“BUYERS AND SELLERS” MARKETS VINEYARD VALUES:
PAST, PRESENT & FUTURE

Written By John Bergman January 2002

With over 34 years in the financial business I’ve heard it all. The economy is up. The economy is down. The economy is in recovery. The economy is on the decline. We are headed for a Recession. We are climbing out of a Recession. Unemployment is the lowest it’s ever been. Unemployment is the highest it’s ever been. There is panic selling on Wall Street. There is panic Buying on Wall Street.

1. SURFING THE ECONOMIC CYCLES

During economic swings, there are those that ride the waves like a professional surfer, and there are those that crash on the beach and don’t remember going near the water. The up and down cycles affect all of us in some form or another. Yes even Buyers and Sellers of Vineyard property in America’s finest grape growing region feel the effects.

I have come to believe that our economic trends are predictable; one must watch and read the signs of each coming change. You have to become that professional surfer riding the high waves while avoiding pitfalls and steering clear of any hazards if possible. Watch for the indicators.

Since the past predicts the future let’s look back a few years to examine a few of our high and low points, then ultimately the outcome decade by decade.

2 THE BEGINNING OF QUALITY WINES IN AMERICA

Overall the 1950’s were good years and represented the first full decade post World War II. Labor forces were in full swing building modern America. This is also the era that the American Palate began to appreciate fine quality wines. The jug wine drinker began learning about corks and smaller bottles. Yes the Martini and Old Fashion were still in vogue, but the European influence of fine quality wines had taken root in this decade.

At this time Mr. M, one of today’s most well know icons in the Wine World began looking far into the future. As a result the rest of his family, having generations of wine making under their belts and not seeing his vision, began to vote him out of most family decisions.

After many fruitless discussions with the family about his new creative and innovative ideas, he decided to go it on his own in the early 1960’s. America’s wine industry has never been the same.

Winds of change began the day that innovative young man opened the largest hospitality and tourist related winery in the Napa Valley. The next 40+ years brought good times as well as bad and we’ve learned that each up or down market has a benefit for someone.

3. “BUYERS MARKETS” and “SELLERS MARKETS”

There are basically two markets. A down swing economic market is called a “BUYERS MARKET.” A market that is hot with many buyers trying to out bid each other is called a “SELLERS MARKET”. They are only bad if you are a Buyer in a Sellers market, or a Seller in a Buyers Market. However, if you are a Buyer in a Buyers Market, or a Seller in a Sellers Market you will reap the rewards of buying at the right time. The interesting thing is that every decade has at least one Buyers Market and one Sellers Market. History shows us that after each Buyers Market, the Sellers market comes back stronger than it’s previous run.

The golden rule is to Buy in a Buyers Market, and Sell in a Sellers Market. However, if you’re holding for the long term it doesn’t really matter when you purchase. We have learned through recorded historic evidence that if a vineyard property were bought at any market condition and held at least 10 years that the values would have appreciated at a minimum of 100%.

4. DECADE-BY-DECADE TRENDS AND APPRECIATION

The late 1960’s saw major economic set backs in high unemployment and negative stock market performances. During these tumultuous times many lenders were unwilling to finance real estate. Lending for agricultural properties came to an absolute standstill, consequently vineyard values began to drop.

The 1970’s started off with a great jump in sales, and inflation. Vineyard values began to increase as prices shot up 150% over what they were just 10 years prior. In 1960 the average vineyard value was $2,000 for an acre of producing vines. By 1970 the values had jumped to $5,000 for the same vineyard acre.

Then, suddenly in mid 1974 the economy turned on it’s heel and brought a set back like no other. The lenders again pulled in the reins and buyers were scarce. This was truly a “Buyers Market” as Real Estate prices froze in position. There were high interest rates, few Buyers, and scores of Sellers. Then in early 1975, things again began to turn into a “Sellers Market”. The market was hot with Buyers outbidding each other in almost every sale.

NAPA AND SONOMA COUNTY AVERAGE VINEYARD ACRE SALE PRICE: PAST, PRESENT & FUTURE

PERCENTAGE INCREASE BY DECADE

Things went well until late 1979, when the market again turned to a “Buyers Market.” The smart buyers were out purchasing everything they could in this down market that lasted until late 1981. This was one of the longest Buyers Markets in the history of California.

History shows that real estate prices were racing to higher ground in the early 1970’s and were plummeting in the late 1970’. Worthy of note are the results of this 10 year economic cycle which conclude vineyard values increased 100%+ for the decade 1970 to 1980. A producing acre of vines jumped from $5,000 in 1970 to $11,000 in by 1980. In short, even though the end of the decade ended in a slump the 10 year return doubled.

The market in the early 1980’s picked up steam as prices gained ground and we began to see this “Buyers Market” returning to a “Sellers Market” again.

The down turn of the mid 1980’s started abruptly in the summer of 1986, and once again sales slammed to a halt. Lasting roughly a year this “Buyers Market” ran through mid 1987. By the final quarter of that same year, buying was beginning to accelerate and there was run on all vineyard properties. It appeared that grape prices had become so high that wineries were in competition with the average farmer vineyard buyer. As one might expect the farmer couldn’t compete with the deep pockets of the wineries.

5. THE AVERAGE VINEYARD BUYER PROFILE IS CHANGING

The typical vineyard buyer profile began to change substantially in the mid 1980’s. Instead of the farmer and the winery being your best buyers, it was the city person wishing to live the wine country dream.

By 1987 the third high-end gourmet restaurant was opened in Napa County meanwhile tourism began to double and triple annually. Instead of a seasonal resort area, Napa, and Sonoma were becoming year round destinations.

6. LARGEST JUMP IN VALUES IN THE HISTORY OF THE WINE COUNTRY

This new type of buyer didn’t need the vineyard to make economic sense.
They were looking for the lifestyle and romance of living in the wine country. They began to out bid the wineries and farmers. From 1980 until 1990 vineyard values jumped nearly 300% based on recorded historic county sales.

In Napa an average acre of producing vineyard property jumped from $11,000 an acre to $41,500 in just 10 short years. In Sonoma County they jumped from $7,500 an acre to $32,300. This was the fastest growing agricultural value in the history of the wine country.

7. BANKRUPTCIES IN THE WINE COUNTRY

The 1990’s began with a flurry of higher prices, but the “Sellers Market” was short lived. By the last quarter of 1990 things began to turn and head into a “Buyers Market”. This market was influenced by the devastation of Phyloxeria, a disease that was noted in the late 1970’s and had taken its final hold on the farmers that waited too long to replant. The lenders again tightened the noose on loans for agricultural land.

The combination of a bad economy and Phyloxeria created fire sales of vineyards and winery properties. With the exception of prohibition there were more bankruptcies than in any other time period. A third of the wineries and vineyards in Napa, Sonoma, and Mendocino Counties could have been bought for 50 cents on the dollar.

In early 1993 a Sellers Market started to surface. By then many properties had changed hands. The visionaries that bought during this devastation were about to be rewarded for their courage of taking a chance in a very soft market.

1994 started out as the tortes, slowly but surely and on a positive note. Prices began to climb, and sales were on the increase as momentum accelerated in both wine valleys. Things were improving for the long term.

8. PREDICTIONS OF OVER $100,000 FOR A VINEYARD ACRE BY 2000

In 1996 I made a prediction that vineyard values would jump past the $100,000 mark for an acre of producing vineyard before the year 2000. I received hate mail and angry calls from farmers, wineries and other brokers that specialized in vineyard sales. I was practically run out of town for my candid forecast.

One of the local Cities Chambers of Commerce wanted evidence of my prediction. Of course, I sent them to my previous articles, on www.bergmanvineyards.com and told them that my “Trend Lines” indicated that vineyard sales will cross the $100,000 mark on or before the year 2000. Next, I suggested that they call the county assessors to verify my findings. As they say, “The rest is History.”

I was an outcast for a while. Then it happened in 1999 as a vineyard was sold for over $100,000 per acre. Later that year I wrote an article for a local newspaper deemed appropriately “I Told You So.”

9. THE INTERNET

The Internet had been introduced in the early 1990’s and the wine community now had a new way to promote its product. Everything began to flow through the Internet. By the mid 1990’s “Dot-Comers” became a household name. They were a breed of their own and could be described as super smart kids with the future in mind. The average executive turned from the 3 piece suits, Mercedes Benz, and the classy old world looks to ragged jeans, skateboards, huge bank accounts and Ferrari’s.

10. DOT COM FRENZIED BUYING

The scramble was on to buy in the wine country. In 1999 all time vineyard sale prices and records were broken in both counties. Everything sold, even properties that had been on the market for 2 years were seeing multiple offers and some sold for more than they were asking. I had never experienced such a market-frenzy in my 34 years in real estate.

The average vineyard sale price went from $41,500 per acre of producing vines in 1990 to $92,500 by the year 2000. This represents 122 % gain in this ten-year period. The highest vineyard sale was $143,000 in Napa County.

Things began to slow down by mid 2000, and by 2001 the market had turned to a true Buyers Market. Then on September 11, 2001 America was hit with a devastating blow. Everything in America stopped in place while the dust settled on a changing attitude all over our beautiful country.

11. INDICATORS ARE PREDICTING A MARKET CHANGE

The 2001 holiday season entered the picture to show that buyers are a bit more cautious with their spending. However, as a sign of strength the Stock Market is showing resilience indicated by the DOW hovering near or above the 10,000 mark and the NASDAQ making strides to overcome the 2,000 mark. Both prove that America is aggressively fighting back the fears of 911 and showing confidence in our great country.

These stock indicators have come back higher than before the devastation of 911. Large manufacturers are experiencing new orders, as the supply for the GNP is not meeting the demand. Automobile sales have been the highest in history, with most of the dealers offering 0% financing. Wal-Mart had one of its best retail years ever. The “Indicators” are in line for this “Buyers Market” to turn into a “Sellers Market” soon.

12. MY PREDICTIONS FOR 2002

After living and selling real estate through almost 4 decades of “Buyer and Seller Markets”, I predict that we are coming to the end of a “Buyers Market”, and will be slipping into a “Sellers Market” by the second quarter of 2002.

Things will begin to turn around in the middle of February 2002. Interest rates will freeze, and Mr. Greenspan will be watching the next quarter to see if he will raise the interest rates again. The GNP will gain ground. Manufacturing will see a major increase in orders. Unemployment will decrease. Last, but in no way least, there will be more Vineyard Properties on the market.

If you are a Buyer, Buy now. If you are a Seller, your turn is right around the corner. I predict that by the year 2010, average producing vineyard values will be $185,000 an acre. I also predict that someone will pay $235,000 an acre for a top vineyard property in Napa and/or Sonoma County.

Well, this is my Crystal Ball for the next year and beyond. Perhaps you are interested in changing your lifestyle to living in America’s Premium Wine Growing region and enjoying life. We are here to help you with that move.

Perhaps you are the vineyard estate owner that has been thinking of slowing down a little and are thinking that you may wish to sell. I would be happy to come out on a confidential basis and let you know what I feel the fair market value may be in today’s economy. There is no obligation to sell, and the only ones that will know of our meeting will be you and I, unless you instruct me differently.

I look forward to another wonderful year in America’s most beautiful Wine Country, and hope to hear from and perhaps meet you one of these days.

John Bergman