Ten The Year Itch
The Great Grape Cycle, Redux
Production (1,000 Tons) 800 700 600 500 400 300 200 100 0 75
California Chardonnay
This Time, Its Different.???
$1,300
Vineyard and Land Values U C Davis
Monday, April 15, 2009
$1,100 Price per Ton
$900
$700
$500
Tony Correia
$300 78 81 84 87 90 93 96 99 02 05 08
California Wine Grapes
3.5 Production (Mill tons 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1971 74 77 80 83 86 89 92 95 98 01 O4 2007
The Plague Years
California Wine Grapes
4.0 $700
Average Price per Ton
Production (Mill tons
Five Year Moving Average
3.5 3.0 2.5 2.0
$600 Price per Ton $500 $400 $300
1.5 1.0 0.5 0.0 1971 74 77 80 83 86 89 92 95 98 01 O4 2007 $200 $100 $0
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Major Vineyard Issues
Major Vineyard Issues
Wine Cycle > Planting mode, again
Its the Economy
Generational Transition
Accelerated by Economy??
Competition for Land continues Professional Investors Real Estate Speculation has disappeared Major Players; Public Companies Consolidation and Disaggregation Location; AVAs, Sub-AVAs
Major Vineyard Issues Grape Shortage? > Prices
Global Competition Carbon Footprint WATER?? > Frost? Vineyard Designations Designations Homesite Values Winery Sites and Permits Conservation Easements (Re) Development Costs Grape Prices
New Vineyard (Re-)Development:
Grape Prices Location, Location, Location Environmental constraints, entitlement processes costs; High land costs force high Land costs; High land costs force high intensity of use Homesite Values, add cost but no income Materials and labor costs Water Location
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Vine Acres; Changes Overall : 1995 > 2007 ; 2001 > 2007
500,000 North Coast 400,000 Cen Coast 300,000 Lodi 200,000 Others
Vineyard Values vs Grape Prices; Sonoma County
$130,000 $110,000 $90,000 $70,000 $50,000 $1,000 $30,000 $10,000 $500 1994 1996 1998 2000 2002 2004 2006 $1,500 Chardonnay $2,500
$2,000
100,000
Central Valley
0 1995
1997
1999
2001
2003
2005
2007
Vineyard Values vs Grape Prices; Sonoma County
$130,000 $110,000 $3,000
Vineyard Values vs Grape Prices; Sonoma County
$130,000 $110,000 $90,000
$2,000
Cabernet
Pinot
$3,000 $2,500 $2,000
Cabernet
$90,000 $70,000
$2,500
$70,000
$1,500
$1,500 $50,000 $30,000 $10,000 1994 1996 1998 2000 2002 2004 2006 Chardonnay $1,000 $500
$50,000 $30,000 $10,000 1994 1996 1998 2000 2002
Chardonnay
$1,000 $500 2004 2006
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LAND Values; Sonoma County
$70,000 $60,000 $50,000 $40,000 $30,000
$17,000 $32,000 $27,000 $22,000
Vineyard Values vs Grape Prices Monterey County
$1,500
$1,350
$1,200
$20,000 $10,000 $0 1999 2001 2003 2005 2007
$12,000 $7,000 $2,000 1994 1996 1998 2000 2002 2004 2006
$1,050
$900 Chardonnay $750
LAND Values; Monterey County
$50,000 $40,000 $30,000 $20,000 $10,000 $0 1999 2001 2003 2005 2007
Vineyard Values vs Grape Prices San Luis Obispo and Santa Barbara Counties
$48,000 $43,000 $38,000 $33,000 $28,000 $23,000 $18,000 $13,000 $8,000 1994 1996 1998 2000 2002 2004 2006 $700 $1,100 $900 $1,300 CHARDONNAY $1,700 $1,500
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Vineyard Values vs Grape Prices San Luis Obispo and Santa Barbara Counties
$48,000 $43,000 $38,000 $33,000 $28,000 $23,000 $18,000 $13,000 $8,000 1994 1996 1998 2000 2002 2004 2006 $700 $1,100 $1,300 $1,700 CHARDONNAY $1,500
Vineyard Values vs Grape Prices San Luis Obispo and Santa Barbara Counties
$50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 1994 1996 1998 2000 2002 2004 2006 Chardonnay $3,250 $3,000
PINOT
$2,750 $2,500 $2,250 $2,000 $1,750 $1,500 $1,250 $1,000 $750
CAB
$900
LAND Values; San Luis Obispo and Santa Barbara Counties
$40,000
$20,500
Vineyard Values vs Grape Prices Lodi (District 11)
CHARDONNAY
$800 $750 $700 $650 $13,500 $600 $550 $10,000 $500
$30,000
$17,000
$20,000
$10,000
$6,500 $3,000 1994 1996
ZINFANDEL
$450 $400 $350 2002 2004 2006
$0 1999 2001 2003 2005 2007
1998
2000
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LAND Values; Lodi (District 11)
$16,000 $14,000 $12,000 $10,000 $8,000
$6,000 $12,000 $10,000 $8,000
Vineyard Values vs Grape Prices Fresno - Madera (District 13)
$450 $400 Rubired $350 $300 $250 $200 $150 $2,000 $0 1994 1996 1998 2000 2002 2004 2006 French Colombard $100 $50
$6,000
$4,000
$4,000 $2,000 $0 2000 2001 2002 2003 2004 2005 2006 2007
$16,000 $14,000 $12,000
Vacant Land Sales Districts 13 & 14 (Madera > Kern, Eastside)
$7,000 $6,000 $5,000
Vacant Land Sales Districts 13 & 14 (Fresno to Kern, Westside) Range Average
Price / Acre
Price / Acre
$10,000 $8,000 $6,000 $4,000 $2,000 1997
$4,000 $0 $3,000 $2,000 $1,000 $0 1997
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99 2000
01
02
03
04
05
06 2007
98
99 2000
01
02
03
04
05
06 2007
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Vineyard Values vs Grape Prices Napa County
$300,000 $4,500
LAND Values; Napa County
$160,000 $140,000 $120,000 $100,000 $80 ,000
$2,500
Cabernet
$250,000 $200,000 $150,000 $100,000 $50,000 Chardonnay $0 1994 1996 1998 2000 2002 2004 2006 $1,000 $4,000 $3,500 $3,000
$60,000 $40,000 $20,000 $0 1999 2001 2003 2005 2007
$2,000 $1,500
Vineyard Values - Napa County
$300,000 $300,000 $250,000 $200,000 $200,000 $125,000 $150,000 $75,000 $75,000 $45,000 $0 Pope, Chiles Vlys Carneros Napa Valley Heart $75,000 $150,000 $100,000
Homesite Values - Napa County
$3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000
$50,000
$500,000 $0 1994 1996 1998 2000 2002 2004 2006
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So, Where Are We NOW?
Emerging from the bottom of another Grape and Wine Business Cycle. But the Financial Crisis has hit the Wine Business hard. Wine sales continue at a healthy pace, consumers are buying healthy pace, consumers are buying down. Cheap is chic Intense competition at lower price points. Real Estate markets suffering greatly from the burst of the Real Estate Bubble.
$8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $$(1,000,000) $(2,000,000)
Vineyard Investment, Leveraged Premium Napa Cabernet Vineyard Purchased in 1998 @ $3,700,000 (40 acs @ $92.5K/ac, or.. $85K/ac + $500K Homesite) Sold in 2006 @ $9,900,000 ($225K/ac + $1.5 M Homesite) (Grapes sold at 120% D4 Avg)
IRR = 24%
(Leveraged)
1998 1999 2000 2001 2002 2003 2004 2005 2006
Effect of Leverage (Gearing; Debt)
$10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $1998 1999 2000 2001 2002 2003 2004 2005 2006 $(2,000,000) $(4,000,000)
Sonoma County TIMING IS EVERYTHING
$1,750,000 $1,250,000 $750,000 $250,000 $(250,000) $(750,000) $(1,250,000) $(1,750,000)
Vineyard Investment, UNLeveraged Premium Napa Cabernet Vineyard Purchased in 1998 @ $3,700,000 (40 acs @ $92.5K/ac, or.. $85K/ac + $500K Homesite) Sold in 2006 @ $9,900,000 ($225K/ac + $1.5 M Homes ite ) $1 (Grapes sold at 120% D4 Avg) IRR = 17.5% (UNLeveraged)
Vineyard Investment, Leveraged Premium Sonoma Vineyard Purchased in 2001 @ $4,300,000 (40 acs @ $107.5K/ac, or.. $105K/ac + $400K Homesite) Sold in 2006 @ $3,900,000 in 2006 $3,900,000 ($90K/ac + $500K Homesite) (G ld t 120% D3 A )
2001 2002 2003 2004 2005 2006
IRR = (3% ) (Leveraged)
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Investment Summary - Vineyards
SO; Where Are We Going?
Californias Wine Industry will Live Long, and Prosper. But, in the near term, growers, vintners, and their lenders, face their share of challenges amid the global financial crisis, and, as always, some may not survive. The long term future appears bright, as California wines can compete with the best the world has to offer; and land, and vineyards, in the coastal regions of this state remain a scarce commodity.
TIMING
LOCATION
Operating Returns consistently low at Average Grape Prices Grape Marketing KEY to operational investment success
Profits primarily from Property Resale Value Added
Leverage enhances Returns (duh CHEAP money)
Quality, and the Perception of Value,
Continues to be the key to Survival, Today, and Success, Tomorrow.
What does this mean to Vineyard and Land Values?
Real Estate Aspects
Competition for alternative uses strong in many areas
California remains the home of good, and great wines, and the vineyards which produce the grapes which become those wines.
Wine prices drive grape prices which drive vineyard and land prices. Grape supplies appear to be moving towards shortage. Ergo, grape prices likely to increase; if wineries can sell their wine. Global competition remains strong.
Vegetables, tomatoes, almonds, pistachios, pomegranates, blueberries, clementines
Coastal areas, especially Napa, have achieved critical mass and world class status as a destination. Lifestyle amenities, infrastructure, etc. are in place. iti Vineyard estates continue to enjoy strong demand, and capture world class destination prices. Lower tier homesites suffering from housing meltdown.
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Major Vineyard Issues
The Greening of America
A recent study found the average American walks about 900 miles a year. Another study found Americans drink, on average, 2.39 gallons of wine a year. That means, on average, Americans get about 377 miles to the gallon.
Thank you for your time and attention. And, as always, drink more wine!!!
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