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Lenders see uptick in wine industry demand

Eric Gneckow, Business Journal Staff Reporter
Monday, November 12, 2012, 6:06 am
Categories: Agriculture, Banking and Finance, Food and Beverage, Industry News, North Bay News, Wine Industry Business Journal | No Comments

A number of wine industry lenders in the North Bay have seen an uptick in demand for financing this year as wineries, vineyards and related industries seek to position themselves more strongly in a changed economy.

Clockwise from top left: Bill Rodda, Steve Herron, Kevin Coonan, Tom LeMasters, Rob McMillan

Those increases have been supported by a wave of mergers and acquisitions, both by investors and by wineries seeking to own vineyards and secure their supply chain, lenders said. Smaller wineries have pushed to develop direct-to-consumer sales amid a contraction of distribution channels, and historically high grape prices have helped spur vineyard development.

“We have tremendous demand right now. It’s the busiest we’ve been in years,” said Bill Rodda, vice president of the capital markets group at Santa Rosa-based farm credit cooperative, American AgCredit.

New wine industry loan originations at American AgCredit have increased between 200 and 300 percent this year, Mr. Rodda estimated.

“The vineyard purchase activity has increased dramatically,” he said. “We’ve seen a lot of the wineries wanting to control their fruit flow,” a trend for both for large operations and smaller-case wineries.

Loans for vineyard development and refinancing for existing vineyard loans helped Santa Rosa’s Exchange Bank to bring on $15 million in new wine industry loans during the first nine months of this year, said Steve Herron, senior vice president and manager of the bank’s commercial banking group. It was an increase of approximately 25 percent in new loans by the same period in 2011, though a handful of large payoffs on existing loans have pushed down the overall industry portfolio compared to last year.

Consumer demand has also increased in an improving economy, with a growth in “staycation” excursions by Bay Area residents to North Bay wineries.”Things are dramatically different. Wineries in 2012 are in a much better state,” he said.

Novato-based Bank of Marin has been pushing more heavily into the North Bay wine industry since the Federal Deposit Insurance Corp.-assisted acquisition of Napa’s Charter Oak Bank in February 2011. New loan originations in Napa increased more than 22 percent comparing the third quarter of 2011 to 2012, and the bank now has six commercial lenders focused on the wine industry, said Kevin Coonan, chief credit officer at Bank of Marin.

“What we’re seeing now are folks starting to pay attention to things like deferred maintenance, as well as planning for capital improvements to enhance winery operations and appeal,” he said. “Now, with direct-to-consumer sales and tasting room traffic being heavily sought after, winery owners are realizing that it’s time to upgrade their physical facilities.”

Cork manufacturers and other fields connected to the wine industry — a focus for Bank of Napa in the city of Napa — have also been demanding more financing, said Tom LeMasters, president and CEO.

“For the last two-and-a-half, three years, a lot of these business people have been relying on their capital base just to stay open. It appears to us that they are getting busier and are more optimistic than one or two years ago,” he said.

Reports have shown 2012 to have been a record year for North Bay vineyards, creating a supply that industry lenders said will still command high prices but help to address a shortage seen in 2011.

While that supply could help address growing demand, Rob McMillan, founder of Silicon Valley Bank’s Wine Division, said that the future of domestic production was uncertain as the strength of American currency could mean much of that demand would continue to be satisfied by imported grapes and wine.

“The question becomes — how strong is the U.S. dollar versus other exporting countries?” he said. “It’s different this time. We don’t have to get the inventories up from solely domestic sources.”

 


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