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Why these California North Coast vintners are green-lighting projects despite economic uncertainty

Cuvaison Estate Wines has been planning for a few years to significantly upgrade the visitor experience at its 400-acre southwest Napa County bayview property.

But while some vintners have been hesitant to start hospitality projects amid an unprecedented drop in Wine Country tourism as COVID-19 cases have risen, this Carneros winery decided the right time for the project.

“It wasn't that the project kicked off because we've had the pandemic, but it naturally aligned with it,” said Dan Zepponi, CEO.

The current tasting room has space for up to 10 tables inside, but under state and county safety protocols only the adjacent stone patio on the north and east side is able to be used.

Nearly a year ago, Cuvaison received an updated county use permit to expand its existing tasting room and add a high-end experience atop the pond on the entry driveway from Duhig Road off Highway 12. Santa Rosa-based general contractor Nordby is set to start work in the next couple months on a few-million-dollar, two-part expansion project.

The first part will be to expand the existing tasting room, adding a sliding glass wall that can open to the air and installing an upgraded ventilation system with hospital-grade filtration. That part is now set to be done in July. The current tasting room will be closed during this part of the project, but tasting is set to continue outdoors as the days grow warmer.

Rather, that the “trophy style” display of hand-sanitizer stations, these will be integrated into the design to be visible but unobtrusive, Zepponi said.

The second part of the project will be the installation of cantilevered pavilions over the pond for VIP tasting and special small groups. The pavilions will be connected to a third overwater structure for the service staff to operate from, plus extra restrooms and close-by accessibility parking.

Also set to be added are “learning stations” along the pond path that describe commonly seen migrating waterfowl and conservation efforts on the property.

That part of the expansion is planned to be open by harvest.

But a surprisingly sizable contributor to the Cuvaison project price tag will be what visitors won’t see again, Zepponi said. A common complaint for years from visitors has been the sight from the patio of power lines that run from the transformer on Duhig to the tasting room. The vintner has been working with Pacific Gas & Electric Co. to run the lines under vineyards and roadways to the transformer.

“The wine business is a long-term, long-view business,” Zepponi said. “This (pandemic) is happening, but it's not going to be here forever. We convinced the board that we're just going to keep moving and do this expansion. Then we'll be ready when things start opening up.”

Pandemic pause in projects?

While Cuvaison Estate Wines procees, some North Coast vintners are taking a more cautious approach to capital projects, according to Troy Simmons, president of Nordby, which works on a number of wine hospitality, production and cave projects in the region.

“We had four projects that were put on hold,” he said, about the early months of the pandemic. “Some were in design phases, and they said to put them on hold to see what’s going on with pandemic and reassess when they understand it further.”

Then came the Glass Fire, which destroyed or damaged more than a couple dozen Napa County wineries. Now some of those facilities are in the design phase for construction in the next two to four years, Simmons said.

Rather than slowing down in the pandemic, John Craft, a Backen & Gillam principal architect who specializes in winery and resort projects, said he’s seeing an acceleration of design projects because of the pandemic and the fires.

"They’re making changes to accommodate what's happened in the pandemic,” he said. "A lot of them are adding staff because they're having to do much more remote tastings and contact club members, so they need a lot more people to have a desk and a computer to make phone calls. I’ve even seen more wineries want a special room with a green screen to do virtual tastings.”

And there have been design requests for outdoor areas to hold tastings under the pandemic rules, Craft said.

Pandemic accelerates production needs

Vintage Wine Estates has seen its production needs soar 35%-40% this fiscal year, which starts in July, according to Jeff Nicholson, chief operating officer. That makes the roughly $40 million expansion project at the company’s main bottling center, Ray’s Station in Mendocino County, timely, he said.

The project involves the addition of 270,000 square feet of warehouse space, bringing the total to 320,000 square feet, and the installation of a fourth bottling line, capable of 400 bottles a minute. That’s in addition to two 150-a-minute lines and one at 100 a minute.

The original plan was to have the slower lines operating at limited capacity, but now the goal is to have all four lines running to move through bottles of hot-selling retail brands into distribution.

“We’re lucky we had this capacity on the books before this,” Nicholson said. “We projected line 4 would take eight or nine years (to outgrow capacity), and now this will take three or four years.”

Future upgrades are up in the air, he said. The company may decide it is time to look at another location to mitigate risk of not having enough production capacity.

The project also includes expansion of the green-energy system by MEI Renewables. The 755.2 kilowatt photovoltaic array installed in 2016 is being relocated to ground mounts, and more panels are being installed. The total system size will be 2.23 megawatts of photovoltaic direct current energy plus a 741 kilowatt-hours of storage in Tesla’s new Megapack batteries. Once fully operational, it will be the largest solar and storage project in Mendocino County, according to the company.

Caves versus barrel warehouses

In the past few years, more vintners and high-net-worth individuals have been interested in building caves, according to Simmons. These are done via specialized boring machines and use of sprayed concrete shoring materials. Wineries have been using caves for centuries to store bottles and barrels of wine, and some have started to put much of the production underground.

“A big reason for the pickup in business is the performance of caves during the fires,” Simmons said.

A large cave project Nordby has underway is the expansion of Inglenook winery’s cave cellar into a subterranean production facility.

Owned by Francis Ford Coppola, the winery first dug 16,000 square feet, called the Infinity Caves, in 2003, and the 23,000-square-foot expansion with the winery was started in 2018. The production facility is set to be completed this year.

For smaller-scale wineries, the cost of digging and outfitting caves for barrel aging had been comparable to building similar square footage above ground with insulation and air-conditioning, Simmons said. Caves tend to maintain a constant temperature of 62–64 degrees Fahrenheit year-round.

But some modern winemakers have been wanting colder fermentation, in the range of 55–58 degrees Fahrenheit, so mechanical cooling has to be installed in caves to bring them down several degrees, Simmons said.

“Typically, caves are cheaper than above-ground (barrel storage), but with mechanical cooling, (the cost) is close to the same price,” he said.

Another determining factor is the level of finishes that go into the cave, whether it’s just for storing barrels or it’s intended to host guests, Simmons said.

The common cost per square foot for above-ground barrel storage, depending on cooling needs for fermentation and hospitality-oriented finishes, ranges from low $300s up to $500.

“The days building it for $150 a square foot are long gone, and even in the $200 range are gone, with the price of construction going up and all the newer requirements for Title 24 and CalGreen and for the mechanical equipment,” Simmons said.

Commercial construction costs in the North Coast have reached the highest levels in two decades, and prices for steel and lumber have continued to go up at double-digit rates in the past 10 months of the pandemic, he said.

Jeff Quackenbush covers wine, construction and real estate. Before the Business Journal, he wrote for Bay City News Service in San Francisco. He has a degree from Walla Walla University. Reach him at jquackenbush@busjrnl.com or 707-521-4256.

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