It's a Vineyard Seller's Market

Speakers at financial symposium compare data and trends in West Coast states

by Paul Franson
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Rising vineyard prices in California have caused acquisition activity in the Pacific Northwest to increase.

Napa, Calif.—The 23rd Wine Industry Financial Symposium, designed to bring together lenders and the wine business, was held earlier this week at the Marriott Napa Valley. Among many interesting sessions, one that attracted great attention was that on winery and vineyard sales and acquisitions.

John Mackie, the managing partner of law firm Carle, Mackie, Power & Ross, moderated a panel of Josh Grace, managing director, International Wine Associates; Matthew Franklin, principal, Zepponi & Company; and vineyard appraiser Tony Correia of the Correia Company.

Josh Grace started the discussion with transactions in the Pacific Northwest, which has become a hotbed of wine property sales.

With Oregon approaching 600 wineries and 25,000 planted acres, producing 3.3 million cases annually, he noted that wine grape growers have to compete with blueberries, hazelnuts and hops for craft breweries, all of which are very popular.

Washington has 680 bonded and virtual wineries, according to Wines Vines Analytics, and Grace estimated there are 45,000 planted acres, producing 13 million cases. There, apples, cherries and, again, hops are alternative lucrative crops. Washington has twice the acreage but four times the output due to higher yields of 4 to 5 tons per acre compared to Oregon’s 2 to 2.5 tons.

Oregon and Washington in total grape production are similar in size to several of California’s coastal counties. Sonoma has about 60,000 acres, Monterey and Napa about 45,000.

The planted acres in Oregon grew by 25% between 2011 and 2012, according to survey results from Southern Oregon University, and Grace said that the rapid growth will continue in the near future. The yield disparity between Oregon and Washington vineyards is generally offset by the increased value per-ton of Oregon grapes, which are 80% Pinot Noir. Washington averages $1,110 per ton for a revenue per acre of $5,550, compared to Oregon’s average of $2,500 per ton and $5,625 per acre.

Oregon, even at the highest pricing, is a very attractive option for growing Pinot Noir compared to the prices for Russian River and Anderson Valley vineyards in California. Washington has had a greater spread of vineyard prices from low to high compared to Oregon because of greater differences in growing conditions and more diverse planting of varieties.

Even at a high of $75,000 to $80,000 per acre for top Oregon AVAs, and Walla Walla and Red Mountain AVAs, Washington and Oregon have a long way to go before reaching the prices for top California vineyards.

Significant transactions in the Pacific Northwest:
• 1987 Maison Drouhin of Burgundy created Domaine Drouhin Oregon
• 1990 Chalone Vineyard invested in Canoe Ridge Vineyard in Washington
• 1991 Gary Andrus of Pine Ridge Vineyards and the Crimson Wine Group started Archery Summit in Oregon
• 1995 Col Solare a joint venture between Marchese Antinori and Ste. Michelle Wine Estates in Washington
• 2001 Lion Nathan bought Argyle Winery in Oregon
• 2001 Vincor bought Hogue Cellars in Washington (Vincor was later acquired by Constellation Brands)
• 2001 Constellation acquired Columbia and Covey Run in Washington
• 2005 Crimson Wine Group bought Double Canyon Vineyards in Washington
• 2006 Ste. Michelle bought Erath Winery in Oregon
• 2008 Bill Foley bought into Three Rivers Winery in Washington
• 2008 Ascentia Wine Estates bought Washington’s Columbia and Covey Run, then it subsequently went bust.

Recent acquisitions:
• Oct. 10 Banfi acquired Pacfic Rim Winemakers in Washington
• June 12 E. & J. Gallo Winery acquired Columbia and Covey Run in Washington
• Jan. 13 Jackson Family Wines acquired Gran Moraine/Zena Crown Vineyards in Oregon
• May 13 Jackson Family Wines acquired Solena Estate winery in Oregon
• May 13 Precept Wine Brands acquired Yamhela Vineyard in Oregon
• May 13 Jackson Family Wines acquired Maple Grove Vineyard
• Aug. 13 Louis Jadot acquired Resonance Vineyard in Oregon
• Nov. 13 Aquilinia Investment Group acquired Red Mountain AVA land in Washington
• Dec. 13 Duckhorn Vineyards acquired Longwind Vineyard in Washington
• March 14 Elk Cove Vineyards acquired Goodrich Vineyard in Oregon
• March 14 Foley Famiy Wines acquired Four Graces winery in Oregon
• March 14 Ste. Michelle Wine Estates acquired Willakia Vineyard in Oregon
• April 14 Allan Bros. acquired Sagemoor Vineyards in Washington.

Interestingly, Grace compared Cabernet Sauvignon wines from Walla Walla and Napa, and those from Walla Walla score slightly higher in Wine Spectator ratings but average about half the price.

Not surprisingly, producers from California and France are looking to Oregon because of the relatively high quality vineyards, good water supply and attractive pricing relative to California and Burgundy for planted vineyards. Planted Oregon Pinot Noir vineyards are currently selling for half the price per acre of Russian River vineyards, for example.

While Washington has had comparatively fewer investments from outside the state thus far, Washington has seen a few large transactions.

It has significant amounts of unplanted land with water at prices that are very attractive at $10,000-$15,000 per acre for bare land. Large vineyards can sell for $25,000-30,000 per acre and produce wines of excellent quality in the $10-14 retail category.

Duckhorn, Gallo, Cakebread Cellars and Crimson Wine Group are all making wine in Washington now and will be joined by others soon, notes Grace.

California mergers and acquisitions
Franklin with Zepponi & Company next provided an overview of the situation in California. He began with a reminder of who’s buying vineyards and wineries now:

strategic buyers are public and privately held companies already in the wine business looking to build their portfolio, expand geographically, leverage their existing infrastructure to make opportunistic buys

financial buyers include private equity firms and institutional investors seeking to generate adequate return given level of risk over a finite period

and lifestyle buyers such as wealthy individuals and foreign investors are seeking intangible lifestyle benefits, though financial returns are important.

Recent transactions in California:
• October 2013, Vintage Wine Estates acquired Viansa Winery in Carneros
• December 2013, Bernard Orsi acquired Alderbrook winery in Dry Creek Valley from Terlato Wines
• March 2014, Wine Exchange bought Chronic Cellars, in Paso Robles
• April, Gallo bought Ledgewood Creek Winery in Solano County
• April, Wine Hooligans bought Cycles Gladiator from Hahn Family Wines
• May, Pernod Ricard bought Sonoma’s Kenwood Vineyards from Korbel Champagne Cellars
• June, Vietnamese-American Lieu Hoang bought Michael Mondavi’s winery in Carneros
• July, Vintage Wine Estates bought Napa producer Canopy Management
• July, Chinese-owned Jinta Vineyards & Winery bought Napa’s Quixote Winery.

Vineyard prices on the rise
Finally, appraiser Correia spoke about California vineyards and land. He first noted that the value of California wine grapes grew from about $200 million in 1973 to $3.25 billion last year, and with the growth, vineyards prices have followed.

In Napa County, specifically, the price per ton rose from $1,500 per ton in 1995 to $5,500 last year, Correia said yes, even as tonnage has almost doubled.

Cabernet Sauvignon has increasingly dominated Napa. Its yields rose by 92% since 1995 even as Chardonnay dropped 22%.

One result is that even secondary vineyard land has increased in value from $50,000 then to $100,000-$200,000 now, and prime land in top AVAs in mid valley is approaching $300,000. “A few are pushing $450,000,” said Correia. “That’s still a bargain compared to the best of Bordeaux and Burgundy, however!”

Even outlying land across the mountains from Napa Valley but still in Napa County – can go for $50,000.

Correia, however, said he fears some growers are planting Cabernet in unsuitable ground, which could compromise Napa’s reputation for quality. “We’ve never seen a serious decline in value in Napa, in prices of grapes or land, unlike the disasters that have occurred in other parts of the state,” he said.

In Sonoma County, prices are lower, but top Pinot Noir land near the coast can cost $125,000 up from $25,000 in 1995. “Pinot is driving the bus in Sonoma,” Correia said, adding that that was true in Monterey, too, especially in the Santa Lucia highlands.

In Monterey County, where growers have to compete with vegetable farmers, land has risen from $10,000 to $40,000, while in San Luis Obispo and Santa Barbara Counties, the prices have risen from about $12,000 to more than $50,000 in some areas.

Lodi has stayed relatively stable from $12,000 to $20,000, but in Fresno and Madera Counties, demand for land to plant nut orchards has grown from less than $5,000 to more than $25,000 – if the land has water.

Correia concluded his talk with an emphasis on the importance of water. “There’s plenty of water in California, but politics can create problems.” With new regulations signed, he warned growers to deal with water issues now.

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