forest became fragmented by excessive logging in the 1970s and 1980s. Today, the trees within this land represent about 300 million cord feet of timber. Under the new plan, Foresters estimate there will be one billion cord feet of sustainable timber in the forest within two decades.

Bank of America designed a unique, long-term financing plan that will keep the forest intact, allow it to recover, protect the most sensitive areas from future logging, and, by managing other areas of the forest in a sustainable way, create jobs for local residents while delivering a solid return on investment for the bank over time.

The 20-year, $65 million loan from Bank of America enabled the Redwood Forest Foundation to acquire the land. For the first 10 years of the loan, while the forest recovers, the foundation will make no payments, and the bank will receive no interest or principal. For the same time period, Bank of America will also fund operating losses. After a decade, the foundation will begin to make payments on the loan from revenue generated by managing the timberland as a working community forest.

The private - and patient - financing of the Redwood Forest produces multiple ecological and cultural benefits. The forestland will remain intact, free from development pressures. A conservation easement will forever protect and preserve some of the most ecologically sensitive areas of the forest. The timber operations on the remaining portions of the site - to be managed according to rigorous sustainable forestry standards - will create jobs for community residents and allow the bank to generate a return on its investment.

The plan demonstrates the power of a collaborative approach that balances the interests of local environmental groups, small community businesses and the bank, and will put the Redwood Forest on a trajectory where it will become an environmental model for similar rehabilitation projects.

Since the mid-1990s, three quarters of the nation's 70 million acres of privately owned industrial forests have changed hands. As more tracts are put on the market, communities and businesses are seeking alternative ways to finance large-scale forest acquisitions to preserve wildlife habitat, open spaces for recreation and the trees that play a critical role in absorbing carbon.

Don Kemp, executive director of the Redwood Forest Foundation, said, "We anticipate this project will be the first of many in which the global capital markets will be tapped to finance projects more traditionally considered the domain of the public sector."