We’ve seen values in the last year go up, on the extreme end, go up by 25 percent. It’s fair to say that in the past year we’ve seen vineyard values go up 10–15 percent.
If you have a winery-site component, that’s a whole different thing. Winery sites continue to hold and increase in value. What our lenders do when we look at a property that has a winery site permit or potentially would have one — on a good area and is accessible — they will value the permit just by itself. Just having a permit is a tangible value, because getting permits in the county is getting harder and harder.
So valuation looks at permit value and building value of the winery then the vineyard acreage valuable and if plantable acres that’s a different component.
Cab is driving Napa County, and pinot is the top value varietal in Sonoma County. But chardonnay still is growing and is the largest variety grown in Sonoma County. It’s a faster cash flow for wineries. [Chardonnay winemaking] is usually about a year, so they get it back faster.
How is the big overall growth in high-end sales affecting local demand for financing such as inventory, receivables?
AGUILAR: There was a big step up in demand for inventory and receivables financing with the large 2012 harvest and the need for wineries to finance that inventory growth. Since then, the average harvest has been about that size to down in the last couple of years. All that has been digested and internalized.
The real demand I see out there is as wineries continue to seek to secure their grape sources by buying vineyards. A lot of the bank growth has been in long-term debt to acquire vineyards and, perhaps, expand existing production facilities.
That is probably going to slack off now, because there just isn’t a whole lot out there to acquire. A lot of what’s available has been purchased by the big guys — Gallo, [Jackson Family Wines], Vintage Wine Estates, The Wine Group and so on.
On the other side of that, you have regulatory pressure against expansion, and that’s posing challenges. … It’s certainly driving prices up. If you do find a vineyard to buy or a wine brand to buy, you’re going to pay more for it, because there is a finite supply of quality vineyards for these brands.
One of the things that’s driving the values of vineyard and winery properties is people are realizing it’s harder to start a new winery with entitlements for production facilities and tasting rooms, because regulators aren’t approving these things as much as they used to.
The perception is if you don’t buy it now, you won’t be able to find it later. There’s not much new supply coming online, so that’s driving up prices.
All these things combine for a huge increase in the real estate value of assets in the last few years. Real estate tends to go in a step function, and we’re just going through the most recent step up in real estate values in the North Coast. Banks will lend on the values of the properties, and if the appraised value is there, then the banks will lend on it.