Lending eyes to vine buys

With the North Coast harvest reaching an early conclusion this year, demand for property acquisitions has started lighting up lenders’ phones again.

“We’ve done a couple sizable vineyard-only deals” in the past two months in Sonoma and Napa counties, said Bill Rodda, vice president and Santa Rosa branch manager for American AgCredit. “We did a deal [Oct. 29] for a winery looking for better access to winegrapes, and it was contiguous property.”

While different types of buyers interested in North Coast wineries remain in the market, the pool of buyers for vineyard properties is deeper, lenders say. Highly sought-after vineyards in the past three to five years have been Sonoma County properties growing pinot noir and those in Napa County producing cabernet sauvignon.

The “frenzy” of vineyard buying started in earnest in late 2011 as the small size of that year’s crop became evident. That continued for the past two years, but the size the subsequent crops and increasing local challenges for vineyard development have been affecting the market. For example, some Rabobank clients looking to lock in long-term sources of top-end Napa cab are scrutinizing deals even more closely.

“Even with grape prices running up, vineyard prices went up so quickly that there has been some hesitation when what they’re paying per acre equates to $20,000 to $30,000 a ton,” Mr. Day said.

While the annual California Grape Crush Report, due out with first figures in early February, does have a few Napa Valley grape sales at those prices, usually the deals involve purchases of just a few tons for a special product, he noted.

Yet, there have been more deals in Mendocino and Lake counties in the past year, including a few for sauvignon blanc vines in Lake County, Mr. Rodda said.

Just as deals for North Coast premium winegrape land are flowing, so are those for local properties supporting premium dairy products. Sales of certified-organic milk, cheese and related goods have grown and give hope for better profitability for farmers amid rising costs and competition for smaller-scale North Coast producers, Mr. Rodda said.

“We financed several pasture land deals for organic dairies, because to be organic they need their cows to graze on organic pasture or supply them with organic feed,” he said.

Capital for capacity

After the record-sized 2012 and 2013 North Coast winegrape harvests and what many consider to be a large crop this year, vintner thirst for capital seems to be shifting more to production capacity, said Mr. Day.

“With the wine market coming back and steady, especially on the high end, our clients are very comfortable with taking capital to expand production capacity,” Mr. Day said.

In addition to new and expanded production facilities, vintners also are adding direct-sales capacity, according to Rob McMillan, Silicon Valley Bank executive vice president and founder of its Premium Wine Division.

“Some are building out their VIP areas, and some are changing straight to VIP and moving away from appealing to walk-ins,” he said.

Recent research he did for Napa Valley Vintners in conjunction an ongoing local discussion on wine tourism found that 45 percent of wine revenue in the county comes from direct sales. Much of that involves tasting rooms, which about four-fifths of the county’s wineries have.

VC spree?

The 2007 acquisition of St. Helena-based Duckhorn Wine Co. and subsequent large investments by San Francisco-based venture capital firm GI Partners was a notable move for a sort of investor typically associated with short timeframes - often three to five years - for returns. TPG itself and through Sonoma-based Vincraft also has been a active in recent years. Buyers like them might be on the comeback, Mr. Day said.

“Winery and vineyard asset classes seem to be attractive to private equity now,” he said.

The rebound of valuations in recent years as the wine business cycle moves further into growth, particularly for the portion involved with higher-end wine is attracting more interest from such buyers. Whether the greater number of VC buyers turns into deals remains to be seen, Mr. Day said.