A Field Guide to Conservation Finance

Partners

Introduction: A Field Guide

The land conservation movement is rooted in a love of the land. This deep attachment gives it passion. Its qualities of self-reliance and creativity make it nimble. Its strong connection to community and people gives it the power to succeed.

Conservation finance is the best place where people, land, and money meet. It is populated with individuals who are passionate about land and are contributing special skills and great new ideas to its protection. Most are people of conservation organizations responding with ingenuity to the pressure to stretch limited funds for greater outcomes. However, new diversity is entering the conservation finance scene. Some of these new participants work behind cash registers at local retail enterprises. Others are realtors and developers. Some are commercial and investment bankers who may look a little out of place in their gray suits with Wall Street Journals tucked under their arms.

Like many of us, they started out leading two lives: the one a life of loving land, going back to making childhood visits to the grandparents’ farm or the New Jersey shore or taking annual hunting and fishing trips; the other, a life of work. Somewhere along the way, they discovered that their work could save land, and they blended the two. They honed their skills on behalf of conservation, and the sparks of creativity and innovation started to fly.

Mostly, these are the people of finance who wandered into the world of conservation. They had friends who were involved, and they ended up on land trust boards. They went on to contribute meaningfully and to enrich their own lives. They were hooked.

I understand how natural this blend of financier and ardent conservationist can be because I grew up in New York City with an investment banker father who loved the land: Central Park, the beaches of the Atlantic Coast, and Wyoming. A walk through the meadows and around the sparkling water of the reservoirs of Central Park reveals the diversity of people who are drawn to open land. I came to expect secret passions for land from most everyone, even urban capitalists. That view is continually reenforced. After college, my colleagues and I made hundreds of cold calls throughout the country in search of support for new national parks in distant Alaska. Enthusiasm was everywhere. The same proved true in twenty-five years of fundraising in Wyoming. Those red state conservatives connect with the land daily and deeply and quietly love it. They will do just about anything, short of calling themselves environmentalists, to keep those special places—whether wild or covered with cattle—open. I have come to expect the strength of that connection.

Hope for conservation lies in the world of finance, where people understand the art and the science of raising, borrowing, investing, and managing funds. The people in finance use a different lexicon. They talk about such things as equity investments and credit. They are in a successful parallel universe to ours—the for-profit world. They understand the for-profit market that invests abundantly in land, but not for conservation purposes. Our system, fueled almost entirely by philanthropy, simply cannot keep pace.

If we want sustainable conservation outcomes, we must engage this other universe and integrate it into ours. Without what they know, we will never get ahead of the bulldozers. This other universe has been managing money for hundreds of years. It is where attractive deals are constructed, where money is raised from lenders and investors, where multiple moving parts are managed, and a return on investment is generated. Conservation deals need this same expertise. Our unique challenge is ensuring that conservation is an essential part of the return.

How do we put these people and the money they control to work for conservation? We start by understanding their language and culture. This is not as hard as we might think. We know the value of understanding the many cultures of landowners. We already know that a working knowledge of, say, the cattle business helps us to work with ranchers. The same is true with bankers.

Once we speak the language, we can meet on their terms and in their comfort zones. This should not be hard either. We do our best work sipping coffee in farmhouse kitchens. So now step out just a little farther. Venture into those gaping bank lobbies, Wall Street high-rises, chamber of commerce meetings, and real estate association luncheons. Don’t wait for them to find us.

Then make that connection to land. I was always in awe of how Mardie Murie, noted conservationist and advocate for protecting Alaskan lands, could connect her audiences to the vast wildernesses of faraway Alaska. She personalized wilderness and celebrated its human element. People responded.

Stepping into a banker’s office, the last thing we are likely to think about is our mutual appreciation of land. We are more likely to bring up the weather or launch right into our pitch. But what if our banker grew up on a ranch? Or had a vegetable garden as a child and longs for one in the city? Or has a little weekend place in the woods of Connecticut? Now that is a foundation to build on.

Two generations from now in this urbanizing world, we might not have the luxury of this connection. For now though, the human attachment to land goes far beyond hiking or fishing. It follows us into boardrooms and corporate headquarters.

I have met bankers, lawyers, accountants, and financiers from around the country who jumped at the chance to blend their careers with their deep passion for land. Conservation finance gives them that chance. It is a portal through which that parallel universe of finance can support the natural one.

A Guide to Private Money for Conservation

Conservation finance involves raising and managing money to pay for conservation. As in for-profit markets, the money we need is capital for equity (ownership) and debt (loans) from the private sector.

Money is the common currency of our culture. We cannot conserve land without paying for it at some point and in some way. The money is all around us. Our challenge is to access it.

Traditionally, we have used private, philanthropic capital and public, governmental funds in the form of tax incentives, bond measures, and other agency appropriations and loans. We have had great projects and the generous individuals and institutions needed to pay for many of them. Traditional fundraising from private institutional and individual donors fundamentally enabled us to move quickly and to find money to protect critical land before the trees are cut, the soil is turned, and the asphalt rolled. Even projects funded by the increasingly popular public bond measures usually used privately fundraised dollars to cover the requisite private matches, down payments, loans, stewardship endowments, and administrative costs. Most other publicly funded acquisitions have similar private fundraising requirements.

From traditional fundraising, creative conservationists have moved into leveraging their fundraised dollars in numerous ways. They attract partners to share the financial burden. They match it with money from less traditional sources, such as business. They understand the value of responsibly borrowing money for greater flexibility. As they take on bigger and more complicated projects, they recognize that these fundraising and financing skills become invaluable, making it possible to align multiple moving parts and synchronize capital to close the deal. These conservationists are figuring out how to attract more and different private money to conservation and how to use the money we have more effectively. Some of these trailblazers contributed to James Levitt’s book From Walden to Wall Street.¹ The Nature Conservancy has been particularly innovative in this way, as described in Bill Ginn’s book Investing in Nature.² However, conservation still lacks what Pat Coady, an investment banker and writer on this subject, calls a system of finance.³ This is an integrated market that invests in conservation finance.

Such a market is not easy to create. It has impediments that are less troublesome to the for-profit world. First and foremost is the core problem that conservation land does not easily produce a large financial return, nor does it produce a stream of income to carry debt while still conserving its natural resources. In addition, organizations working with charitable dollars must, to a great degree, be more averse to risk. Sustainably scaled conservation can also require prohibitively large sums of money. Our own still-fragmented system for capitalization, to the extent that we have one, is not widely understood. Major gaps in experience and information exist between conservation organizations that know how to do deals and everyone else. Smaller land trusts are trying creative financing but need support, financial and otherwise. Staffs are eager to get into finance but have boards that are risk averse.

The more creative among us have shown that by engaging for-profit professionals and markets, financing conservation can become more effective and efficient. The conservationists I interviewed for this book, whether new to land conservation or more seasoned, understand this. They leap over cultural borders into that parallel universe to entice the for-profit world into conservation; these leaders have listened and learned from these communities. They are members of the Rotary Clubs and serve on the boards of the community foundations and banks. They recognize that a community must value something before it will pay for it, because, as historian Bill Cronon tells us, "the protection of nature is a cultural project, not just a biological one. Whether we protect deep wilderness or an inner city community garden, from a human cultural point of view we are protecting a human symbol of nature."⁴

Successful, local conservation finance is based on understanding these cultural landscapes: city, suburban, working or wilderness, business, religious, youthful or old. Because every person relates to the land differently, the challenge is not finding the money but finding out how to make the connections with the people who control it. Thus, conservation finance makes for odd bedfellows: real estate brokers and conservation program directors, bankers and biologists, ranchers and foundation lenders. But when our common language speaks, it speaks loudly, and conservation interests are served.

A Guide to This Book

This volume is a tool kit of the most basic techniques of conservation finance, or finding and managing funds (in this case, nongovernmental funds) for the conservation of land and water. The book describes the tools to try first, though none of them are simple. It integrates the fundamental components of conservation finance, including honing fundraising skills and systems, which is guaranteed to raise more money. It also offers a sampling of other approaches, including voluntary surcharges, transfer fee programs, and partnerships.

This book gets a conservationist started with the simple but still revenue-rich programs. It does not explore the newest and most sophisticated means of conserving land through new tax incentive programs or REITs (real estate investment trusts) or timber or ecological service payments. I plan to follow this edition with a second volume that will dive more deeply into the tool kit and describe more complex tools.

My hope is that this book will do two things. First, it should help fill knowledge gaps about the conservation finance techniques that many conservationists, but not enough, already use. Second, it should create a new vehicle for communication by bringing financing to life through stories from the people who are using it. Stories of success should give comfort to the unconvinced that conservation finance offers opportunity and greater leverage.

This book covers financing in the general sense (i.e., raising and managing money from different sources to pay for a project) and in the narrow sense (i.e., assuming debt to do the same). A land trust may be in the middle of a transaction as a buyer (or a seller), or it may facilitate the transaction by finding someone else to buy the land and conserve it. A landowner may be looking for a way to sell certain rights to the land to pay estate taxes or generate income while keeping ownership.

To understand how to make those tools useful and be cautious about their pitfalls, it helps to hear firsthand the experiences of others using them. This book is filled with lessons from people working on new strategies—often for the first time—who know how scary it is to take out that first loan but who also know the sweet joy of success. However, hearing from the experts all the time can be intimidating. When I looked for people using these private financing techniques, I went to the small and medium-sized land trusts on the theory that if the little guys can do it, then everyone can.

Some of these tools are best suited to fund operations (e.g., annual giving) or stewardship (e.g., transfer fees) or acquisitions (e.g., capital campaign). But for most land trusts, a mix of sources will create stability and opportunity. I hope and fully expect that public funding will remain a critical component of that mix as well.

Financing takes a land trust beyond the reactive, emergency-driven approach to conservation (easy to say!) to become strategic and proactive. This book will lead you down that road. It describes techniques that support a stable, functioning land conservation operation that enables a land trust to step responsibly into the more proactive realm of acquisition. I offer tips and tools on how to get organizationally, financially, and programmatically ready (part 1, chapters 1 to 3).

Financing, whether borrowing money or raising it, can also involve serious legal and ethical questions. Though no more important than they have always been, legal and ethical considerations will likely play a more prominent role in the future. I review those considerations here (part 1, chapter 4).

I assume that most land trusts or landowners do not have on hand all the money they need, so we will consider how to raise the money (part 2); look at the benefits, pitfalls, and techniques of borrowing money (part 3); and then explore ways to reduce the overall cost of acquisition so the financial burden is less (part 4). Finally, I consider backup strategies in case everything does not go as planned, discuss how to package different techniques and offer a look to future opportunities to improve on the system we have now (Conclusion).

Throughout the book, you will encounter innumerable references to the Land Trust Alliance (LTA) and its Land Trust Standards and Practices. The Land Trust Alliance is the national convener, strategist, and representative of more than 1,500 land trusts across the United States.⁵ Land Trust Standards and Practices is a set of guidelines, with accompanying templates for policies, forms, and checklists, recommended by LTA. These guidelines should be central to the operations for any land trust. They also form the basis of land trust accreditation. ⁶ LTA provides indispensable tools to start a land trust and to strengthen it so that it is in a position to use finance effectively.

The novice conservationist may feel a little overwhelmed. However, know that conservation finance is rewarding right from the start and is in no way reserved for organizations with a lot of money. I talked to many small land trusts that had successfully completed their first capital campaign, set up surcharge programs, and used external revolving loan funds.

This is the book I wish I had when I entered the conservation business. It combines many personal stories of the successes and pitfalls of managing money for conservation with the hard facts of the business. I have not shied away from laying out my own errors along the way; they are as instructive as the stories of success.

My hope is that the collective value of this information will become another point along the immense learning curve of conservation finance. As we expand our knowledge and dialogue, and involve more good minds in conservation, we will eventually put the power of the universe of finance squarely to work for conservation.

Part 1

Positioning Your Organization

Chapter 1

Organizational Readiness

Ready or Not: The Hardeman Meadows

It was a must buy ranch. Three quarters of a mile of highway corridor defining the edge of one town and the gateway to another, and half a mile deep, dotted with grazing cattle. The pasture and elegant barn preserved the area’s rural character. The ranch offered a tranquil foreground to the dramatic backdrop of the mountains. A beloved, local agricultural family owned it, but they were forced to sell due to family reasons. The father was a popular local auctioneer. The children were star ropers and basketball players. They were kind community people pushed to make a tough decision.

The family had approached the local land trust a year earlier. At the time, this young land trust was accepting donated easements and was not in a position to purchase expensive land. Because of the perceived risk, the land trust responded with a modest offer to purchase the ranch. In this conservative community, the land trust had been working quietly with landowners at their kitchen tables, soliciting conservation easement gifts. It was not interested in controversy or high-profile issues, fearing that they would jeopardize these essential relationships. While the land trust very much wanted to protect the ranch, it could not imagine risking money it didn’t have.

The family turned to a developer who planned to blanket the pastures with townhouses. Once the negotiations were public, the community reacted; everyone was in an uproar. Newspaper headlines tracked the developer’s every move and the public’s angry responses. Eyes turned toward the land trust to find a solution.

The land trust could hide no more. Saving or losing the ranch was quickly becoming its defining moment. Although the community was activated to help the land trust succeed, it was an untested volunteer force—affluent but untapped to do more than support the land trust’s $70,000 annual budget. The land trust’s two-and-a-half-person staff was eager to take on the project, but its board of ranchers and donors was understandably hesitant. A crucial factor, though, was the land trust’s board chair, who had run a major corporation.

Figure 1.1 The Hardeman Ranch epitomizes the agricultural heritage of Jackson Hole, Wyoming. Once threatened by development, the southern part of the ranch became the Jackson Hole Land Trust’s first major conservation purchase. (Jackson Hole News & Guide)

In the eleventh hour, the land trust bit the bullet and risked its entire savings ($100,000) to buy a nonrefundable option. Then it set out to raise almost $2 million dollars in three months to buy the property. Before it signed the option, the land trust considered where it would find the money. It talked to a few donors. But in all honesty, it had little idea how it was going to pay for the land and had no commitments from donors for funds. The whole project was dangerous. It placed the fledgling land trust’s existence at risk and threatened to dash the hopes of many in this new land conservation movement.

Over the next three months, the land trust threw its first big community fundraiser outdoors in a park in Wilson, Wyoming. It snowed the night before and into the morning. The county committed $500,000 to the project, only to withdraw its commitment when sued for authorizing the expenditure. Never having worked with a bank before, the land trust hastily arranged for a loan to cover the county’s share. After the three months, with the county lawsuit still pending, the land trust had not raised all the money needed. It exercised its option anyway and squeezed out the last $100,000 in the final days. Less than six hours before closing, it completed a complex resale agreement with a conservation buyer for part of the ranch and a ten-year lease with another local nonprofit for the barn.

So why so much struggle and all the surprises? The land trust was not ready. When a land trust faces its first big acquisition, it can let the situation get desperate and risk everything—stressing its board and panicking its donors—or it can get ready in advance. Pushed by seemingly uncontrollable circumstances, many land trusts take the panic route. The impending threat of development has catalyzed the creation of many land trusts. Those that survive grow from the experience. But it is an unnecessarily difficult and perilous way to grow. Some readers may choose to skip this first section of the book because they are too busy saving land to get ready. But they will be back if they survive that first big deal, because no one wants to do it that way again.

How do I know? Because the Campaign to Save the Hardeman Meadows, described above, was my first exposure to big money and time-pressured purchases by my small land trust. I wanted to do this deal more than anyone, but I had no idea what I was getting into. When the heat was on, a group of us had cornered our board chair, and against his better judgment, he agreed to recommend the project to our board. That decision cost him and others four months of sleepless nights, for only one reason: we were not ready. We had cultivated landowner contacts, but we hadn’t cultivated other key community members, donors, and leaders who would have stood ready to help us in important ways.

Hard work by many, the business acumen of our chair, and lots of luck got us through. We made the contacts, but in a big rush. The project defined us and made us a stronger, more active land trust. It built up our donor base, and it makes me proud every time I pass by the beautiful Hardeman Ranch. But we could have gone under. There are easier and safer ways to mature.

I have done it both ways—the unprepared way and the prepared way—and I highly recommend the latter. Even when you are fully prepared, deals can be scary and unpredictable, so there is no reason to be unprepared as well. It is really not so difficult to begin getting ready now for that crucial moment when that most important place is threatened and the land trust must step in.

What does it mean to be prepared? It means being organizationally and financially ready and having the right project. I have made plenty of mistakes in all these categories. For the Hardeman Meadows project, our land trust didn’t have an optimal board for purchasing land; we didn’t have a large established donor base or prospects ready to write checks. We had not done a thorough feasibility study and didn’t have a clear idea of our sources of funding or a plan for the land. These are organizational and financial issues. Fortunately, the ranch gave us a good place to start because it was an important conservation project and so many people wanted to save it.

Since then, again through trial and error, I have learned many strategies that will help any land trust move into the land or conservation easement purchase business. What follows in this section is not an exhaustive list of the dos and don’ts but a brief primer on organizational, financial, and project-related strategies that should make acquisitions easier.

Organizational Readiness

Some of the basic principles of getting ready to buy conservation interests (land or conservation easements) are the same as those relevant to preparing a fundraising campaign.¹ You cannot jump into a fundraising campaign without preparatory work. Land or easement purchase is no different. Just as any company will reorganize with structural and even personnel changes if it moves into a new business, a land trust must do the same. An organizational assessment is a good way to sort out internal needs, prioritize them, and develop timelines for change.² An assessment does not have to be an elaborate process. It can be gratifying to assess a land trust’s strengths—there are always many. But for this new line of work, some degree of organizational change is usually needed. It should begin at the top with the board of directors and move through every aspect of the organization.

Board of Directors

The board of directors is the most crucial element of a successful organization. It should be the policy- and direction-setting body of any conservation organization. It has the fiduciary responsibility for the organization—a serious role. Most important, the board offers leadership. A land trust can have all the best plans and best staff, but without board leadership, nothing will change. When a land trust is small, the board should also supply valuable manpower. The board of directors is the perfect place for a land trust to get the skills, experience, and wisdom it needs but for which it can’t afford to pay. A founding board should be passionate and generous with time and money. As the organization evolves, especially if it becomes staffed, the board must develop a bigger view with larger goals. It can then take on substantial fundraising roles and oversee management. But leadership always remains a key element to success.³

Figure 1.2 Alan Hirschfield at the closing for the Hardeman Meadows. (Courtesy of Jackson Hole Land Trust)

Building and maintaining a strong board is not a matter of luck. It takes careful consideration of what skills and expertise the organization needs and who will make its mission a high priority and be compatible for working intensely together. Small organizations rarely take a critical look at their boards. Often, they are so appreciative of anyone willing to serve that they don’t think about the overall composition. An effective board will attract other talented people more easily. People like to be part of an effective, well-functioning operation. An ideal board is composed of people who are committed to the organization and offer a variety of skills. The traditional three W’s for nonprofit board composition—wealth, wisdom, and work—still hold true. Don’t forget that leadership ability, often overlooked as an essential board skill, is part of that wisdom.

Nonprofit board size varies. I serve on the board of one large, sophisticated conservation organization with thirty-four members and on another board with eight members. All boards must have an effective decision-making structure. For a large board, an active executive committee is essential. A small board may put less emphasis on an executive committee. A big board takes more management but brings more skills in-house. Without good management, members of a large board can lose interest. A small board can be more nimble.

As part of an organizational assessment, a board and staff (if there is staff) should ask what skill sets are currently on the board and what skills are needed for the new course charted for the organization. Professionals with skills that may benefit a land trust include bankers, landscape architects, surveyors, engineers, title company personnel, and real estate lawyers (who do not represent the land trust while serving on the board), appraisers, and investors.

What about real estate agents or brokers and developers? There are pros and cons to adding them to a land trust board. The obvious benefits are their working knowledge of land transactions and pricing, their negotiating skills, and their purchase and sale expertise. On the negative side is the potential for conflict of interest, or at least the appearance of a conflict of interest. Real estate agents and developers who work with the same type of real estate as the land trust in the same service area may, or maybe perceived to, gain a professional advantage from connections with buyers and sellers involved with the land trust. The image of developers—and, to a lesser degree, realtors—work—ing in conflict with conservation can also taint a land trust’s image.

In a cutthroat real estate environment, the choice of one realtor or developer over another can hurt a land trust’s reputation among the rest of the real estate community. On the other hand, the wealth of information that comes with the right person can be worth the trouble. If, after weighing the pros and cons, a board decides to invite a realtor or developer to join, then extra care is needed to avoid these ethical and public relations issues. (In the Hardeman Meadows project, the fact that a successful realtor was on our board, and in the spotlight for being there, while also serving on the county commission led to the lawsuit against the county and the subsequent withdrawal of the county’s $500,000 share from the project.)

Not all of the necessary land acquisition experts will fit on the board or are right for it. The board should have a comfortable balance of landowners, donors, citizens, scientists, and land-related professionals. Nonetheless, people with all of the skills essential to acquisition should be encouraged to join the land trust team, whether on the board or in some other capacity.

In addition to their own expertise, board members’ connections are invaluable. For instance, if a land trust is considering borrowing money (and many acquisition strategies require it), then board members should ask, Have I taken my local banker to lunch to talk to him [or her] about the land trust? When we needed a bank loan for the purchase of the Hardeman Meadows, I had no real contacts with bankers. Fortunately, our board chair had frequent dealings with the local bank. (For more information on bank loans, see chapter