The Pacific Northwest has become a hotbed of wine property sales as vineyard acreage in Washington has reached 45,000, and acreage in Oregon has reached 25,000. Average revenue per acre in both states is more than $5,000 per acre, yet property values have remained mostly lower than for California land with similar wine quality potential.

Several speakers at the 23rd Wine Industry Financial Symposium described the current economic levers affecting vineyard purchases, and Josh Grace, managing director of International Wine Associates, noted 13 significant vineyard deals in the Northwest since October 2010–dominated by California wineries as the buyers.

Size of the industry
With Oregon approaching 600 wineries and 25,000 planted acres that produce 3.3 million cases of wine annually, Grace noted that wine grape growers have to compete for space with farmers of blueberries, hazelnuts and hops for craft breweries, all of which are very popular.

Washington has 680 bonded and virtual wineries, according to Wines Vines Analytics, and Grace estimated there are 45,000 planted acres producing 13 million cases of wine per year. There, apples, cherries and hops are alternative lucrative crops. Washington has not quite twice as much acreage as Oregon but four times the output due to yields of 4 to 5 tons per acre compared to Oregon’s 2 to 2.5 tons per acre.

Grape production in Oregon and Washington is similar in size to several of California’s coastal counties. Sonoma has about 60,000 acres planted to wine grapes, while Monterey and Napa counties each report about 45,000 acres.

The number of planted acres in Oregon grew by 25% between 2011 and 2012, according to survey results from Southern Oregon University, and Grace speculated that the rapid growth would continue in the near future. The yield disparity between Oregon and Washington vineyards is generally offset by the increased value per ton of Oregon grapes, of which 80% are Pinot Noir. Washington averages $1,110 per ton for a revenue per acre of $5,550, compared to Oregon’s average of $2,500 per ton and $5,625 per acre.

Even though Oregon commands high prices, buying vineyard property there is a very attractive option compared to buying in noted California Pinot Noir regions such as the Russian River and Anderson Valley AVAs. Washington has had a wider range of vineyard prices from low to high compared to Oregon because of greater differences in growing conditions and more diverse planting of varieties.

Even at a high selling price of $75,000 to $80,000 per acre in top Oregon AVAs and Washington’s Walla Walla and Red Mountain AVAs, the states have a long way to go before commanding the prices paid for top California vineyards.

Grace said that Cabernet Sauvignon wines from Walla Walla average slightly higher in Wine Spectator ratings than those from Napa, and the Walla Walla bottles sell at about half the price.

Not surprisingly, producers from California and France are looking to Oregon because of the high quality vineyards, good water supply and attractive pricing relative to California and Burgundy for planted vineyards. Planted Oregon Pinot Noir vineyards are currently selling for half the price per acre of Russian River vineyards, for example.

While Washington has had comparatively fewer investments from outside the state thus far, it has seen a few large transactions.

The state has significant amounts of unplanted land with water at prices that are very attractive ($10,000-$15,000 per acre for bare land). Large vineyards can sell for $25,000-$30,000 per acre and produce wines of excellent quality in the $10-$14 retail category.

Duckhorn, Gallo, Cakebread Cellars and Crimson Wine Group are all making wine in Washington now, and according to Grace others will join them soon.

The symposium, designed to bring together lenders and decision-makers in the wine business, was held Sept. 22-23 at the Marriott Napa Valley.

John Mackie, the managing partner of law firm Carle, Mackie, Power & Ross, moderated a panel that included Grace, Matthew Franklin, principal at Zepponi & Co., and vineyard appraiser Tony Correia of the Correia Co.

California mergers and acquisitions
Franklin with Zepponi & Co. provided an overview of the situation in California. He began with a reminder of who’s buying vineyards and wineries now:

Strategic buyers are public and privately held companies already in the wine business looking to build their portfolio, expand geographically and leverage their existing infrastructure to make opportunistic buys. Financial buyers include private-equity firms and institutional investors seeking to generate adequate return, given the level of risk over a finite period, and lifestyle buyers such as wealthy individuals and foreign investors are seeking intangible lifestyle benefits, though financial returns are important.

Vineyard prices on the rise
Finally, appraiser Correia spoke about California vineyards and land. He first noted that the value of California wine grapes grew from about $200 million in 1973 to $3.25 billion in 2013, and with the growth, vineyards prices have followed.

In Napa County specifically, grape prices rose from $1,500 per ton in 1995 to $5,500 in 2013, Correia said, even as tonnage has almost doubled.

Cabernet Sauvignon has increasingly dominated Napa. Its harvest rose by 92% since 1995, even as Chardonnay dropped 22%.

One result is that even secondary vineyard land has increased in value from $50,000 per acre in 1995 to $100,000-$200,000 now, and the price for prime vineyard sites located in top mid-valley AVAs is approaching $300,000. “A few are pushing $450,000 (per acre),” Correia said. “That’s still a bargain compared to the best of Bordeaux and Burgundy, however!”

Even outlying land across the mountains from Napa Valley but still in Napa County can go for $50,000 per acre.

For his part, however, Correia said he fears some growers are planting Cabernet in unsuitable soil, which could compromise Napa’s reputation for quality. “We’ve never seen a serious decline in value in Napa, in prices of grapes or land, unlike the disasters that have occurred in other parts of the state,” he said.

Prices are lower in Sonoma County, but top Pinot Noir land near the coast can cost $125,000—up from $25,000 in 1995. “Pinot is driving the bus in Sonoma,” Correia said, adding that the same is also true in Monterey—especially in the Santa Lucia Highlands.

In Monterey County, where growers compete for space with vegetable farmers, land has risen from $10,000 to $40,000 per acre, while in San Luis Obispo and Santa Barbara counties, the prices have risen from about $12,000 per acre to more than $50,000 in some areas.

Lodi has stayed relatively stable (from $12,000 to $20,000 per acre), but in Fresno and Madera counties, demand for land to plant nut orchards has grown from less than $5,000 per acre to more than $25,000 if the land has water.

Correia concluded his talk with an emphasis on the importance of water. “There’s plenty of water in California, but politics can create problems.” With new regulations signed, he warned growers to deal with water issues now.