Lyme Timber Company LLC (Mitigation Banking)

Summary

Mitigation banks are an investment target at The Lyme Timber Company. The company purchases properties with the potential to offset adverse impacts to wetlands, streams, or endangered species habitats. Lyme Timber has them permitted as mitigation banks, and restores them to their original ecological function, enabling the sale of credits.

Background

Public and private developers are required by federal law in the U.S. to mitigate the impact of their projects to streams, wetlands and endangered species habitats. Under the terms of the Clean Water Act and the Endangered Species Act, all developers of real estate projects – including those that involve draining, filling, or damaging wetlands for highway construction; real estate development; energy infrastructure; channelling or rerouting streams; or adversely affecting endangered species habitats – must mitigate any unavoidable impacts by restoring similar ecosystems to those damaged.

Rather than undertake their own restoration efforts, developers are encouraged to buy mitigation credits from approved mitigation banks located in the same area, which have undertaken restoration projects to repair damaged streams and restore wetlands and endangered species habitats on a much larger scale. This has been the preferred solution since 2008, when the U.S. Army Corps of Engineers adopted a rule that mitigation banks should be the first choice for developers that need to mitigate the impact of their projects.

A mitigation bank is a degraded property that has been restored by the landowner to its original ecological function and then permanently protected. Once that has been achieved, owners of approved mitigation banks can sell credits to developers. Regulators determine when a mitigation bank has achieved certain predetermined ecological targets and then release credits to the mitigation bank owners, which are then sold on the open market.

Mitigation banks have been an investment strategy at The Lyme Timber Company since 2007 [1]. By investing in mitigation banks, Lyme Timber has restored and conserved streams, wetlands, and endangered species habitats throughout the U.S. The company purchases properties with the potential to offset wetland, stream, or endangered species impacts, has them permitted as mitigation banks, and restores them to their original ecological function, enabling the sale of credits.

Recent Investments

Since 2007, Lyme Timber has made 22 mitigation investments across its total portfolio. The Lyme Conservation Opportunities Fund, which Lyme Timber launched in 2019 with capital commitments of USD 50.4 million, has made twelve mitigation investments and exited two [2].

Some recent investments include Reedy Creek and Hammock Lake wetland mitigation banks in central Florida, which have already been permitted and conserved and are generating credits.

The Lyme Conservation Opportunities Fund has also invested in a number of degraded properties which have yet to be conserved, where Lyme Timber will restore their ecological function and establish them as permitted stream and/or wetland mitigation banks in order to sell future credits. These include the Mustang Creek stream mitigation bank outside of Fort Worth, Texas, which it purchased in 2020. The Mustang Creek mitigation bank will serve the rapidly developing Dallas‐Fort Worth metro area.

David Hoffer, President, Lyme Timber Company

David Hoffer, President and Managing Director of Lyme Timber, says that mitigation banks do not account for a large portion of the company’s invested capital because Lyme Timber deliberately focuses on modestly-sized mitigation opportunities. “We’re very selective about the investments that we make and we are gun-shy about making large mitigation investments,” he says. “With large investments, we think it’s difficult to generate an acceptable return over the period of time that investors are willing to invest their capital.”

Hoffer says that mitigation banks in the U.S. is still growing, but that it’s already a maturing market. He points out that the Clean Water Act has been in place since the 1970s and that it has been over 15 years since the US Army Corps of Engineers determined that mitigation banks should be the first choice for developers that need to mitigate adverse impacts in the U.S. The mitigation bank market has been around for several decades and Hoffer notes that it has begun to stabilise.

Updated as of October 2024

Sources:

1. The Lyme Timber Company (2024) About us
2. The Lyme Timber Company (2023) Impact Report
3. Interview with David Hoffer, President and Managing Director of Lyme Timber