Wine Country Projects Go to Auction
Ambitious Northwest winery-oriented developments stalled by economy
Woodinville Wine Village goes under the gavel at the King County Administration Building in Seattle this Friday, Sept. 2, while Atlanta, Ga.-based auctioneer Sperry Van Ness is accepting bids for the 891-acre Daybreak site on Lake Chelan in Eastern Washington until Sept. 21.
Developers of both projects had hoped to capitalize on their proximity to centers of wine tourism but ran into financial difficulties when first the real estate market, and then lenders, turned against them.
MJR Development Inc. envisioned Woodinville Wine Village as a mixed-use development on 24 acres, including 260 residences, a restaurant and culinary amphitheatre, luxury hotel, shops and wineries. Designed as an “interactive village community” that “honors our state’s wine industry,” the village was planned for a site on the key Woodinville-Redmond Road NE, within five minutes of dozens of wineries and tasting rooms including Chateau Ste. Michelle’s 1.5 million-case destination winery. Project costs were estimated at $200 million, but just 39 homes were finished before the development sank under the weight of $24 million in loans, interest, taxes and other assorted charges.
800 homes planned
Its progress was greater than that of Daybreak, however. Its 891 acres in the Lake Chelan AVA remain undeveloped. Chelan Butte Holdings LLC originally planned upwards of 800 homes on the site; allowed uses include golf courses, hotel, winery and other amenities. According to auction ads, the site was once valued at $100 million, but Sperry Van Ness is now seeking whatever the market will pay. The sale is being conducted on an unreserved basis, meaning a minimum bid hasn’t been set.
“You’ve got a lender that doesn’t want the asset on their books, and is not in the business to develop it, so they need to sell it,” Louis B. Fisher III, CEO of Sperry Van Ness, explained to Wines & Vines. “They’re hoping to get somebody who’s willing to take a run at it, and is serious enough and has the wherewithal to meet the terms we’ve got for it.”
Prospective purchasers of either property face a challenge similar to the original developers. Sluggish real estate markets mean that making good on the sites’ potential could take some time. Purchasers must consider this, and be ready to bear the holding costs without cash flow from sales.
“The struggle, of course, from an investor’s or a developer’s perspective, is, ‘How long can I hold this before I can go vertical with it?’” Fisher said.
The recent turmoil in stock markets hasn’t helped investor confidence, he added, hence the shift to an unreserved auction and extension of the bid period to Sept. 21, to ensure maximum market exposure and comfort with the opportunity. Removal of a minimum bid requirement effectively gives potential purchasers room to amortize a longer holding period with a lower bid.
Sperry Van Ness has already fielded interest from 16 states and Canada, where a healthy real estate market and strong currency has prompted many buyers to look south to U.S. real estate opportunities. Still, even buyers from Canada won’t be ignorant of the dangers posed by a large-scale development.
While the Osoyoos Indian Band successfully developed Spirit Ridge Vineyard Resort and Spa in Osoyoos, B.C., the developers of Greata Ranch Vineyard Estates near Peachland, B.C., have not been so lucky. The project launched in 2007 but was shelved when the market cooled. The developers, Kelowna’s Fitzpatrick family (also owners of 40,000-case CedarCreek Estate Winery) and Concord Pacific Developments Inc., have not resumed marketing the property.
Other projects in less-favored locations have also adopted a more conservative approach or been repositioned on account of market conditions. It’s an ironic twist for Northwest wine country, which once saw real estate development as a natural extension of destination wineries and wine tourism.
“It’s the next evolutionary step for our industry. We’ve been successful because we are value-added,” Gordon Fitzpatrick, president of CedarCreek said shortly after Greata Ranch’s launch. “This enables us to keep moving up the value chain.”