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Sep
05

100 Years of Vineyard Values

After 20 years in the residential and commercial real estate business in the San Francisco Peninsula, crunching numbers to establish a good investment, I planned to retire to the Napa Valley in 1987. Until I moved here, I had been a wine consumer that knew very little about the process of the wine industry and my curiosity got the better of me.

I was curious about the values of all of these vineyards throughout the Napa Valley. I wanted to know: What has the appreciation of vineyards been over the years? Are they a good investment? How do you measure the cash flow from the vineyard? Coming from a commercial background, I was incorrectly thinking of Internal Rates of Return, Cap Rates, Gross Multipliers, Present Investment VS Future Dollars, and Return on Investment. All around me were hundreds of acres of vineyard land with varietals of every kind, and I had no idea what they were worth at the time or what they had been in the past.

I reached out to John Tutor, the Napa County Assessor, and made an appointment to gain some information from him. I asked him what the values of the vineyard sales had been over the years. He pointed to a room across from his office, stating that there were boxes of recorded sales of all properties sold in Napa County, with the year and date of sale marked on each file, and said: “Feel free to go and look through them if you wish.”

I spent nearly 6 months in that room, looking through boxes and files, with him and his assistant. I went through every sale as far back as I could find which from the late 50s and early 1960s to current date. I went through each sale that had a vineyard attached to it. I eliminated all improvements and other assets in the sale other than pure vineyard. I figured out what the vineyard portion of the property sold for and divided that amount by the number of acres planted, and came up with an average per acre value of each vineyard sold.

When I finished my research, I made up several spreadsheets, showing all vineyard sales from the late 50s through mid-1987. I took the spreadsheets to John Tutor and asked him to go over my findings. I wanted him to let me know if I had correctly found what one acre of vineyard was worth for any one year. A few weeks later, Mr. Tutor called me back and said that he had randomly gone through a few my sales and found that my results were pretty accurate.

As a number cruncher, I drafted some graphs showing the appreciation of the average per acre vineyard values in Napa County. Much to my surprise, I found that vineyard values had appreciated in value better than any other commercial real estate I had sold in the past. I asked Mr. Tutor if he would continue allowing me to know about all the vineyard sales in Napa and he agreed.

At the end of 1987, I wrote my first article called “Vineyard Values: Past, Present, and Future” showing a trend-line graph, with all the sales of producing vineyard land from 1960 through 1987. It showed tremendous appreciation of vineyards, on an annual basis. Though I had come up to the wine country to relax and retire, I ended up discussing vineyard values with many grape growers in the area. Some of the old timers showed me earlier information of vineyard property sales, going as far back as 1950.

The article I wrote was published in a local newspaper and I started getting calls. At the time, I knew nothing about the business of growing grapes, making wine, or even the difference between a grape steak and a nematode. However, I did have a feeling for vineyard values and their appreciation over the years. Because of the research, I felt comfortable about helping these vineyard owners establish a value for their vineyards. I even made projections into the future, using my trend-lines with the past vineyard values.

My early retirement in 1987 was not going to happen. I found myself having more fun in dealing with some great people in the wine industry. This venture and lifestyle got me working even harder, and having more fun with it than I did selling residential and commercial real estate. I began to write articles about the new things that were impacting the property values of the area, regularly, and mail them out to all vineyard winery owners in Napa County. After a couple years, I discovered Sonoma County and all the accolades, beauty and varietals that it had to offer. I started doing research going back as far as I could to the present day on the vineyard values in Sonoma County. Much to my surprise, Sonoma County’s trend-lines seemed to follow Napa County.

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FIRST PREDICTION

In 1993, the average price of planted and producing vineyard in Napa was around $75,000/ acre. The trend-line from 1950 to present day, at that time, indicated an appreciation of 100% to 300% every 10 years. In tracking the trend-line further out, I saw that if the present rate of appreciation continued, that by the year 2000, Napa County would have planted and producing vineyards priced at $100,000 per acre.

That same year, I wrote an article projecting that Napa County would see planted and producing vineyard land priced at $100,000 per acre before the year 2000. I immediately received phone calls and letters from every vineyard and grape growing institution in Napa County telling me that I was inflating the market, and that I should retract this projection publicly. I didn’t make any retraction and stood by my word. By mid-1998, Napa County vineyard values had hit over the $ 100,000/acre selling price and I wrote another article called “I TOLD YOU SO”.

Now I am planning to stir up another beehive. Back in 1950, an acre of producing vineyard land in Napa County could be purchased for an average of $1,000 per acre. In 2013, and even after a disastrous economic crash, Napa County is experiencing an acre of producing vineyard land at around $200,000 + per acre. With my trend information that I accumulated going back to 1950, I am able to see another large goal in the future

NEW PREDICTION

By the year 2050, I believe that someone will pay over $1 million for an acre of producing vineyard land in Napa County. My guess is that it would be located in Rutherford, Oakville, St. Helena or somewhere mid-Valley. I know I will get nasty phone calls, letters, e-mails, texts and tweets from several of you that will dispute my projections.

I don’t have a crystal ball, but I do look at trends. If you look at my graph, you will see that it clearly shows that my projections are right on course for $ 1 million per acre before the year 2050. Of course, we could have another historic down-turn, like in 2008, and then all bets are off. However, if you look at the statistics from 1950 to 2008 (68 years) there was nothing but appreciation. From the vineyard that was worth $1,000/acre in 1950 will be worth $1,000,000/ acre after 100 years, in 2050.

I will promise you that if I’m wrong and you can find me in 2050, I will buy you a bottle wine. I am sure that if I am still around, I will be the world’s oldest man.

I get asked, every day, if vineyards are good investments. To address this, all I have to do is show the vineyard sales history from 1950 through 2013. As I see it, “They Aren’t Making Any More Land to Plant Wine Grapes in Napa or Sonoma Counties”. Within these two premium grape growing regions, values can only continue to climb.

So, if you would like to get idea what your vineyard property is worth, feel free to call my office and we will be happy to come out, on confidential basis, and give you an idea of what your vineyard is worth. It doesn’t matter if you want to sell or not.

It appears that we are all in for some good times ahead and life is wonderful, here in the wine country. Holidays are upon us. It is time for us to reflect on the good times we have had in the past, and make plans for the future for our families, and our future families.

All I can say is that 2013 has proven to be one of our company’s best sales performance years and we look forward to working with you in the future…

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