The Vision. Markus. Bokisch. Unified Symposium 2013 Midwest Grape & Wine Conference Preview Dealing with Vine Shortages

Transcription

1 The Vision of Markus Bokisch Unified Symposium 2013 Midwest Grape & Wine Conference Preview Dealing with Vine Shortages

2 Searching BY DEBORAH PARKER WONG for Balance Expansion signals a shift as wineries heat up real estate market AT A GLANCE + Wineries are emerging as commercial buyers. + Lifestyle sales are riding high on foreign investment. + Most growth is predicted for sub-regions in Sonoma County and the Central Coast. + The Willamette Valley in Oregon and the Finger Lakes in New York are also seeing increases in real estate values. Kevin Foster, senior sales associate of Cornish & Carey Commercial Newmark Knight Frank s Wine Services Group, compares the behavior of the wine industry to the action of a Slinky toy: brief moments of balance, with forces building momentum and sudden bursts of action. Foster s analogy depicts a constantly moving target, one that expands and contracts in response to market forces the way a Slinky responds to gravitational pull. Last October Foster teamed up with Preston Smith, a senior vice president at the company s office in Santa Rosa, Calif., to establish the wine service group, and they brought in Brian Gleason, senior vice president for Cornish & Carey s office in Larkspur, to round out the team. We ve got a lot of research at our disposal because of Newmark Knight Frank s global platform, said Smith, who has access to a proprietary index of prices paid per acre for vineyard land in Europe. The company also has offices in major winegrowing regions around the world. Cornish & Carey s Wine Services Group, comprised of (left to right) Brian Gleason, Preston Smith and Kevin Foster, is seeing fewer commercial sales compared to lifestyle purchases. 112 VINEYARD & WINERY MANAGEMENT Jan - Feb

3 Gleason, Smith and Foster are in the process of developing a price index for the domestic real estate market that will establish a benchmark for wine grape growers and vineyard owners for average prices paid for planted land. While the index won t take private sales into consideration, it will track both commercial and lifestyle transactions. We ve seen considerably more activity in the last quarter (of 2012); of almost 40 listed properties sold in Sonoma County and Napa Valley, about 70% of those sales were to lifestyle clients, Gleason stated. Cornish & Carey is seeing more lifestyle purchases and fewer commercial winery purchases due to an oversupply of production facilities. Wineries are being leased to other producers, and owners of multiple production properties are consolidating their operations to reduce costs, Foster said. SIGNS OF CHANGE primary factors that help determine property value, including the right combination of microclimate and soil type, and the availability of water, which is playing an increasingly important role in the West, where there is more demand from urban and environmental users than supply. agreed. There is nothing left to be developed here, he said. Ericson said he sees movement in outlying regions where low-priced properties that have been on the market for some time are now starting to move. Companies with little or no debt are looking to increase production and we re clearing out the dead When asked to cite trends for wine industry real estate in Northern California, accredited rural appraiser Tony Correia pointed to E. & J. Gallo s recent purchase of the 800-acre Snows Lake Vineyard in Lake County. The most significant trend in terms of real estate is the emergence of wineries as buyers, and signs that they are buying aggressively, he said. When companies like Gallo and Kendall-Jackson are out chasing deals, it signals a sea change for the market. Correia, who lives Sonoma and operates Correia-Xavier, the largest agricultural appraisal business on the West Coast, appraises vineyard and winery properties in Napa and Sonoma counties, the Central Coast and California s interior valleys, in addition to Oregon and Virginia. His is a rarified view of the industry and one that looks at a wide range of properties from the inside out. Vineyard properties are enormously complex and each one is unique, but the driving factor here in California is still location, Correia said. He named several other Properties in the Russian River Valley, such as this current offering from Cornish & Carey, are seeing lots of activity. The best sites in Napa Valley have been identified and are fully developed, said Correia, who is seeing more private sales facilitated by mergers and acquisition investment bankers and attorneys. Private sales are common in Napa, and Correia is seeing more taking place in Sonoma and on the Central Coast, but he does not track how they compare to listed sales. Due to environmental regulations, it s becoming increasingly difficult to break out new sites in most of the coastal counties and in the heart of the Napa River watershed, he said. Correia anticipates the most development activity in Sonoma County and the Central Coast region of Paso Robles in the near term, and is more concerned with trends in the market than in development. Steve Ericson, an agent for Sotheby s in northern Napa Valley, wood, he said. While increased sales indicate less resistance to the current price threshold, he said he believes much of what is currently on the market is overpriced. Cornish & Carey s Foster cited the three most active real estate markets in the wine industry as Bordeaux, Napa and Sonoma. On the short list for development over the next five years, he added, are several sub-regions in Sonoma County, including Alexander Valley, the recently expanded southern portion of the Russian River Valley, and the southern sections in the Petaluma Gap area. BUYING CALIFORNIA S CACHET While lifestyle properties may represent a smaller percentage of Corriea s appraisal business, the cachet associated with life in Napa Valley and Sonoma County contin- Jan - Feb 2013 VINEYARD & WINERY MANAGEMENT 113

4 ues to draw buyers from around the world. Seventy percent of our business is being conducted with lifestyle buyers, said John Bergman of Bergman Euro-National, a brokerage that focuses on properties in Napa and Sonoma yet serves all of Northern California. Bergman s lifestyle clients are a diversified group of buyers, including Europeans taking advantage of the strong Euro and wine-loving Asians drawn to the quality of life in California s wine country. The market for both lifestyle and industry buyers is starting to climb, Bergman said. We have clients who are looking for good deals on properties in the $10 million to $100 million range. Even with low interest rates in place, Bergman hasn t brokered a single deal in the last year that required financing. When the market is at the bottom, he noted, no one seems to be looking. It s only when things start to heat up that the big money (clients) get off their wallets. Nonetheless, most lifestyle buyers are still investment oriented; they want a property that generates income, and that usually requires property valued at more than $5 million. We advise clients to invest in a good-quality vineyard and to start by making wine at a custom crush facility before they decide to build a winery, Bergman said. Now that wineries have begun scrambling to ensure supply, he anticipates more commercial activity from the industry s largest players and from vintners such as Ken and Diane Wilson, who have been acquiring smaller wineries and turning them around. With the opening of St. Anne s Crossing winery (formerly Blackstone Winery) in October 2012, the Wilsons now own eight wineries in Sonoma and Mendocino counties. Commercial buyers are more likely to be domestic companies, but these deals are fewer and farther between, said Bergman. In Napa and Sonoma, vineyard values have appreciated back to where they were prior to 2008, and in some cases are surpassing all-time highs that were reached before the market fell off. It s not uncommon to see a site on the Napa Valley floor list for $350,000 per planted acre, and vineyards in coastal Sonoma County listed at between $85,000 and $140,000 per acre. MARKET DYNAMICS With the investment and analyst communities predicting a short supply of domestic bulk wine over the next five years, market dynamics are playing an increasingly important role as producers look to shore up their supply chain and step up planting. The industry has realized we re facing a short- L O C A L K N O W L E D G E - G L O B A L R E A C H R E A L E S T A T E S E R V I C E S F O R T H E W I N E I N D U S T R Y With offices in every major wine region of the world, we can provide the strategic market knowledge and service to successfully achieve your real estate goals. Whether you need to lease space for barrel storage, sell a winery or buy a vineyard, we can provide the local market intelligence to assist you in making the best possible decision and negotiate the most favorable terms. Byington Winery - Santa Cruz Mountains, CA Sonoma Coast Vineyard - Petaluma, CA SOLD! Brutocao Schoolhouse Plaza Mixed Use Development Hwy 101, Hopland, CA 17-Acre Pinot Noir Vineyard & Winery Site Russian River Appellation We have over 7,200 employees staffing over 220 offices in more than forty countries including France, England, Italy, Germany, Chile, South America, China Hong Kong, Portugal, Canada, India, Russia, Spain, California, Oregon, Washington, New York, and Washington DC. Brian Gleason Lic # Preston Smith Lic # Kevin Foster Lic # Fifth Avenue, Suite 230, San Rafael Bennett Valley Road Suite C200, Santa Rosa VINEYARD & WINERY MANAGEMENT Jan - Feb

5 fall that is largely a function of not planting for the last 10 years, said Correia. Theoretically, we have to replant at a rate of 3% every year just to maintain equilibrium, with no growth. The industry needs a 9% threshold of non-bearing acres to maintain equilibrium. There s little doubt among producers that the industry has fallen behind in maintaining grape supply, and that awareness has opened the door to price increases. We ve seen land prices rise in some markets, Correia said, but it s too early to say how supply will affect prices across the board. TRENDING IN OREGON California is not the country s only active market for vineyard real estate. There are signs of healthy activity in Oregon s Willamette Valley, where winery properties and vineyard real estate continue to regain value. Mike McLain, a broker and owner of Springhill Cellars in Albany, Ore., has sold real estate in the Willamette Valley for 30 years. He points to mid- and northern Willamette Valley as the most active areas for new development, spurred by the demand for pinot noir. There is no glut of pinot noir in Oregon, he said. Any bulk wine is being immediately snapped up. Commercial transactions in the Willamette Valley are picking up from where they were the last few years, McLain noted, due largely to long-term planning on the part of instate wineries looking to expand. As a result of the downturn, we ve seen more planted sites coming onto the market and, with that, there has been a higher percentage of commercial activity than in previous years, he said. Prior to 2008, about half of McLain s vineyard transactions were sales to lifestyle buyers, but he s seen that percentage drop to 25% over the last year. The market hasn t been cooperating with lifestyle buyers who need to sell another property before they can buy here, he pointed out. On the commercial side, financing is available if wineries need it, but according to McLain, most companies looking to expand in the Willamette Valley are simply cutting checks. It s a good time to spend money, he quipped. With news of the small pinot noir harvest in France this year, he is already seeing interest from more out-of-state buyers. FINGER LAKES REVIVAL On Seneca Lake, the largest of New York s Finger Lakes, and neighboring Cayuga Lake to the east, broker Mel Russo is selling Jan - Feb 2013 VINEYARD & WINERY MANAGEMENT 115

6 Hard pressed for quality? Consider a Basket Press Hypac basket press features include: Baskets from 8HL to 30HL Easy to operate and clean Built to last Local manufacturing and lifetime support Lakefront property on Cayuga Lake is selling at a premium, according to broker Mel Russo. Easy to load, simple to operate, easy to empty and simple to clean. Built to last. What more do you need? Chris Ringland Director, Ringland Vintners Pty Ltd Roanoke, Virginia, USA E: info@hypacusa.com P: (888) vacant vineyard land for $4,000 to $10,000 an acre, depending upon the size of the site. If an existing winery is profitable, it is saleable, said Russo, who concentrates on development in these newer growing regions. The west side of Cayuga Lake is fully developed with 26 wineries, and wineries planted to Bordeaux varieties are now being established on the eastern side. Lakefront property continues to sell for a premium with each foot of waterfront commanding the same price as a quarter-acre of grapes. Russo characterized the Finger Lakes market as active, and he expressed confidence that the region, which has been growing 2013 since the early 1970s, will continue to develop as a tourist destination. A Seneca Wine Trail is already in place and we re quickly developing a Cayuga Wine Trail to capitalize on wine tourism, he said. Russo attributes increasing land prices to the market for vacation homes, which is driving growth in the area. Deborah Parker Wong is the Northern California editor for The Tasting Panel magazine. She earned her WSET Diploma in Comments? Please us at feedback@vwmmedia.com. REGISTER NOW Wineries Unlimited Trade Show and Conference March 12-14, 2013 Richmond, Virginia wineriesunlimited.com 116 VINEYARD & WINERY MANAGEMENT Jan - Feb