Capitalizing on growing thirst nationwide for the higher-end wine the North Coast is known for is intensifying demand for sources of capital, according to longtime local lenders.
Mechanics Bank last August brought on veteran wine banker Dan Aguilar to restart the lender’s North Coast position in the industry. In December, the North Bay commercial banking manager brought on seasoned agribankers Samantha Foster and Debbie Watson to the commercial banking team based in Napa.
Bill Rodda, managing director of agribusiness for Santa Rosa-based American AgCredit, has been in North Coast lending since the early 1980s. At the same time as the recent retirement of three-decade North Coast farm banking fixture Terry Lindley, the institution has added four lenders recently.
Aguilar and Rodda talked with the Business Journal about the impact of growing consumer demand for wines over $15 a bottle is having on the capital needs to produce it in the North Coast.
How healthy are North Coast winery and vineyard company cash flows?
DAN AGUILAR: I’ve been focused on wineries and vineyards for about 20 years in my career in Napa Valley and Sonoma County. And I’ve never seen the industry prosperous and more successful than it is now, especially at the high end. Cash flows, profitability, balance sheet capitalization, the ability of wineries to price in the market — all just remarkably strong right now.
BILL RODDA: Wines that are accelerating the most are in the $15-plus-a-bottle category. That’s important because that’s what we do up here, by and large. We had three years of good quality and quantity crops, and the last two years were reduced. That wasn’t a bad thing to stabilize inventories.
In the North Coast, demand for vineyards continues to be keen. In Napa County, there continues to be extreme demand for cabernet [sauvignon] land. It really is a cabernet county. What we’ve seen most recently is ground that historically has been planted to noncabernet varietals in some of the more southerly areas.
Not Carneros but the Oak Knoll area and cooler areas closer to the water are going to be converting from merlot and chardonnay into cab, because the economics are there. You can get more dollars for cab than those other varieties. We’re seeing conversions in areas where it may not be the best varietal, but it’s all about money.
There are some sales pending that will push the upper limits of land values right now in some the premium areas with winery permits too. Values continue to move up, up, up in Napa County.
That is also true in Sonoma County. Not extraordinary values, but we’ve seen records set for value of pinot noir acreage was a pension fund deal in Annapolis for $170,000 an acre. That’s probably a top end now.
We have a lot of things driving the land value in Sonoma County. Demand for home sites, which are a component of smaller vineyards with 10–20 acres, continues to be extremely strong. When you get into larger wineries it is more of a winery play, but demand for chardonnay and pinot ground is still keen.
We’re starting to see even more polarization of plantings and development into the [American Viticultural Areas aka appellations] that they’re known for, what they do best. That’s what people are gravitating toward or converting to. Russian River area at the top end is pinot, and owners of acreage are converting to pinot. Dry Creek is more of sauvignon blanc and [zinfandel]. Alexander Valley is cab ground, by and large. Highest and best use, so to speak.
“There are some sales pending that will push the upper limits of land values right now in some the premium areas with winery permits too.” —Bill Rodda, American AgCredit
“It may be a challenge for smaller companies to afford the debt service on the acquisition prices of these properties. Smaller companies may be getting priced out of that market.” —Dan Aguilar, Mechanics Bank
“Our winery lines-of-credit needs continue to go up, because the value of the inventory continues to go up.” —Bill Rodda
“Despite all the hand-wringing, I’ve rarely seen much consumer reaction from high-end wineries taking price increases.” —Dan Aguilar