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Top stories of 2012: Happier times for wine

Business Journal Staff Report
Monday, December 31, 2012, 6:06 am
Categories: Industry News, North Bay News, Top News Stories | No Comments

Befitting one of the world’s leading wine regions, wine played prominently in the Top 10 Stories of 2012 selected by the Business Journal editorial staff.

Two of this year’s top stories came out of the wine industry: The near-perfect 2012 harvest and, secondly, a flurry of acquisitions.

But there were plenty of other big stories of 2012 in the North Bay, among them the stunning withdrawal of of Lucasfilm’s Grady Ranch studio project; the return of Basin Street Properties’ dominance in the commercial real estate market, and the entrance into the market of new health care insurance options for the first time in many years.

There were big stories in addition to the Top 10, such as the November acquisition of Novato’s Circle Bank by Portland-based Umpqua. We even made news late this year when the Journal, Press Democrat and Petaluma Argus-Courier were acquired by locally-owned Sonoma Media Investments LLC. 

We look forward to more big stories in 2013. For now, here are the Top 10 Stories of 2012:

1. Wine grape harvest biggest in years

The North Coast winegrape season was not too hot, too cold or too wet. Combined with steady demand for grapes and wine following two short crops, the industry found itself in a situation rare in recent years: The harvest was possibly the largest since 2005 and a number of wineries were eager to find room to buy as much as they could.

Trefethen Vine;yards workers harvest chardonnay grapes before dawn.

The first official tally of tonnage and grape pricing won’t be known until the state releases preliminary figures in early February.

In Napa County, the expectation for 2012 tonnage was 30 percent above growers’ multiyear averages until grapes for sparkling wine started coming off vines a month and a half ago, and now the typical outlook is between a grower’s average and plus 10 percent, according to trade group Napa Valley Grapegrowers. Average yield from feedback the association has received is about four tons an acre, ranging from 2.5 an acre on hillsides to as many as seven tons an acre in a few places by the Napa River.

If the average yield estimate bears fruit, it would amount to about 174,000 tons, based on nearly 43,600 bearing acres of vines reported to the Napa County Agricultural Commissioner last year. That would put it between the sizable 2006 crop of nearly 153,000 tons, yielding 3.6 tons per acre, and the huge 2005 crop of 181,000 tons, yielding 4.3 tons an acre, according to the county crop report.

By comparison, the cool season and rainy finish of the past two years significantly reduced Napa County crops. Last year’s harvest of almost 122,000 tons had a yield of nearly 2.8 tons per acre, and the 2010 crop weighed in at almost 139,000 tons, or 3.2 tons an acre.

Like the the post-harvest forecast for the 2012 crop in Napa County, the outlook for Sonoma County tonnage also is in the 2005–2006 tonnage range, according to Sonoma County Winegrape Commission. In 2006, 216,000 tons were harvested, and in 2005, 230,000 tons, corresponding to yields of 3.9 and 4.2 tons per acre.

The outlook for the 2012 crop is at least 220,000 tons, or an average of around 4 tons for each of the county’s nearly 60,000 bearing acres. The last two weather-hampered seasons in Sonoma County resulted in crop sizes of almost 167,000 tons last year, or 2.9 tons an acre, and 192,000 tons in 2010, or 3.4 tons an acre.

Based on grape purchase pricing earlier in the 2012 season for a number of varieties and greater tonnage, Sonoma County growers could have $100 million more in grape revenue than last year, the commission estimated. 

Jeff Quackenbush

2. Lucas pulls plug on Grady Ranch, plans residential development

Plans to construct affordable housing on a portion of George Lucas’s Grady Ranch property northwest of San Rafael have entered a new phase in 2012, with planners now looking for a developer after the filmmaker withdrew former plans to build a  state-of-the-art digital movie studio at the site.

Filmmaker and Marin resident George Lucas wants to build this 123,000-square-foot office building and digital movie studio on his Grady Ranch property off Lucas Valley Road near San Rafael. (click to enlarge)

Mr. Lucas and his real estate company, Skywalker Properties, withdrew their long-awaited plan in April, citing continued opposition from neighborhood groups as a major driver of the decision. The two-year construction phase of the 270,000-square-foot studio was expected to pump $268 million into the local economy, create 690 construction jobs and generate $5 million in combined state and local sales tax revenue. Further benefits were expected from long-term jobs created through the studio.

The company released a public letter that recommended the site instead be slated for affordable development, a gesture that many interpreted as a tongue-in-cheek affront to opponents of the studio project.

Yet the company moved forward with those plans, asking the Marin Community Foundation to spearhead the effort and providing the foundation with land and engineering studies that could help jump start construction for a future developer. Early discussions with county planners have indicated that between 200 and 300 affordable units could be constructed at the site, and a request for developer qualifications is due in mid-January 2013.

Eric Gneckow

3. Basin Street buys back 17 Santa Rosa properties

Reno, Nev.-based Basin Street Properties regained its position as the largest owner of commercial real estate in Sonoma County with the repurchase of 17 Santa Rosa office buildings it sold seven years ago. It purchased nearly 700,000 square feet in six locations from entities controlled by Chicago-based Equity Office on Oct. 3.

The 161,000-square-foot, three-building Fountaingrove Center property is one of six Santa Rosa complexes Basin Street Properties re-acquired from Equity Office in early October. (Basin Street Properties photo)

Basin Street had acquired or built these properties just more than a decade ago and sold them to Equity Office as part of a 1.43 million-square-foot sale of 44 buildings in Sonoma and Marin counties for $263 million, or nearly $184 a square foot. The purchase price wasn’t disclosed in public records, but Basin Street President Matt White said it was about half of what those buildings sold for in 2005.

A recent deal of similar scale was the $65 million-plus sale of 842,000 square feet in 14 office, industrial and retail buildings in Petaluma and Rohnert Park earlier this year by RNM Properties to an investment group led by Napa-based PB&J Acquisitions.

Equity Office had entertained purchase offers for its 15-building, 711,000-square-foot Marin County portfolio earlier this year but ultimately decided to keep those buildings.

Jeff Quackenbush

4. Casino construction begins in Rohnert Park

After years of legal battles and debate, the Federated Indians of Graton Rancheria this year received approval for and began construction on a casino project that could significantly alter Rohnert Park and the surrounding area.

Opponents and proponents have clashed on the project, which includes the construction of the Bay Area’s largest casino with 3,000 slot machines and a 200-room hotel. Those in favor of the project point to economic benefits including more than 900 union construction jobs.

The Sonoma County Board of Supervisors recently approved of a deal that guarantees the county at least $9 million as part of a revenue-sharing agreement. That could include up to $38 million more a year depending on how profitable the casino becomes. The deal was brokered in 2008 as part of an effort to address potential impacts the project might have. And the city of Rohnert Park agreed to a similar revenue-sharing contract that will see the tribe pay $10 million to widen and repave Wilfred Avenue, which will be the main thoroughfare to the casino.

As many as 11,000 additional car trips will occur on the road that is now a narrow two-way street bordered by ditches on each side.

Construction is expected to be completed by the end of 2013.

Dan Verel

5. SMART construction begins

Workers broke ground on the first phase of construction in the Sonoma Marin Area Rail Transit commuter rail system this year, following a project bond sale that ultimately reached nearly $200 million and the failure of opponents to gather enough signatures for a ballot measure that could repeal the sales tax that funds the project.

SMART awarded its first contract in January, a $104 million design/build contract to the joint venture of Alameda-based Stacy and Witbeck Inc. and Herzog Contracting Corp. The transit district’s Board of Directors has awarded more than $150 million to date, funding the construction of train cars, bridges and other elements.

Construction is proceeding along what SMART calls its “initial operating segment” between Santa Rosa and San Rafael. The ultimate vision of the system, spanning from Larkspur in Marin to Cloverdale in Sonoma County, was put on hold due to reduced returns in a sluggish economy.

While SMART estimates that the core segment will serve 80 percent of its projected riders, RepealSMART, the group gathering signatures for the repeal measure, argued that voters should be given a chance to repeal the quarter-cent Measure Q sales tax amid changes to the project. Those efforts failed to gather enough signatures to reach the ballot.

Contract negotiations in 2012 allowed SMART to expand its plans for the initial operating segment, adding plans for a station on Guerneville Road in northern Santa Rosa and Atherton Station in northern Novato. The transit district also identified a site in Santa Rosa that will serve as a maintenance facility for rail cars, and possibly the site of another station in the future.

Current plans are to begin operation on the initial operating segment in late 2015 or early 2016.

Eric Gneckow

6. Dozens of wineries, brands, vineyards change hands

It was a busy year for sales of North Coast wineries, wine brands and vineyards. Publicly noted sales alone numbered about two dozen, and there were many more happening quietly. Predominant themes among these transactions, according to the parties, were locking in a supply of grapes for growing wine sales amid worries of a looming supply shortage, wanting to exit the business because of “owner fatigue” and rising vineyard values.

Lancaster Estate winery in Sonoma County’s Alexander Valley

Healdsburg-based Foley Family Wines, led by Fidelity National Financial and Fidelity National Information Services Chairman Bill Foley II, was among the most active purchasers this year. In May, it purchased Sawyer Cellars, a 6,000-case-a-year Napa Valley winery with 40 acres of Rutherford vines and a tasting room on Napa Valley thoroughfare Highway 29 as a base for the Foley Johnson brand.

In November, Foley made three high-profile acquisitions. First was a majority interest in the 12,000-case-a-year Lancaster Estate and 35,000-case-a-year Roth Estate brands, the Alexander Valley winery and Lancaster Estate tasting room, a 6,000-square-foot guest house and 42 acres of mainly cabernet sauvignon vines. Second was Langtry Estate & Vineyards and Guenoc brands, with current annual case production of 150,000, and related assets on 500 acres straddling Lake and Napa counties, with 150 acres of vines and 17 guest rooms in several houses. Third was the 206-acre mostly chardonnay and pinot noir Ramal East Vineyard in Sonoma County’s Los Carneros winegrowing region.

A base for the Foley Johnson brand was key in the Sawyer Cellars purchase. Grape-purchase contracts to help supply Foley’s Alexander Valley cab program for Sebastiani Vineyards and hospitality opportunities were key factors in the Lancaster purchase. After managing the Langtry and Guenoc brands for several months, Foley acquired them, and the property adds a tourist lodging destination to his portfolio. Ramal East will supply a lower-cost extension of the Chalk Hill Estate brand, to be released nearly in 2013.

Also active in securing sources of supply was Santa Rosa-based Jackson Family Wines. In May an affiliate purchased the 350-acre Ramal East Vineyard for $13 million. Jackson was busy in December, buying the Nunesdale Farm vineyards in Russian River Valley, including 200 acres of vines in Saralee’s Vineyard and Richard’s Grove and Tom Nunes’ 10-acre pinot noir and chardonnay vineyard, 877 acres of land on the Mendocino County side of the new Pine Mountain-Cloverdale Peak appellation from the Seghesio family and 49 acres of cabernet sauvignon vines in the Lost Acre vineyard at the north end of Alexander Valley from CalPERS’ Premier Pacific Vineyards portfolio.

Among prominent vineyard purchases by Madera-based E&J Gallo this year was the September purchase of the 2,000-acre Snows Lake Vineyard, which has 800 acres of vines. It the giant wine company’s first vineyard in Lake County.

Also spun out of the Premier Pacific Vineyards portfolio in December was the 63-vine-acre Tourmaline Vineyard in Napa Valley’s 2-year-old Coombsville appellation, which Sebastopol-based Paul Hobbs Winery acquired to secure Napa Valley fruit sourcing.

Locking up supply of Alexander Valley grapes motivated Oakville-based Silver Oak Cellars in August to acquire zinfandel-focused Sausal Vineyard & Winery, which has 75 acres of planted vines.

New York-based Constellation Brands led the return of publicly owned wine companies to North Coast M&A. In June the company paid Purple Wine Co. $160 million for the 600,000-case-a-year primarily pinot noir Mark West brand, a fast-growing brand Constellation said complemented its portfolio.

Another brand buyer was West Coast Wine Partners, which acquired Valley of the Moon Winery and Lake Sonoma Winery from Guerneville-based F. Korbel & Bros, producer of Korbel sparkling wine and Kenwood still wine. Speaking of the latter, Korbel in July decided to keep 550,000-case-a-year Kenwood after being in sale talks for several months with New York-based Banfi Vintners.

In spring, the growing production portfolio of Ken and Diane Wilson grew again with the acquisition of Pezzi King in Dry Creek Valley to Wilson Artisan Wineries in March and the former Blackstone winery from Constellation in May. Wilson subsequently leased the Blackstone facility to startup custom vintner and crowd-funder Naked Wines, which has a local base of operations in Napa.

Santa Rosa-based Santa Rosa-based Vintage Wine Estates, which has been purchasing a number of wineries in recent years, in July purchased a 40,000-square-foot custom winery and an a 24-acre estate vineyard in the McDowell Valley American Viticultural Area both near Hopland from Lodi-based Weibel Vineyards and Winery. Vintage plans to shift large-scale production from Healdsburg. At the beginning of the year, Vintage sold International Wine Accessories to an affiliate of Cotati-based Planet One Products.

One of the few distressed North Coast wine producer sales of the year was Sonoma-based Crushpad, which passed to a group led by Tiburon-based CastleGate Capital in an August debt acquisition. The operation was renamed The Wine Foundry.

Jeff Quackenbush

7. Enphase Energy goes public

Petaluma-based Enphase Energy raised $54 million in the North Bay’s largest initial public offering of the year. Priced at $6 per share on Nasdaq, the shares jumped as high as $8.24 during first day of trading on March 30, a gain of 22 percent, closing at $7.30.

Enhpase had cut its share target from the $10-$12 range earlier that week in the light of weakening markets due to Chinese competition.

Still, the maker of microinverters for the solar industry sold 9 million shares, more than expected. The company has more than 360 employees worldwide.Enphase stock was trading last week at around $3 a share. Since March the stock has ranged in price between $9.57 and $1.92.

Loralee Stevens, Special to the Business Journal

8. Western Health Advantage, other health plans enter market

The arrival of Sacramento-based HMO Western Health Advantage in Sonoma, Marin and Napa counties capped off years of planning by local physicians and health care leaders as they collectively sought to build an integrated model for the region’s independent health care providers amid the shifting, reform-driven landscape.

It also almost immediately injected more competition into a market dominated by Kaiser Permanente, giving brokers another  option to offer employers and thus the possibility of lower costs on employer-based coverage. 

In order for that to work, however, proponents of the plan, first conceived by several independent health care districts in Sonoma County, needed to secure a major provider and an adequate network. That came in the way of St. Joseph Health-owned hospitals in Santa Rosa and Napa and the then Marin-Sonoma IPA, know called the Meritage Medical Network, whose some 800 physicians are serving as the major in-network provider for Western Health Advantage’s arrival.

Other providers include Marin General Hospital, St. Joseph Health-operated Petaluma Valley Hospital, Palm Drive Hospital, Sonoma Valley Hospital and Healdsburg District Hospital – effectively all providers besides Sutter Health and Kaiser Permanente.

Providers in the North Bay specifically cited Western Health’s ability to compete with major health systems in the Sacramento-Solano region. For Western Health, the move into the North Bay gives it a contiguous foothold from Sacramento to Sausalito, where it hopes to capitalize on the smaller group market that makes up a significant portion of North Bay employers.

Several proponents have also said the arrival of Western Health will help fill a void created when the then-Santa Rosa-based Health Plan of the Redwoods went bankrupt in 2002.

Other HMO products soon followed, though not all of them were related to health care reform. Instead, both Blue Shield of California and United Healthcare rolled out “narrow” or “skinny” networks in the North Bay, responding to consumer demand with more affordable health plans.

The narrow or skinny networks typically offer fewer providers for group plans in exchange for lower premiums, rather than a larger, more traditional network that contract with more providers.

Blue Shield will work specifically with the Meritage Medical Network and Sonoma County Primary in offering its SaveNet HMO in Marin and Sonoma counties.

United Healthcare’s Signature Value Alliance network will be formed primarily upon Sutter Health-affiliated physician groups but will also include groups like Brown & Toland in Northern California.

Sutter Health, meanwhile, is currently pursuing its own HMO product in Sacramento, which will also likely inject more competition into the employer-based insurance market. It expects to roll out the product to other regions upon getting state approval.

Dan Verel

9. Exchange Bank restores financial health, dividend

While the restoration of Exchange Bank’s shareholder dividend was a high-profile expression of confidence in the bank’s recovery from the recession, it also was the first step toward restoring the iconic Doyle Scholarship at Santa Rosa Junior College.

The Frank P. Doyle and Polly O’Meara Doyle Trust, responsible for the Doyle Scholarship, is the largest shareholder of Exchange Bank and is funded by the bank’s shareholder dividend. More than 100,000 students received the scholarship since it was enacted in 1948, and the program was put on hold in 2008 when loan losses from the recession forced the bank to stop its dividend.

While the bank’s board of directors and financial regulators had already agreed that the Exchange Bank had reversed the financial hit that it took during the recession, terms related to the $45 million the bank received through the Trouble Asset Relief Program in 2008 prevented resumption of the dividend. It was the U.S. Department of the Treasury’s decision to sell the stock in the bank it obtained as part of the program that allowed payments to resume in August.

Bank leaders called the quarterly 25 cent dividend a practical first step and a milestone in the comeback of the bank. It resulted in a payment of approximately $200,000 to the trust, which has authority to administer the scholarship and expects to do so in 2013.

Eric Gneckow

10. Airport expansion delayed as airline traffic hits record

A project to lengthen runways to new federal standards at Charles M. Schulz–Sonoma County Airport was delayed by one year, after federal regulators required further environmental study. While the Federal Aviation Administration approved of the determination that a 4.5-acre wetland area impacted by the expansion did not contain the endangered Burke’s goldfields flower as of late February of this year, the U.S. Fish and Wildlife service told airport officials this summer that construction should assume that the habitat was indeed occupied.

Environmental law experts say such presumed presence of a protected species, though new to a number of North Bay real estate developers, is part of an evolving, if sometimes invasive, regulatory policy over the last two decades. Presumed presence has been a hot segment of environmental case law in recent years, with attorneys representing farmers and property owners asserting that regulators are taking this too far.

Work is now expected to be completed in July 2014, versus an original estimate of November 2013, he said. The new environmental mitigation has contributed to approximately $10 million in estimated cost increases since the county Board of Supervisors first approved plans in January. The $53 million expansion project now needs $23 million in environmental measures. Federal aviation grants will pay for approximately 95 percent of the expansion.

The airport’s main runway will be extended by 885 feet to a new length of 6,000 feet. The second runway will be extended 200 feet to 5,200 feet. New taxiways will be constructed, and lighting will be added so the second runway can take the place of the main runway during construction. The longer runways will give future carriers more options, allowing smaller aircraft room to accelerate while at full passenger capacity.

In addition to the runway expansion, the airport’s 20-year master plan also includes more than $50 million in other upgrades that include a new passenger terminal, cargo terminal and traffic control tower. The new terminal is expected to be completed in eight to 10 years.

Passenger volume continued to climb at the airport in November, increasing 3.5 percent for the year, according to the most recent passenger data from the airport’s only carrier, Horizon Air. Since the start of the year, the carrier has served 190,647 passengers, well beyond the year-to-date high of 172,406 in 2011. 

Business Journal staff report


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