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May 28, 2018

Untangling the Vines of a Vineyard Purchase

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Untangling the Vines of a Vineyard Purchase

Investors who want to make money from this type of agricultural endeavor need to be prepared for a complex transaction. Help guide them by finding the right experts and appropriate data.
vineyard

For deep-pocketed investors who imagine buying a parcel of land and using it to start a profitable agricultural business, owning a vineyard may be their dream come true. A successful vineyard could provide a big payoff—even beyond the wine it produces—but your clients need to be prepared for the complex process of such a purchase. It takes a great deal of due diligence, so know the right questions to ask:

  • What’s the buyer willing to pay per acre?
  • Does the buyer have experience with a vineyard or other agricultural business?
  • What grapes will the buyer grow, table, wine, or juice?
  • What reports do you need to show that the land is in optimal condition?
  • Is a vineyard the best investment option for the buyer?

Knowing these answers will help you target the areas where your clients should be looking. The market for vineyards—as well as their investment potential—remains strong, even in popular areas along the West Coast, where wildfires in late 2017 threatened California’s Wine Country. Less than 1 percent of wineries in Napa and Sonoma counties suffered damage, according to the Agricultural Issues Center at the University of California-Davis. Your clients should understand these environmental risks, but it doesn’t have to dissuade them from making a large land purchase.

Buying a vineyard also can entail a drastic lifestyle change, so it’s key to know your client’s expectations, says Jason Stutz, broker-owner of Help-U-Sell Real Estate in Monterey County, Calif. Will the buyer use the vineyard as a trophy property or an actual business? It also makes a difference whether the buyer intends to simply sell the grapes grown on the vineyard or use them to make wine, says Michele Rennie, a sales associate at Walla Walla Sotheby’s International Realty in Walla Walla, Wash.

Get Guidance on Land Transactions

If you have clients interested in purchasing a vineyard or other types of land, the REALTORS® Land Institute—which is the “The Voice of Land”—offers educational and networking opportunities for real estate professionals who broker, lease, sell, develop, and manage such deals. Learn how to acquire the Accredited Land Consultant (ALC) designation to gain specialized expertise and conduct land transactions.

Once you’ve assessed your buyer’s intentions, there are specific elements you and your client should look for in a vineyard. “We say for houses, ‘Location, location, location.’ But it’s even bigger for vineyards,” says Lynne Chamberlain, managing broker at Windermere Real Estate in Walla Walla. “It must have the right conditions: soil, air, wind, nutrients. It’s a tough crop to grow, and you work your buns off.” And your client likely won’t be able to do it alone. Developing a network of professional winemakers and farmers will help the buyer get the vineyard off the ground in the early days. “If you’re looking for land, you need to hire consultants and ensure you have an agreement with your buyer that you’ll get paid—because it’s tons of extra work,” Chamberlain adds.

How to Find the Right Vineyard

When your client is ready to begin his or her property search, start by assessing the quality of the land. You want to look at the quantity and quality of water in the soil, as well as whether the soil is heavy and nutrient-dense. Watch out for land that has been overused by previous owners and pests such as nematodes or phylloxera, which often feed on commercial grapevines. These can affect the quality of the grapes and your buyer’s ability to mitigate freeze. A location with good airflow and altitude also are essential.

Your buyer will need the vineyard’s history and financial model, as well as the type of operation (hand or machine), availability, and cost of labor. “It’s more than buying the property,” says Todd Renfrew, ALC, broker-owner of California Outdoor Properties, Inc., in Vacaville, Calif., and a member of the REALTORS® Land Institute. “Are you starting one or buying an existing vineyard? You can grow the grapes, but can you sell them? Do your buyers have a marketing plan?”

Because the process is complicated, buyers need specific information from you. Disclose anything you know about the vineyard, from land reports and diseases to legal claims and labor issues. You also must help your client determine whether the land is in optimal condition, which will require collaborating with surveyors, vineyard managers, winemakers, and other real estate professionals who have experience with these kinds of transactions, says Henry Schlangen, associate partner at Terra Firma Global Partners in St. Helena, Calif. He recommends delivering reports on the soil, water, area rainfall, petiole testing, pest testing, and land surveys to the client.

“Check the title for any easements, and because it’s a commercial acquisition, do a phase one environmental analysis,” Schlangen says. Also, check the age, health, and variety of grapevines, as well as typical prices of fruit and wine. There also may be existing contracts for the fruit between the current owner and other businesses.

Stutz advises procuring individual vine samples and a yield history to compare to other vineyards in the area. If the vines are young, they’re primed to pump out fruit. But older vines will have to be rotated and replaced—an added cost to your client.

Disaster Prevention

To protect the land from extreme weather conditions, you should advise your buyer to create a larger firebreak by clearing more space between the vineyard and outlying brush. The local fire department also can provide damage prevention ideas. Securing proper insurance and knowing the fire and flood zone histories for the vineyard are important, too. Structural and plant damage is only one factor to consider; “smoke taint,” or smoke damage to grapes, is another—and it is irreversible. Schlangen says a small percentage of California vineyards suffered smoke taint from last year’s wildfires. “It hasn’t been a big deal … but it’s too early to tell. We’ll know more during bud break in March or April and during secondary fermentation, when winemakers test smoke taint levels.”

Real estate professionals say buyers must consider future disaster threats to the vineyard they’re considering purchasing. It’s wise for your clients to consider vineyards that may not be in prime locations but are at less risk of disasters. Although some vineyards in Napa and Sonoma counties were burned in recent wildfires, the Napa Valley Vintners released a statement, saying: “We estimate 90 percent of the grapes were picked before the fires started. Of the grapes remaining, it was almost all Cabernet Sauvignon. Our winemakers report that this thick-skinned variety is not expected to be impacted by the smoke from the fires.”

Determine Whether It’s the Right Investment

If you and your client find a vineyard with positive reports, is there a way to tell if it’s a good investment? “Owning a vineyard is a lifestyle investment,” Rennie says. “How good of an investment it is depends on the grape marketing plan. That defines the revenue generated and whether or not it’s a good investment.”

Chamberlain says vineyards in Walla Walla, Wash., are typically $40,000 to $60,000 per acre. Total prices for recent sales there range from $500,000 to $1.1 million. In Monterey County, Calif., where vineyards are more plentiful and weather is ideal for procuring grapes, $50,000 to $70,000 per acre is more common, Stutz says. “The ways to make money are appreciation, income, and creating a wine brand,” Schlangen adds. “It’s been a terrific investment in Napa and Sonoma, where vineyards worth $15,000 to $20,000 are now going for millions.”

When working with an investor on a transaction of this magnitude, it’s crucial to communicate up front the expenses, work, and complexity of getting to closing. With knowledgeable experts and consultants on your side, as well as data appropriate to this type of land purchase, your client will be amply prepared to embark on the art of buying a vineyard.

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