Mass Timber & Money #1: investment prospects on the eve of Trump2.0

"Excited about the (investment) party; anxious (but hopeful) about the morning after." _said most investors this week

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Weddings, as any enthusiast will tell you, are an exercise in joy, celebration, and… other people’s finances. There’s something glorious when reveling in abundance with friends and family — amongst great food, drink, and dance—knowing the bill is footed by someone else. I, for one, am sold on this kind of party. And so, it seems, are today’s investors!

As we contemplate post-election investment market shifts—thoughtfully unpacked by Stephen Dover —how can we think about our mass timber movement’s prospects? In short: not great right now, but better down the road.

The Republican victory has American investors nodding yes— and for solid reasons—bidding up the value of firms while borrowing more to upgrade the party's wine list. ?This helps fuel higher-for-longer interest rates – driven by deficits and inflation/tariffs expectations - all of which hinder real estate values. ?Understanding this helps explain why today’s mass timber housing, commercial or industrial developments are usually failing to “pencil out.” Put simply: those with savings feel there are better places to park their capital.? Such investor sentiment stands on reasonable, academically grounded rationale, and so it is likely to be persistent. None of this helps near-term prospects for growing the mass timber movement.? For more on this, check out The Economist’s assessment.

But fear not, for these same reasons, mass timber’s long-term prospects remain promising—especially given its differentiated (value-creating) and decarbonized (risk-reducing) nature.? For example, as anxiety and wealth grow concurrent with skyrocketing stock market valuations, so too does the appeal of defensive, durable income offered by a mass timber apartment asset to be owned by a retiree's pension plan.? As import costs escalate—only 3% of our cement being USA/Mexico produced—new real asset creators (real estate developers) will find wood’s decoupled, domestic supply chain a comforting story. ?*Political headlines can hide shifting supply-side trends; as Zero100's digital/supply-chain wonks point out - competitive capitalist currents continue to push ESG trends.

Across my conversations during 2024 - at Portland's International Mass Timber Conference, Melbourne's TimberConnstruct conference and Innsbruck's Forum Holzbau, I can see capital's growing curiosity. Their challenge is figuring out when and how to adjust their asset allocation. In our wedding analogy, it’s akin to wondering when to switch from boogie to bedtime.

This article marks (hopefully) the beginning of a series on investment, capital markets and capital access notions, applied specifically to the growing mass timber movement. ?In full disclosure, my thoughts are informed by 20+ years and $1B+ of development, including the capitalization of five large, complex mass timber commercial and residential deals. ?My specific research, an example published through WoodWorks, as well as conversations… like those fostered by WoodCentral... add perspective (i.e. bias.) ?And I’m inspired by the behavioral finance courses I teach, which aim to build more financially literate, entrepreneurial, liberal arts college students.? Likewise, my hope for this series is to foster similar mindset evolutions across mass timber protagonists — improving our movement’s capital market’s literacy so as to hasten its progress. ?

I’ve had the privilege of speaking with many of the notable figures within our mass timber ecosystem—architects, engineers, contractors, regulators, foresters, fabricators, academics and so on. All are exceptionally talented professionals who, by and large, opted for art, physics, law or engineering classes over economics, finance, management or organizational behavior studies. Instead of graduate schools or employment experiences focused on entrepreneurship, real asset development and investing, these leaders helped mass timber products become viable alternatives to steel or concrete. They deserve huge kudos.

But - against this progress, capital markets acumen is (mostly) absent - think of it as a missing link in the supply chain ecosystem we hope to hasten. ?Yes, anecdotal evidence demonstrating financial viability is emerging. ?But that is not the rigorous research, financial innovation or translation to practice understandings required by capital markets. Fiduciary duties span a mass-timber-applicable capital flow that is massive - probably > $500B/year - and these professionals often take their duty rather seriously. Likewise, so should our mass timber movement. ?As Clifford (Craig) Rawlings , Thomas W. and I discussed last week, we need "capital to keep up” — if for no other reason than because it will take a lot of it to realize our shared goals!? And that’s where this series hopes to be of help.

To distill this first post:

·????? All of us working in mass timber are in the business of creating new assets.

·????? All assets (real or financial / products or buildings) need to compete for capital.

·????? In the short term, that’s going to be an uphill battle for mass timber developments.

·????? Looking ahead, the underlying principles of sound business and capital markets flows — grounded in history and theory—should make us all optimistic.

·????? We have work to do— to help financial professionals help us grow the movement.

?So, next time you’re at a wedding, chatting with someone about their savings (read: investments), consider saying, “yes, the party’s great, and the markets are up!? But I’m anxious about tomorrow morning’s check out time, and the sky-high P/E ratios of NVIDA and MSFT.? ?Parties, like market rallies, don’t last forever… and I might not be as young as I like to think.? Please pass the water.