California Vineyard Buyers Reappear
Premium North Coast wine properties attracting more interest in new decade
Now that we have completed 10 years of the new millennium, it’s time to see how we have done through 2009. The last 10-year update that we published on our website was in 2000. In 2000, all vineyard values had increased considerably over the previous decade and the average price per vineyard acre in Napa County was $92,500 per acre. Sonoma County ended its 10-year run at $80,000 per vineyard acre. At that time, we made a projection that by the end of 2010, the per acre vineyard values would be $185,000 for Napa County and $160,000 for Sonoma County, which represented a conservative 100% appreciation for both counties.
What a ride it has been: From 2000 to 2009 there have been more ups and downs, ins and outs, easy money, difficult realities and many other gyrations than at any other time in recent history. The year 2000 entered with a boom, the dot-commers were at their height. By the end of 2000, the wheels started falling off the dot-com bandwagon.
In 2001 the attack on the World Trade Center was a direct hit on an already fragile economy. This coincided with an over-abundance of grapes, the result of new vineyards coming online. The combination of 9/11 and a grape glut softened vineyard values. Grape prices fell and fewer people were spending money; the U.S. embarked on a defensive stance and everything stopped dead in its tracks.
The market continued to offer opportunities for buyers and headaches for sellers as inventory backed up. The gigantic 2005 harvest was the bookend to this period.
Then a sexy little thing called “exotic” financing took off, and the residential real estate market began to skyrocket. From 2006 through the third quarter of 2008 another bubble was in full bloom. Wine sales broke all records in 2008, the first time in history California sold more than $1 billion worth of wine, and vineyard values were breaking records in both counties.
Doom and gloom
By the last quarter of 2008, we saw our country on the verge of financial collapse. The residential real estate market was in a freefall, the stock market tanked again and things slowed to a near stop. Enter the Great Recession, the largest recession since the Great Depression. Unemployment ramped up, and there were more foreclosures than since the 1930s.
As if in slow motion, 2009 crawled in: Progress slowed to a near stop, the Dow hit a low of 6,500 by March and vineyard property sales had been reduced to just 10% compared to the previous year. By the end of the year, less than a handful of vineyard properties had been sold in Napa and Sonoma counties. Most of these sales took place in the last quarter of the year, and prices were well below market value at the time.
It was also the first year since 1993 that California saw a decline in wine sales, breaking a 16-year streak of consecutive growth. At the same time, lower-priced U.S. wine sales increased by 2.1%. Higher- priced wines (over $20) were seeing a 20% to 30% drop in sales, while wines selling for under $15 were sailing off the shelves faster than they could be bottled, due to an increase in cheaper imports from around the world. Wines selling for around $6 increased in sales by 5%.
To add insult to injury, imports more than doubled to 13 million cases, capturing 32% of the U.S. market in the last three years. For instance, Argentina has more than 510,000 acres planted to winegrapes compared to 480,000 acres planted in California. With the combination of acreage and farming expenses less than half that of California, it is easy to see how some imports have made so much headway in the low-end wine market.
In late July to early August 2009, we started seeing real buyers calling to see properties again. The phones were ringing, other brokers were calling to show our properties and it started to feel like things were turning around. People are still very cautious, but they are willing to dip a toe in the pool.
As we start 2010, there are some signs of stability. The fourth quarter of 2009 showed a significant rise in the national GDP and people are getting used to the “new normal”. The stock market Dow has rallied back to over 10,000, home sales are up, and so are the median home prices. We’re not out of the woods yet but there are reasons to be optimistic. We are seeing more buyers in the vineyard and winery market. Of course, they are all looking for the deal -- in some cases they are getting just that. Foreign buyers are out in force looking to pick over the bones of once-successful American enterprises.
Vineyard statistics this decade
Napa made a run on the 100% appreciation target in this decade, but Sonoma fell far short. Here are actual sales statistics showing low, high and average prices in each county.
The following is updated data for actual recorded vineyard sales in Napa and Sonoma Counties from 2001 through 2009. We will provide our opinion for 2010 and see how close we come to reality.
Year Low High Average
2001 $85,000 $180,000 $115,000
2002 $70,000 $180,000 $105,000
2003 $70,000 $180,000 $105,000
2004 $80,000 $220,000 $187,000
2005 $92,000 $256,000 $210,000
2006 $108,000 $290,000 &nb sp; $235,000
2007 $112,000 $300,000 $255,000
2008 $113,000 $350,000 $295,000
2009 $85,000 $305,000 $150,000
A Good Rule of Thumb for Per Acre Vineyard Values In 2010
Prime $225,000 - $300,000
Secondary $115,000 - $215,000
Carneros $115,000 - $150,000
Outlying $55,000 - $75,000
Year Low High Average
2001 $60,000 $83,000 $74,000
2002 $62,000 $83,000 $75,000
2003 $60,000 $80,000 $70,000
2004 $60,000 $80,000 $75,000
2005 $62,000 $82,000 $76,000
2006 $63,000 $85,000 $77,000
2007 $71,000 $125,000 $82,000
2008 $75,000 $110,000 $92,000
2009 $60,000 $85,000 $75,000
A Good Rule Of Thumb for Per Acre Vineyard Values In 2010
Prime $80,000 - $90,000
Secondary $70,000 - $80,000
Below Avg $50,000 - $65,000
The real deal
We receive calls from appraisers on a weekly basis who have been contracted to provide a market value for properties with vineyard. Some are veterans who have been in the business for years, while others have a more residential or commercial background, and don’t understand the unique variables of vineyard valuation. We try to do our best to ensure that what they give to the banks and owners is accurate and not hype.
There will always be agents who tell a property owner what he or she wants to hear in order to get a listing. Sellers may have an unrealistic perception of value. In either case, the owner ends up being hurt. The property will sit on the market as the asking price is dropped lower and lower until it is near market value, then it may sell. It’s best to hire an appraiser or broker who is willing to tell you the real deal. It may not be what you want to hear, but it will most certainly give you a better chance of selling your property at a fair market value.
We know one thing for sure: “The only real value is what the property sells for, not what someone thinks it will sell for.” Actual sales comps are the best indicator of what a like property in the same neighborhood will most likely sell for.
What goes up must come down, and vice versa. At the end of every depression and/or recession, the market comes back, usually stronger than where it left off. In the 1930s, people thought it was the end. For some, it was. Those who maintained a positive attitude, stayed the course and kept their faith learned many important life lessons.
There are still some tough times ahead, but it is important to remember that the North Coast is among the finest wine regions in the world. We have the reputation and quality that very few other areas have or could even dream of. We feel 2010 is the turnaround year for our wine/vineyard industry; however, we will have to become more competitive and offer our great product at a more competitive price.
Our foreign neighbors are able to produce inexpensive wine that will continue to lure the lower-end wine consumer and challenge domestic producers. As the economy turns around, we will see more of high-end wines being sold, and price-points increase.