WINE COUNTRY ARTICLES
 
The Flood Gates are Opening
By John Bergman

Everything looks like it is all turning for the better.  Three years ago, everything looked dead. Now, as the sun has come out, the buds are breaking, and we are starting to feel the sun’s warmth on our skin, we are seeing buyers coming out in droves.

They are coming in from all over the world, and paying all cash for large wineries and vineyard properties that have been on the market for years.  I haven’t seen the market this hot since 1999, during the dot-com era.

When this occurs, my occupation seems to turn into a 24/7 job. Maybe the stars are lined up or there is something in the air that is telling others to “Buy, Buy, Buy”. Whatever it is, it appears that there isn’t enough winery and/or vineyard inventory available at this time.

When the economy crashed in March 2008, we all thought that things would be back up and running within a year or so, like all other economic setbacks in the past had done. This time: 2009 was a disaster, 2010 was not good, and in 2011, I began to see many “Bottom Fisher” cash buyers stealing whatever they could. These “Bottom Fishers” took care of a lot of damaging short-term economic problems for the sellers that were hanging on by their fingertips.

We saw a small set back in 2012, due to the election year, until things started to settle down. Then, the flood gates began to open and an army of cash buyers started their quest. We are well into our 2nd quarter of 2013 and it appears that things are the hottest that they have been since 2007.

WHERE DID WE LEAVE OFF IN 2007 (Prices of an acre of average producing vineyard)?

  Low High
Napa County $40,000 $160,000
Sonoma County $30,000 $91,000

WHERE WE ARE NOW, IN 2013 (Prices of an acre of average producing vineyard)?

  Low High
Napa County $70,000 $300,000
Sonoma County $60,000 $125,000

It appears that good times are coming back…… We have surpassed the high water mark of the top of the market in 2007 and it doesn’t appear to be letting up. It’s those 2 words that seem to be brought up in every Up and Down market:  “SUPPLY” and “DEMAND”…

The larger wineries are out, in force, buying up as many of the larger vineyard properties as possible, because they see a future shortage.  There hasn’t been any new vineyard planting since 2007 and with the new plants taking 3+ years to get their first crop; we may see the demand increase in short order.

The ”life style” buyer, that is the back bone of the residential vineyard estate market, is coming to our beloved wine country to get a piece of heaven and live the good life. More and more of them are coming from the freezing cold areas, overcrowded areas, and gang affected cities from all over the world to enjoy what we have here.

WHY ARE COUNTY PRICES SO DIFFERENT IN VALUES?

You can have the same root stock and clone planted at the exactly at the same time in different locations and acres of these identical vines can be worth over $100,000 per acre difference in value. Take a look at the differences in price per planted acre value in the different counties.

SAME ROOSTOCK AND CLONE, AVERAGE VALUE PER ACRE, BASED ON COUNTIES:

Napa County Average                  =             $65,000 to $300,000

Sonoma County Average              =             $60,000 to $125,000

Mendocino County Average          =              $15,000 to $85,000

Lake County Average                   =             $15,000 to $35,000

Humboldt County Average            =                 $5,000 to $7,500

We feel the main reason for the price discrepancies are the perceived quality and value that each AVA or county can produce. Name recognition is important. “Napa is the King of Cab”, “Sonoma is the King of Pinot Noir” as perceived around the world, so consequently people will pay more for a bottle of Napa Cab or Sonoma Pinot Noir then they will for a Cab that came from Lake County.

IRS AND AVA’S (AMERICAN VITICULTURAL AREA’S)

California has 111 AVAs (or appellations) and within those hundred 111 AVA's there are also sub-appellations or sub-AVA’s. For instance, Napa County is 1 AVA or appellation, but within it consists of 17 sub-AVA's. Sonoma County has 15 sub AVA's and Mendocino County has 10 sub AVA's.  Each of its AVAs are distinguished by the quality of certain varietal of grape grown for high quality wines. Each of these AVA's have a slightly different vineyard value per acre, based on varietal, quality and recognition.

The consumer of wines will pay more or less for certain varietal that came from a certain AVA. Because of this, AVAs have different vineyard values per acre.

In August of 1993, Congress enacted section 197 of the Internal Revenue Code providing for a 15 year amortization. To qualify as an intangible asset, it must have been acquired after the enactment date and held in connection with the conduct of a trade or business.

In the past some practitioners have questioned whether appellations fall within the guidelines of the IRS’ section 197. In October of 2010, the National Office of the IRS released a Chief Counsel memorandum concluding that the “right to use an AVA designation or appellation right upon the purchase of a vineyard is considered a license, permit, or other right granted by the government unit, rather than an interest in land and therefore and amortize of all assets under section 197”. This means the amount of the vineyards fair market value allocated to the right to use the AVA designation can be depreciated and amortized over 15 years.

As we all know, owning a vineyard has plenty of deductions. Everything, except the ground, is deductible in one form or another. The section 197, depending on which AVA you own, the amount of depreciation that you can amortize is based on the value that that AVA is worth. This is a milestone for the industry as the IRS has finally recognized the values of each AVA.

If you haven't already done so, please contact your financial and/or tax advisor in order to take full advantage of what our illustrious government will allow.

SO, HOW DO WE STAND IN OVER ALL WINE SALES?

Napa and Sonoma County account for 69% of wine sales in the US. In 2012 our sales increased by 8% and 10.1%, respectively, in value. The value of direct shipments to consumers was $714 million for Napa and $286 million for Sonoma County. Overall, US exports showed that 90% of all US wines came from California, which was an estimated $1.43 billion. This equals 47.2 million cases of wine shipped in 2012 according to the San Francisco-based Wine Institute, published in April 15, 2013.

In Napa County, a bottle of wine sold for an average of $56.87 in 2012. In Sonoma County, a bottle of wine sold for an average of $35.42 in 2012. Sonoma county Pinot Noir direct sales took the largest share of sales growth. Their surge increased by 26.9% in volume (255,500 cases).

Yes, the flood gates are wide open and it appears that we are all back to our normal way of life, living, and loving in our wonderful wine country. Vineyard sales are up, per ton grape price sales are up, the wineries appear to be selling more wine than they have in years, and the demand to buy wineries and large vineyard properties is way up. We had an overabundance of fruit last year. With the projected short rain fall this year and warm temperatures forecasted, we may just be having another banner year in the wine country.

NEED FOR MORE INVENTORY

Being a real estate brokerage company that specializes in vineyard winery sales, we are finding that we are as busy as we have ever been. There is a real lack of inventory of both wineries and vineyards, of all sizes. We see and project the prices for vineyards and wineries are only going to continue to rise. We have consumers from around the world, most of which are all cash buyers, waiting for the right product to become available.

WANTS AND NEEDS FOR CLIENTS, We have qualified buyers for…

1)  A Russian River or vicinity Winery, up to $6 million with vineyard, must be in operation. (Scott’s client)

2)  Napa or Sonoma County, operating winery, up to $25 million (John’s client)

3)  Napa or Sonoma County, wants 3 to 10 acres with vines, cute home up to $2 million (Dave’s client)

4)  Napa, or Sonoma County, 20-30 acres of vineyard, small home or cottage, break even or small profit, near small airport if possible (Scott’s client)

5)  Napa or Sonoma Counties. 60+- acres in all with 10 top 20 acres planted to grapes, home not important, beautiful setting up to $4 million (Dave’s client)

6)  Sonoma between Kenwood and Carnaros, home with vineyard, wants to make his own wine from grapes, has $1.5 million (Scott’s client)

7)  Napa County (anywhere in County), wants winery, home has $8 million (Scott’s client)

8)  Sonoma County, 200-300 acres of raw land to build a family compound. Several parcels would be good, no vineyard. Wants 4 parcels/building sites minimum (Scott’s client)

9)  Several buyers for “Vineyard Estates” from $2 million up to $20 million for Napa and Sonoma Counties.

Summers upon us and the living is good. I wish you a very happy, healthy and successful 2013

Let us know if you may be thinking of selling

Let us know if we can be of service in any way with your wine country real estate needs on a very confidential basis.
Bergman Euro-National wishes you the very best in the year to come in all following years.


Bergman Euro-National
www.bergmanvineyards.com
(707) 887-9822

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Bergman Euro-National is a Real Estate Brokerage Firm that specializes in the sale of Vineyards, Vineyard Estates, large Estate Properties, and Winery Properties in Napa, Sonoma, and Mendocino Counties for 25 of our 45 years in business. On a very confidential basis, we work with the mergers and acquisition of wineries in Northern California. We have produced more than 2 billion dollars in sales in our over 45 years history in real estate. If you desire experience and confidentiality, we have a team of professionals in financial, taxation, due diligence, legal, and transfers at our disposal.

 

 

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