Wines & Vines Home
   
 
Welcome Guest
LOGIN |  CREATE ACCOUNT
 
ADVERTISEMENT
 
 
 
03.15.2011  
 

Due Diligence for Winery Transactions

Seminar stresses best practices and permit requirements for vineyards and wineries

 
by Paul Franson
 
 
winery buying
 
Richard “Brock” Brockmeyer says there is a 10-year cycle for production in the wine business, and "we're just about to come out of the downturn."
Santa Rosa, Calif.—A seminar last week called Best Practices for Owning and Operating a Winery aimed to provide current information for those who want to serve the wine business or buy, sell or own a winery. The fifth-annual, two-day event offered current credit to lawyers, but eschewed “legalese,” with practical information comprehensible to laypeople.

Organized by The Seminar Group, the sessions covered a wide range of subjects, from due diligence when buying a winery through water and energy issues, marketing, trademarks, contract winemaking and recent legislation and court cases that impact the industry.

What to look for when buying property

The first panel addressed due diligence and the permit issues that affect every wine business. Although he opened with a disclaimer: “There hasn’t been much acquisition of vineyards of late,” Richard “Brock” Brockmeyer of Wine Industry Investment Consulting shone some perspective on the current market for vineyard property and suggestions for those who are looking to sell—or buy.

Brockmeyer advises Premier Pacific Properties on its purchases. One of the industry’s most successful vineyard investment companies, PPV has been working to invest $300 million—$200 million from CalPers, the California state employees’ pension fund, the rest debt equity. The fund owns 27 properties in seven counties in California, Oregon and Washington, encompassing some 30,000 acres.

Brockmeyer reminded attendees of the roughly 10-year cycle for production in the wine business, as wineries run out of grapes, then growers begin to overplant. It’s three or four years of increasing prices, then four to five years of slowing down. “We’re just about to come out of the downturn,” he said.

Obviously, grape prices have a direct impact on vineyard property, too. Brockmeyer cited one Chardonnay vineyard in Sonoma: Originally listed at $4.7 million at the market’s peak (2001), it was reduced to $3.2 million a year later. He bought it last year for $2.35 million, half the original price.

Current low prices for grapes make this is a good time for wineries to sign long-term contracts for supply, and a good time for growers to undertake necessary replanting.

When advising his clients, Brockmeyer uses a 38-point list for due diligence. He works with multiple consultants from lawyers, geologists and viticulturists to environmental specialists, biologists and archeologists.

He noted that, ironically, his team looks for poor soil by typical agricultural standards, mostly on hillsides, as well as for suitable climate. The easiest way is to look at the neighbors in planted areas; the process is more challenging in undeveloped regions, where he may place weather stations for monitoring.

The first place to look for problems when buying land is the preliminary title report. The property may not have clear access even with an apparently legal road. Access to the property may be granted to others for mineral rights, power lines, roads or other uses across the land. This could disrupt growing vines.

Aerial photos (Google Earth) and USGS topographic maps are useful, too. Brockmeyer normally uses a surveyor’s report for verification, but he may dig deeper if the land is valuable. He quoted typical current prices in Napa at $200,000 per acre; it’s $50,000 in Sonoma and only $10,000 in Washington state. If the plan is eventually to sell the property, the ability to divide the land into parcels may be important.

Water and trees are protected

In addition, water rights are almost always an issue. Water rights take various forms. In the past, it was “anything goes,” but now water is more and more regulated. Riparian rights from rivers and creeks can only be used in the watershed and can’t be stored more than 30 days. Appropriative rights come by permit, allowing water collection and storage.

In general, ground or subsurface water is not licensed in California, but that is likely to change. Another form of water is sheet flow from the vineyard, before it enters a stream.

Trees are becoming a big issue, too. In general, you need a permit to cut conifers in California. Oaks have a lot of neighbor interest, as Kendall-Jackson’s Jess Jackson learned when he cut many visible trees in Santa Barbara County. In Mendocino, most trees are fair game, but in Oregon you need a permit to cut any trees—although it’s possible.

Permits: a valuable nuisance
winery buying
 
Mario Zepponi says that while many winery owners view permits as a nuisance, they are key to extracting value for property assets.
Mario Zepponi, president of Zepponi & Co., continued by zeroing in on permits. A “former” lawyer who worked at large wineries, Zepponi now advises companies about winery and vineyard acquisitions.

Most winery and vineyard owners probably consider permits a nuisance, even a major problem, but Zepponi pointed out that they form the foundation for extracting value from real property assets. Permits to plant vines and build and operate wineries can be very valuable; so could the potential for home sites and property division.

“It’s essential to clean up permits before completing a transaction,” he stressed. “Buyers seek to quantify and limit risk exposure in real property transactions involving open-ended permitting issues.”

He noted three common hurdles to operating a vineyard: erosion control ordinances, endangered species restricti ons and objections by neighbors. The biggest issues in permitting a winery include property zoning, water and wastewater, getting permits for different functions, and amendments or modifications to usage.

Any vineyard over 5% slope requires a permit in Napa County, for example, while any over 30% requires both a permit and an environmental impact report, which can cost $100,000 and take a year.

Regulations in Sonoma County are a bit less stringent. Sonoma distinguishes between erodible soil and permeable soil, allowing up to 15% slope for the latter and only 10% for erodible hillsides.

Endangered species include tiger salamanders, red-legged frogs and spotted owls. All can stop development.

Neighbors, however, are what Zepponi called a “wild card.” “They can raise all sorts of issues, including water, wastewater, traffic and nuisance value,” he said. “Nuisance is often the issue they claim.”

Winery permits can be quite valuable. Napa has a winery ordinance, but Sonoma doesn’t. Napa requires a minimum of 10 acres for a winery permit (certain historic wineries can be on smaller parcels). Winery permits are considered a discretionary process; an environmental study may be demanded, followed by public notice and an appeals process.

Uses allowed at a winery are also varied. Old wineries enjoy many privileges not available to newer ones. The possible uses are production, tasting room (by-appointment-only for new wineries in Napa, for example), retail sales and events.

Napa loosened its restrictions on events slightly last year, but it still prohibits many uses that remain popular in other wine regions, including restaurants, inns and weddings. Even so, the value of an existing winery permit in Napa is $500,000 to $3 million. In Sonoma, it’s $500,000 to $1.5 million, and on the Central Coast, $250,000 to $1 million, according to Zepponi.

Prices rise for a permit with a public tasting room, retail sales and food and events. “No one will ever get a permit like V. Sattui (40,000 cases, founded in St. Helena in 1975) with its deli and weddings again,” Zepponi pointed out.

Likewise, Napa prohibits new hilltop buildings both by erosion control requirements and a “viewshed” ordinance that bans any building visible on ridges from major roads.

This is reflected in the value of a legal home site: $200,000 to $250,000 on a mountaintop, $150,000 to $175,000 on the valley floor. Trophy properties are higher, of course.

Zepponi added, “There’s not much added value for subdividable land for example—it’s already divided, there is. More stringent regulatory climate will increase the value of permitted property. Potential cost and time should be considered with the proposed land value in any sale.” He recommended consulting knowledgeable experts—and pointed out that he doesn’t provide that service.

What if you have land without proper permits? Zepponi said that it’s often possible to obtain them, sometimes by upgrading property to code. Fighting can be dangerous, however: One stubborn Sonoma winery owner was forced to tear down buildings it had constructed without permits.

Not many people are interested in building a winery at this time, Zepponi concluded. “You can buy an existing winery for less than developing one at present.”

SHARE »
Close
 
Currently no comments posted for this article.
 
CURRENT NEWS INDEX »


 
Wines & Vines Home
 
866.453.9701 | 415.453.9700 | Fax: 415.453.2517
65 Mitchell Blvd., Ste. A San Rafael, CA 94903
info@winesandvines.com
Wine Industry Metrics
 
Off-Premise Sales » Month   12 Months  
October 2014 $570 million
6%
$7,775 million
6%
October 2013 $539 million $7,342 million
     
Direct-to-Consumer Shipments » Month   12 Months  
October 2014 $284 million
18%
$1,751 million
13%
October 2013 $240 million $1,556 million
     
Winery Job Index » Month   12 Months  
October 2014 139
6%
226
18%
October 2013 131 192
     
 
MORE » Released on 11.13.2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

Practical Winery & Vineyard Library
 
Search the PWV archive »
 
 

Direct To Consumer
Wine Shipping Report
2014
 
Download full report »
 
 

CALENDAR
  • December 2-4
     
    Vinitech Sifel in Bordeaux
     
  • December 3
     
    Sustainable/Organic Wine Production Seminar
     
  • December 4
     
    North Coast Wine Industry Expo
     
  • December 6-7
     
    Wine Chemistry Workshop in Oregon
     
  • MORE »
 

READER COMMENTS
 
Article: Kluge Saga Continues in Virginia »
 
Not everybody likes Pat Kluge, but she and Moses built a first class winery /...
Reader: Josh Moser
 
Article: Canada Adapts to Kegged Wines »
 
I am a wine agent in Manitoba & there certainly are kegs of cider here....
Reader: Guest
 
Article: What's Your Winery's IP Worth? »
 
If you would like more information on this seminar please visit The Seminar Group's website....
Reader: Danielle Bingham
 
Article: DtC Is Lifeblood of Wineries, Banker Says »
 
Seems like another locical option would be to have more small niche distrbutors. Consolidation of...
Reader: Guest
 
Article: Tasting Wine From PD-Resistant Grapes »
 
Congratulations Andy! Lots of grapebreeders and southern growers will be looking through the catalogs. i...
Reader: Guest
 
 


Directory/Buyer's Guide — Your Wine Industry Marketplace
 
 
WINERY SEARCH
 
 
Advanced Search »
SUPPLIER SEARCH
   by Product
 by Company Name or Brand
 
Browse by Category »
2015 Directory/Buyer's Guide
The Wines & Vines Directory and Buyer's Guide
 
 
EXPANDED ONLINE SEARCH INCLUDED WITH PURCHASE
 
ORDER NOW »
 
LEARN MORE »
 
 
Wines & Vines Magazine
 
 
LEARN MORE »
 
SUBSCRIBE »
 
Digital Edition Now Available!
Wines & Vines Digital Edition Now Available
 
LEARN MORE »
 
ORDER NOW »
 
 
The Wines & Vines Online Marketing System
 
The Industry Standard winery marketing application
 
FREE LIVE DEMO »
 
VIEW VIDEO »
 
 
 
 
Latest Job Listings
 Cellar Club Coordinato...
 Dundee, OR
DTC, Tasting Room and Retai
 Customer Service & Rel...
 Healdsburg, CA
DTC, Tasting Room and Retai
 Brand Manager
 Woodland Hills, CA
Sales and Marketing
 Senior Vineyard Manage...
 Rutherford, CA
Vineyards
 Brand Director, Austra...
 Napa, CA
Sales and Marketing
 Sales Representative O...
 Sacramento, CA
Sales and Marketing
 Production Forklift Op...
 Yountville, CA
Winemaking and Production
 Project Manager
 Santa Maria, CA
Sales and Marketing
 Wine Salesperon
 Bay Head, NJ
Sales and Marketing
 Communications Special...
 St. Helena, CA
Sales and Marketing
 
More Job Listings >>
Follow Us On:
 
 





Home  |  About Us  |  Editors  |  Subscribe  |  Print Edition  |  Digital Edition

Advertise  |  Site Map  |  Contact Us  |  Privacy Policy
 
 
Copyright © 2001-2014 by Wine Communications Group, Inc. All Rights Reserved.
No material may be reproduced without written permission of the Publisher.
Wines&Vines does not assume any responsibility for any unsolicited manuscripts or materials.