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May 2014 Issue of Wines & Vines

Northwest Vineyard Deals Reflect Rebound

by Peter Mitham

PASCO, WASH.—The unprecedented wave of investment in Northwest vineyards and wineries in the past 18 months has been greeted by many as a vote of confidence in the region’s wine industry.

2014 Northwest Deals

Washington state emerged as the leader in the latest round of transactions, with British Columbia’s Aquilini Investment Group adding 694 acres in the Horse Heaven Hills AVA to its holdings on the heels of 670 acres it acquired on Red Mountain from the Kennewick Irrigation District in November. Days later, Allan Bros. of Naches, Wash., paid an undisclosed sum to acquire Sagemoor Vineyards, which farms 883 acres of vineyards and 420 acres of tree fruits.

“I think if the industry had been doing poorly they probably wouldn’t have been looking at it,” said Kent Waliser, general manager of Sagemoor, noting that Allan Bros. did its due diligence regarding the vineyard’s contracts, customers and overall business model. “They liked how that looked, and they believe there’s a strong future in the wine industry.”

Allan Bros.’ desire to grow wine grapes mirrors diversification by other tree fruit growers including Zirkle Fruit Co. and Wyckoff Farms Inc. Its own acreage will give Sagemoor room to expand, while Sagemoor’s orchard acreage will also benefit Allan Bros. “They have a land base with some land that’s not planted to anything, and we’re going to start the process of strategically looking at where that land is and what it could grow best,” Waliser said.

The deal also addressed a long-standing need to resolve succession issues within Sagemoor.

Originally established by Alec Bayless and Winslow Wright in 1968 as a limited partnership, Wright is now 95 years old and Bayless’ interest is held by his widow, who is in her late 80s. The death of either partner could have led to the breakup of the company, something the sale to Allan Bros. avoids while ensuring a return to the 70 partners with a stake in the company. “Maybe in retrospect it will look like it was a great time to sell, but they weren’t trying to pick the market or pick the timing,” Waliser said.

Market rebounding from recession
However, the sale comes at a time when plenty of properties have come to market seeking buyers, five years after the recession halted deals for many of the same properties.

Aquilini’s purchase of 694 acres in the Horse Heaven Hills gave it the Aldercreek and Windy Ridge properties, which were originally offered to the market in November 2008. A lack of financing prevented any offers from going firm, but the properties were brought back to the market on account of the strong interest in the Kennewick Irrigation District’s offering in November. Aquilini, which emerged the winner then, succeeded with a bid of $6.9 million in the latest deal, which is set to close by May 9.

Similarly, Atlas Vineyard Management Inc.’s purchase of 683 acres at the Cooper Creek and Fern Creek properties concluded efforts to sell properties formerly held by the California Public Employees Retirement System (CalPERS) and Connecticut investment firm CommonFund, and managed by Premier Pacific Vineyards Inc.

“The entire CalPERS strategy was to buy, develop and sell,” explained Barry Belli, CEO of Atlas and former financial operations director for Premier Pacific. “It was originally supposed to be just a five-year hold, and it turned out to be a nine, 11-year (hold).”

CommonFund began partnering with Cal­PERS in 2007, but financial difficulties in 2009 forced its vineyard ventures into receivership. An opportunity to sell came in 2012, when buyers returned to real estate markets and property values rebounded.

The valuation of CalPERS’ portfolio of vineyards tells the story: The aggregate market value of the properties rose to $171 million in June 2008 before bottoming out at $105.1 million in June 2010. Two years later, the aggregate market value of its holdings was $206 million.

Sales began, and many observers see no end to buyer appetite so long as properties are available and wine sales remain robust. “When you compare the land prices to Napa and Sonoma, there’s no comparison, and when you compare the quality, it’s comparable,” Belli said. “If you can get nice wines out of a lower cost property, then you should go for it.”

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