Vineyard Sales Outpace Winery Deals
Growers planting more red varieties in southern Napa Valley, according to speakers at Vineyard Economics Seminar
Vineyard appraiser Tony Correia, owner of The Correia Co., moderated a panel discussion that covered grape values and yields, vineyard pricing and the vast changes that have occurred in vineyard buying and buyers during the past few years.
He was joined by Joe Ciatti, a principal of vineyard and winery broker Zepponi & Co. and himself a former grape broker; Mark Couchman, CEO of Silverado Investment Management Co., and portfolio manager Dana Sexton Vivier, who buys, manages and sells vineyards for GI Partners, owner of Duckhorn Vineyards.
The reason: “Both grapes and vineyard prices are responding to a scarcity of grapes,” Vivier noted. “Wineries are paying more for vineyards.”
In fact, wineries are buying up vineyards at a record pace to ensure their grape supplies. “Of the past 16 properties we’ve sold, 15 went to wineries,” Vivier said.
Silverado was one of few buyers that were actively scouting and purchasing vineyards during the recession. “They had the market to themselves three years ago,” Ciatti said. Now investment buyers like Silverado are largely shut out. “We can’t compete,” Couchman explained.
“It was hard to buy good properties three years ago. We didn’t have competition, but we didn’t know where we could sell the grapes or what price we could expect. With the increased demand, wow, we can push prices.” Couchman assured the audience, “We continue to buy and sell vineyards.”
He added, “Vineyard values have lagged grape prices. It has taken one or two years to catch up, but they have now.”
Ciatti noted that the present buyer pool—wineries—is willing to finance land to get grapes. “If a winery wants the grapes, they can pencil it out.”
Buying without contracts
Another big change in the market is that buyers no longer want contracts for the vineyards they buy. “In the past, you needed a contract for the grapes to sell your land. Now wineries want to buy vineyards with no contracts. They want the grapes themselves,” he said.
That’s not true for financial buyers like Silverado or GI. “As a buyer, from a financial perspective, long-term contracts are OK,” Vivier said.
Ciatti added, “If you’re developing a vineyard, get a contract first. If you plan to sell, stay away from contracts.”
In other vineyard issues, Ciatti noted a shift from white to red grapes in the cooler parts of the southern Napa Valley. “It costs the same to grow white or red grapes, but reds pay twice as much. Growers can grow good Cabernet in well-drained, rocky soils, even in the cooler south. Some buyers don’t care what vineyard or AVA the grapes come from as long as they say, ‘Napa’ and taste good.”
Couchman noted that the planning department in Napa is now asking where you’ll get the grapes if you want to build a winery there. “Two-thirds of the vineyards in Napa are owned by wineries,” he said, adding that there are plenty of lifestyle buyers who want to buy 10 or 20 acres for an estate and small vineyard, however.
He also said that big public companies are moving away from owning vineyards, as Diageo and Constellation have done, while big family wineries like E. & J. Gallo Winery and Jackson Family Wines are buying land, but mostly outside prime areas like Napa Valley. Gallo, for example, has bought big tracts in California’s Solano and Lake counties as well as Washington state, and Jackson in Oregon.
Finally, because of a shortage of production capacity, Couchman sees custom-crush wineries expanding. “Every custom winery is adding capacity. It’s easier to add 10% or 15% than build a new winery.”
Vivier also sees wineries moving bottling and case goods storage to less-valuable industrial space rather than further develop valuable vineyard land; Caymus is building a large plant in Solano County, for example.
Ciatti thinks some underutilized facilities in Napa will change hands as a result of demand. “Shortage of space can hurt grape prices, particularly toward the end of harvest.”
Couchman, anticipating a good harvest, warned, “If you’re in the wine business, start bottling!”