California Fund Ditches Vineyard Managers
Retirement system's ambitious Northwest plans outstripped economic reality
Premier Pacific, partner with CalPERS in Pacific Vineyard Partners LLC, ambitiously purchased a 3,500-acre ranch in 2007 in Washington’s Horse Heaven Hills AVA for a price rumored to be in the range of $5,000 per acre. Plans for the acreage operated as River Ridge called for high-density plantings of up to 3,000 vines per acre. Washington state vineyards typically average 600 vines/acre. Development would have been expensive, but the partners expected the resulting wines to command premium prices.
“It means more stakes, more hose, more emitters, as well as more vines and so on, and that’s the way the great vineyards are planted in Napa and Bordeaux and Burgundy,” Bill Hill, co-founder of Premier Pacific and now former CEO, told Wines & Vines in 2008. “Our development costs alone are going to exceed $40,000 an acre. So if we buy ground for $5,000 or $10,000 an acre, and we put $45,000/acre in it, we certainly aren’t going to sell for $30 a bottle.”
Reality takes hold
Unfortunately, that’s where consumer budgets went as the Great Recession took hold and buyers began seeking cheaper wines and better value. CalPERS was forced to take a hard look at its plans.
To date, just short of 140 acres have been planted at River Ridge. CalPERS spokesperson Brad Pacheco has not responded to requests from Wines & Vines for comment on the decision to part ways with Premier Pacific, or the state of its Northwest vineyards. He has been quoted in other media saying that CalPERS hopes to have a new partner on board by the end of the year.
The properties face significant headwinds, however, if the fluctuation in the market value of the Pacific Vineyards ventures is any indication. The CalPERS investment report for the year ended June 30, 2010 pegged the market value of its properties at $64.4 million, well below the original cost of $73.9 million. It’s also well below the market value at the close of the previous fiscal year, when the portfolio was worth $87 million.
Any future partner will have to be savvy about the value of the properties as it seeks financing for future development and delivery of wines to market under the current economic conditions.
It’s a far cry from where Bill Hill optimistically indicated the Washington state vineyards would be heading when he spoke with Wines & Vines three years ago. “We’ve got a little over 200 acres that’s going in,” he said. “At some time in the next few years, we would expect to gradually build that up to as much as a 2,000-acre vineyard.”