Finding New Value in Land

ON THE COVER

FINDING NEW VALUE IN LAND

REPUBLIC RANCHES, CONSERVATION EQUITY PARTNERS & CONSERVATION EQUITY MANAGEMENT

STORY BY LORIE A. WOODWARD PHOTOS BY CHRIS DOUGLAS

Publisher's Note: In the following story, Republic Ranches showcases its working relationship with Conservation Equity Partners (CEP)/Conservation Equity Management (CEM). CEP/CEM is actively working to create additional value in land through the emerging markets known as ecosystem services. Because of the potential ramifications of ecosystem services in the land market, Republic Ranches is spotlighting CEP/CEM and one of its projects.

Today, the visionary risk takers at Conservation Equity Partners (CEP) and Conservation Equity Management (CEM) are seeking new fortunes in Texas’ legendary wide-open spaces, built not only on cotton, cattle, timber or black gold, but ecological productivity, open spaces and water.

“Frankly, they’re a new style of wildcatter,” said Bryan Pickens, Dallas-based partner/broker associate of Republic Ranches. “They’re on the front edge of a new movement in value creation for land-based resources.”

The value and emerging markets are being created under the broad umbrella of ecosystem services, which can be defined as “the goods and benefits provided by the land back to the public.” In addition to tangible goods such as food and fiber, the benefits include clean air and water, carbon sequestration, biodiversity, and mitigation just to name a few.

In Texas, which is entering its fourth decade of unprecedented population growth, rising demand for land and changing land use are also driving the discussion. Texas is losing about 660 acres of open land a day to development. Every time a piece of open, working land is converted to another use, the pressure on the remaining working land to produce life-sustaining ecosystem services increases.

“It all comes down to the fact that land is a limited resource,” said Jeff Boswell, Houston-based partner/ broker associate of Republic Ranches. “CEP/CEM is on the edge of discovering and revealing values from properties that were unrecognized, untapped, taken for granted and therefore non-existent before. It’s a function of supply and demand.”

As long as businesses and individuals continue to migrate to business-friendly states like Texas, this trend isn’t likely to change. Fast-paced development is part of the state's landscape into the foreseeable future.

“When it comes to development, we can either bury our heads in the sand and hope Texas doesn’t change, even though it always has, or we can take a pro-active approach and try to guide the inevitable development in a positive direction,” said Terry Anderson, founder and principal in both CEP and CEM. “We want to use the power of economic forces to restore and conserve land—and this appears to be an iconic moment to get some things done.”

CEP/CEM are two complementary business enterprises. Founded in 2018, CEP merges traditional natural resource management and ecological services to create integrated conservation strategies for CEM and other partners. Anderson, a pioneer in mitigation projects, Greg Simons, founder of Wildlife Systems Inc., and Tamara Wood, an applied ecologist, are principals of CEP.

CEM is a private equity firm focused on environmental sustainability and conservation. Led by Co-Founder and CEO J. Kyle Bass and Co-Founder and Principal Terry Anderson, together with 13 team members and strategic partners, CEM invests in mitigation, forestlands, rangelands, and alternative energy infrastructure strategies.

“The intertwined financial and technical capabilities represented by this team are unique within the conservation market,” Anderson said.

To explain the CEP/CEM approach, Anderson used the analogy of a fault zone, with one of the tectonic plates representing working land and the other occurring as urbanization and development. Some fault zones are obvious such as Houston’s northward expansion into the Pineywoods or the exploding population growth within the Lower Rio Grande Valley. Other fault zones are more subtle such as energy development in areas of the sprawling Trans- Pecos and Big Bend Country.

“The fault line, where the plates collide and merge, is where the opportunities are created,” Anderson said. “We look for points where nature and necessity collide.”

Then, according to Anderson, the CEP/CEM team identifies potential natural capital solutions to the issue.

“If a natural capital solution exists, the next step is determining whether we can acquire a suitable property and convert opportunity into reality,” Anderson said. “That’s where Republic Ranches comes in.”

CEP/CEM’s project portfolio is diverse, but generally falls into two categories: mitigation and natural capital. Conservation banks and wetland or stream mitigation banks are long-established regulatory offset markets created in response to the Endangered Species Act and the Clean Water Act respectively.

Natural capital projects are broad scale, far-reaching projects where the team identifies the land’s valuable natural assets such as water and biodiversity along with traditional assets such as timber and recreation. They, then, work to enhance the property’s value by enhancing the land’s ecological productivity. Ultimately, they hope this additional productivity will be rewarded not only by appreciation in the traditional market but in the emerging ecosystem service markets.

The goals of projects vary, but the land undergirding each one must meet a unique, specific set of parameters that varies with the project. CEP/CEM identify the necessary characteristics at the onset of a property search. The niche is actually quite narrow.

Wood explained, “One single, great attribute doesn’t make a project; a viable opportunity only occurs when all the required elements come together.”

Currently, CEP/CEM primarily work in Texas, Oklahoma, Louisiana and Arkansas.

“The bottleneck in ecosystem services work is locating the appropriate property in an efficient manner. It’s like looking for a needle in a haystack,” Anderson said. “Republic invests the time and effort to find the needle—every time.”

Republic has assisted CEP in acquiring a significant number of properties, the most recent five of which are part of the current CEM portfolio. These properties range from the 7,250± acre Redtown Ranch in Anderson and Houston counties to the 19,981± acre Monarch West Ranch in Val Verde County. CEM is continuing to acquire properties and in the future when divestiture becomes a part of the plan, the Republic team will transition its efforts to marketing those assets.

“Early on, Republic Ranches set itself apart with its broad geographic reach and our focus on putting clients’ needs first,” said Charles Davidson, San Antonio-based partner/broker associate with Republic Ranches. “We’re ideally structured to work with clients like CEP/CEM whose needs change daily—and enjoy the challenge of delivering what they need when they need it.”

A Tale of Two Companies

Republic Ranches was founded in 2011. The partners Jeff Boswell, Charles Davidson, MarkMatthews, Bryan Pickens and John Wallace recognized ranch real estate was poised to become a specialized field of real estate akin to commercial or residential.

They envisioned a company that covered the state with a network of associates who not only knew the market and the players in their ecoregions but had extensive statewide networks along with expertise in land-related fields such as wildlife biology, geology, real estate law, range management, hydrology, outfitting, equestrian pursuits, conservation and more.

Over the past 11 years, the firm has grown to include more than 40 associates. In addition to Texas, the firm is licensed in Oklahoma, Arkansas, Colorado, New Mexico, Louisiana, and Alabama. Through an alliance with Fay Ranches, they also have a strong connection in the northern Rockies and other states.

A hallmark of the firm’s approach is teamwork. At any point during any transaction, team members may be called onto to lend their expertise.

“Because of the size and diversity of our team, we do a lot of intermediary work,” Davidson said.“At the same time, we love working with other brokers and strive to maintain a high-level of respect and cooperation. In this industry, we all need one another.”

The formula works. During that time, the team has conducted more than 1,000 transactions totaling more than $3 billion in volume. They sold more than 730,000 acres.

“Traditionally, Republic has been a leader in every facet of what we do,” Pickens said. “We’ve always prided ourselves on learning what we can and doing what we can to be on the front edge of the market, so it’s just natural for us to be part of this forward-thinking movement.”

The working relationship between CEP/CEM and Republic Ranches began with personal relationships. Anderson and Davidson became friends and colleagues through a shared commitment to the Texas Wildlife Association. Boswell and Pickens met Bass as they were marketing the Barefoot Ranch for Bass and his partners. The relationship between Pickens and Bass grew from there.

For several years, Anderson and Davidson looked at properties and discussed concepts that would eventfully form the framework of CEP/CEM. Pickens and Bass were doing the same thing. When the time was right to form the conservation investment company, the synergy and trust that characterizes the current working relationship between Republic and CEP/CEM was already in place.

“Republic Ranches committed to working on our concept, well before any capital was raised, with no promise of getting paid,” said Anderson, noting that Davidson first showed him the Monarch Ranch in 2018. “Their key people understand rural land and its challenges because they live it just like we do. And to all of us, this is more than just a job.”

Republic Ranches prides itself on attention to detail and responsiveness. According to Anderson, it’s not a slogan, but part of the company culture.

“At this stage in the relationship, Republic still goes to bat on every project, with the same level of commitment and attention to detail as they did on the first project,” Anderson said. “It doesn’t matter whether it’s a large deal or a small one, they bring their best to bear on every transaction.”

As the companies have worked together, each has learned more about the other. They respect the depth of each other’s bench and move in close concert.

“We know when to give them space and when to move in to help,” Davidson said. “Regardless of what role we’re playing in an individual transaction, we keep our fingers on the pulse of the deal and keep it moving forward.”

The CEP team often calls searching for property not only for itself but for its consulting clients. Frequently, Republic’s team has plumbed its network to locate off-market properties to meet CEP/CEM’s needs.

“When we go into meetings, the RepublicRanches team doesn’t ever try to sell us what is in their inventory,” Anderson said. “Instead, they try to understand exactly what we need in the short term and in the next five years—and then go find it. They strive to be long-term partners.”

A Tale of One Ranch

The Monarch West Ranch, located in Val Verde County, was one of the ranches that Davidson showed Anderson before CEP/CEM existed. The 19,981± acre property, under a conservation easement held by The Nature Conservancy, was acquired in April 2022.

“A common misconception is that when a conservation easement is placed on a property, the hard work is over, but that is one-dimensional thinking,” Anderson said. “The process of enacting an easement seldom includes the creation of perpetual financial endowments for long-term management, particularly in the voluntary easement markets. There are many easements around the state that are incurringecological and infrastructure degradation because of a lack of financial resources." Wood added, “Preservation isn’t synonymous with conservation. Protection establishes the foundation for future work, the active conservation.”

While Val Verde County is remote, it has a major “fault line” in the form of the Devils River. Although the river maintains only 40 miles of perennial stream flow, it, as a key tributary of the Rio Grande River, contributes 16 percent of the water to the Lower Rio Grande Valley. It is Texas’ last wild river, making it a focal point for recreationalists and environmentalists. Energy development, oil and gas as well as wind and solar, is creating pressure through the region. The Monarch West contains three miles of Devils River and its attendant riparian areas.

Within the ranch's fencelines, elements of the Chihuahuan Desert, Edwards Plateau and Tamaulipan Thornscrub along with deep river basin soils converge to create a canvas of ecological diversity. Native wildlife including white-tailed deer, Rio Grande turkeys, scaled quail, northern bobwhite quail, mountain lions and a diversity of songbird and grassland bird species are part of the landscape. As the name implies the ranch falls within the migration path of the beloved Monarch butterflies, currently considered a candidate species by the US Fish and Wildlife Service.

In addition, the Monarch West contains desert grasslands that are ripe for restoration. The Devils River corridor is home to the state’s largest population of endangered Texas snowbells. Scientists have identified at least 17 other plant species of concern on the ranch along with 13 endemic plant species that do not occur anywhere in the world outside of Texas.

Fern Cave, purportedly the largest cave by volume in Texas, is located on the ranch and houses a massive colony of Long-eared and Mexican Freetail Bats. The bats are crucial to agriculture and, like most bat species, are suffering population decline.

The steep canyon walls are pocked with caves that for millennia sheltered indigenous peoples. The semi-arid climate preserved rare wooden artifacts, woven sandals and plant refuse. The landscape is dotted with middens and other important archeological and anthropological sites that have yet to be documented. Remnants of Fort Hudson and Fort Hudson Cemetery as well as the early ranching community provide another level of cultural and historical significance.

Although the markets are emerging and immature, biodiversity and critical habitat fall into the asset column of the ecosystem services ledger sheet. The deep history and culture as well as open space for conservation education provide additional value. Traditional value canbe accrued through infrastructure repair, brushmanagement, native plant restoration, and recreation as well as appreciation. Ideally, all of these income streams can be integrated to maximize the impact.

While the CEP/CEM team will not hold the property forever, theirs is not a short game. “Weare temporary stewards who are working to create a scenario of sustainability by identifying and capturing previously untapped revenue streams,” Anderson said. “When we transition this property to the next owner, we want to be able to provide land that is in optimum conditions supported by revenue streams, so that the new landowner is incentivized to continue the conservation practices.”

Because CEP/CEM are pioneers in this new market space, a lot remains to be seen. While no one can predict the outcome, many are watching and agree this new approach could be game-changing.

“CEP/CEM is finding ways to unlock previously unrecognized value in land,” Boswell said. “If they are successful, this has ramifications for landowners all over Texas—and beyond.”