Real Estate And Credit Crisis Catches Up With Wine Industry – Part 1

Vineyard and winery sales data show that the real estate meltdown began to hit the wine industry around the first of August this year.

In addition, five real estate brokers and finance experts confirmed that the downturn has made deals harder to close, and is likely to reach crisis proportions for the most highly leveraged businesses by the middle of 2009.

At the request of Wine Industry Insight, a large real estate firm in San Francisco took a snapshot late last week of vineyard and wineries listed for sale with the Multiple Listing Service in Napa, Sonoma, Lake and Mendocino Counties.

That data, which does not include properties offered through other channels, shows that there have been no vineyard sales at their offering price since late July. In addition, a significant number of vineyard properties have been withdrawn from the market.

Further, there has been only one winery sale, with more having been pulled from the market in the last six months than are still being offered for sale.

Vineyard Data Summary Shows Beginning of Decline

Currently 28 vineyards are offered for sale and listed through MLS. In past six months, two have sold sales for offering price and none since August 1.

• 6/27 in Sonoma County
• 7/22 in Napa County.

Four vineyards have sold at at reduced prices:

• 8/04, Sonoma County, 74% of offering price.
• 8/07, Sonoma County, 84% of offering price.
• 10/17, Napa County, 89% of offering price.
• 11/04, Lake County, 60% of offering price.

In addition, seven vineyard properties have been pulled off the market.

Winery Data Showing Similar Trend

Wine industry real estate experts stressed in interviews that wineries are more likely to be offered through non-real-estate-broker sources than vineyards.

“Wineries are a lot more than a vineyard with grapes,” said a North Bay broker. “Not to sell the grower short, but a winery has a more complicated businesses to consider, and that requires specialized expertise.

Despite that, there are currently three wineries listed for sale with MLS. However, in the past six months, five other wineries have been pulled off the market or their listings allowed to expire.

There has been only one sale of an MLS-listed property: Russian River winery Topolos, on October 14. The sale is still contingent.

Banks Tightening Up Ratios and Requirements

Allan Hemphill, who facilitated the Topolos sale, declined to talk about any details. However, he did tell WII that, “The credit crunch is catching up with wineries and vineyards. This is true not only for capital for acquisitions; but also for bank operating lines and capital project financing for wineries.”

Hemphill, who sits on the board and loan committee of Summit State Bank which is active in wine industry lending, added that, “Borrowers for vineyards or wineries are being held to a much higher standard than even a few months ago. This includes tighter scrutiny of business plan assumptions, lower loan to value ratios, recent performance, personal guarantees (and their quality) among other things.

“This filter is effectively killing deals today and may put some undercapitalized ventures over the edge in coming months,” he continued. “That said, deals are being financed where the quality of the credit and the principal support is very strong.”

Hair-Pulling Time For Dealmakers

“I’m pulling my hair out,” said one Napa Valley broker, “and articles like you’re writing aren’t going to help me any. Sellers don’t want to face the reality of prices and buyers can’t get financing. I’ve got two wineries who went on the market about six months ago. Back then, both of them were people who thought it was a good time to retire, get a good price and relax.

“Now, the banks that finance their receivables and other credit lines are refusing to renew without more collateral,” the broker said. “So both of them [wineries] have got to sell at least some equity stake at most any price in order to get their credit lines renewed. Otherwise, Chapter 11 is their next stop.”