UP lumber mills go to bank auction months after sale to private equity firm

• All six properties of long-time lumber processing company based in the Upper Peninsula face a bank-ordered auction this week
• Besse Forest Products closed in August, months after selling to a Florida private equity firm
• The situation follows a drastic downturn in the US market for hardwoods, a $26 billion industry in Michigan

After a failed effort to keep a long-time lumber operation in Michigan's Upper Peninsula running by selling it to a Florida-based private equity firm, the fate of the company’s six properties could be determined this week at a bank auction. 

The move comes about three months after Besse Forest Products Group of Gladstone shut the company’s two Michigan mills, closed four more in eastern Wisconsin, laid off over 100 workers and ended Besse’s 58 years as one of the larger timber buyers in the UP. 

Besse does “not generate sufficient cash flow to pay … operating expenses,” according to the breach of contract lawsuit filed in September by Fifth Third Bank in the US District Court for the Western District of Michigan.

The bank seeks to recoup $15.8 million in unpaid loans. 

The situation facing Besse spotlights increasing concerns about Michigan’s $26 billion forest products industry as it struggles amid a downturn in hardwoods sales, a dip that also affects demand for state-owned timber.

Nationwide lumber prices peaked in 2021, before plummeting 66% by summer 2024.

“Over the last year and a half, a lot of hardwood has fallen in demand,” said Justin Knepper, executive director of Michigan Association of Timbermen. 

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Across the US, hardwood lumber production in 2023 dropped to its lowest levels since 1950, according to the National Hardwood Lumber Association, and it remains at historically low levels. 

The global housing slowdown affects the lumber market, with lower supplies needed for wood cabinets and flooring. Exports also have slowed, including to China, one of the leading destinations for US hardwood. 

Even the style of home products plays a role, like the popularity of composite furniture and vinyl plank flooring, Knepper said.

“All those things are crashing down on companies like Besse,” Knepper told Bridge. “We've seen a tremendous amount of that across the United States in the last two years.”

Besse changes

The Besse business had been struggling for months when CEO Greg Besse — son of the company founder — sold it on March 7 to Naples, Fla.-based Hoffmann Family of Companies. The company owns two Michigan newspapers, a Mackinaw City hotel and the two main ferries to Mackinac Island, Shepler’s and the Star Ferry.

Representatives from the Hoffman companies did not return calls from Bridge Michigan, and attempts to contact Greg Besse and other executives were not successful. 

The deal required “creative solutions,” Besse said in a news release from March, along with “unwavering tenacity.” 

At that point, according to a review of court records by Bridge Michigan, the company had not been able to show Fifth Third Bank that it had any earnings after expenses since January. 

Loggers also had been waiting as long as six months for payment, Henry Schienebeck, executive director of the Great Lakes Timber Professionals Association, told Bridge.

“Once you start getting over three weeks, something's kind of going haywire,” Schienebeck said.

Lawsuit documents filed by the bank show months of contract adjustments after Hoffmann acquired the business. Michigan locations were in Gladstone and Baraga, while Wisconsin sites were in Ladysmith, Rice Lake, Goodman and Mattoon.

Notices of default went out April 23 from Fifth Third Bank to Greg Besse, who remained as CEO after the March sale. The company then went into forbearance on May 17, when the bank allowed the company to stop making loan payments through July 17. 

Tim Turek, managing partner in the Illinois office of consulting firm Aurora Capital Partners, was hired to assess the business as it went into a second period of forbearance on July 19, with an August 2 deadline. 

On that deadline day, the company ceased operations and laid off workers. 

“The company has clearly represented to us that Besse was in dire financial circumstances,” North Central States Regional Council of Carpenters attorney Burt Johnson told Bridge. Johnson is representing Besse workers in Mattoon, Wisconsin, over their sudden layoff on Aug. 2.

Neither Turek, the court-appointed receiver since the closure, nor Fifth Third Bank representatives returned Bridge calls. 

The situation couldn’t be further from what Geoff Hoffmann, co-CEO of Hoffmann companies, said in a news release last spring as Besse appeared ready to join Ferche Millwork, the company’s other forest products business, based in Minnesota. 

The combined businesses would have had 2 million square feet of production space across all the facilities and a workforce of more than 1,400 people, according to the statement.

“With the acquisition of Besse Forest Products Group,” Hoffmann said,  “we’re not just expanding our footprint, but building on a legacy that spans generations.”

A tougher industry

Michigan owns 4 million acres of forest, said Chris Schmiege, forest specialist with the Michigan Department of Natural Resources, and the state sells timber from about 50,000 acres per year. Proceeds fund forestry operations, including sustainability efforts. 

Over 90,000 people work in the industry, from loggers to producers of finished cabinets, pallets or other wood products.

The state, as it seeks bids for logging in its forests, is now seeing offers go out with no interest from prospective buyers. That, Schmiege said, is an indicator of a downturn along the entire supply chain. 

“The markets for forest products have been pretty low,” Schmiege told Bridge.

The squeeze hitting the hardwood industry is visible in the price trends for lumber, or finished boards. The market peaked at $1,711 per 1,000 board feet in May 2021. A year later, the price was 41% less, at just over $1,000.

More recently, prices seem to be stabilizing between $500 and $550, according to industry data. 

“The forest products market historically goes up and down,” Schmiege of the DNR said. “This is a pretty long, sustained dip.”

However, Knepper of the Michigan Timbermen association, said there are bright spots in the state for various lumber products, including particle board.

“Not everybody is as negatively affected (as Besse),” he said. 

What’s next

As the six-sawmill auction approaches, the timber industry is watching to see if one company will be willing to add the turnkey capacity offered in the Besse property liquidation. Four of the sites are in Wisconsin, in addition to closed operations in Baraga and Gladstone.

Many are trying to spread the word, particularly to large investors.  

“We want to see their … mills get back online,” Knepper said.

In Gladstone, the Besse sell-off “came as a surprise to everybody,” said Steve Vieu, who represents Gladstone on the Delta County Board of Commissioners.

Vieu says the closure is a big deal for the city, and every small UP and rural Wisconsin community affected.

The company was among the largest private employers in Gladstone, Vieu estimated, and once employed several dozen workers. But by the time it closed that number likely had been cut in half.

Besse’s full financial picture isn’t detailed in the recent bank litigation, including how it performed before this year. 

However, tensions rose among the company’s unionized workers in 2022 as they tried to settle a new contract. Reports then indicated typical wages were $12-14 per hour, when the industry standard was $15 per hour. 

Some workers who lost their jobs during the August shutdown contacted Vieu, the commissioner said. 

“They're wondering what they can do,” he said. “They’ve been there for most of their lives and basically have to start over. And they weren’t making big bucks.”

Besse has been a respected company and its prominence survives in Gladstone and across Delta County, where the John and Melissa Besse Foundation — with assets of about $10 million — contributed toward ball fields in Gladstone, a medical office in Escanaba and a student center at Bay College, all bearing the Besse name.

Community support from the company, Vieu said, “has been nothing but positive.”

State records show that Greg Besse resigned as resident agent of the company on Oct. 2.

Turek, the receiver, has until Nov. 30 to provide the court with a full inventory of Besse assets, U.S. District Judge Hala Y. Jarbou ruled on Oct. 21.

If the auction doesn’t yield a group buyer, court documents say the next auction can be for individual properties.