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Property crisis hits famous US wine growing region

As many as 10 wineries and vineyards in the region, which produces the most expensive wines in the US, will change hands in distressed sales or foreclosures this year and next, up from none in 2008, according to a report from SiliconValley Bank.
It says that 7% of vintners believe their finances are very weak while 71% of respondents said credit is harder to get. ‘We have 250 vintner clients saying this downturn is the worst in 20 years,’ said Bill Stevens, manager of the bank’s wine division in St Helena, California.
Part of the problem is that land values in Napa, home to about 400 producers, have fallen 15% from the 2007 peak, driven in part by slumping demand for high end wine, according to Robert Nicholson of International Wine Associates, a consulting and financing firm in Healdsburg, California.
Budget conscious consumers are buying less expensive wines, confirmed Peter Kaufman, managing partner California based Bacchus Capital Management LLC, a private equity fund that provides mezzanine financing to wineries.
The dollar value of US retail wine sales dropped 3.3% to $29 billion in 2009 after rising every year and almost tripling from 1991 through 2008, according to Gomberg, Fredrikson & Associates in Woodside, California. But consumption increased 1.9% to 323 million cases last year so people are buying less expensive labels, the industry consultant said.
The decline in sales makes it harder for owners to refinance mortgages, especially if the property is worth less than the loan. Napa winery and vineyard loan defaults rose fourfold to 18 in last 12 months, according to San Diego based research firm MDA DataQuick.
Figures from Rabobank Nederland, a Dutch bank that finances agriculture businesses shows that sales of super premium bottles priced more than $15 declined 10% last year, and those over $30, defined as ultra-premium, fell at least 15%. Napa and neighboring Sonoma are the top US producers of premium wine, the bank said.
Super premium wineries are likely to bear the brunt of changing consumer habits and lenders will pressure clients who can’t cover costs to seek solutions before the loan goes into default, Rabobank said in a January report. It added that cheaper imports from countries such as Chile, Argentina and Australia are cutting US winery margins.
‘Wine prices drive grape prices and they drive land prices,’ said Rabobank’s chief analyst Stephen Rannekleiv.
Bill Harlan, maker of Napa’s Harlan Estate Proprietary Red that counts four perfect ratings from widely followed critic Robert Parker, said he expects to see foreclosures mount. ‘No area is going to be unaffected by this financial meltdown,’ he said.
There have been few recent property deals because sellers are reluctant to accept the low bids they are seeing, according to Tony Correia, an appraiser in Sonoma. More than 30 wineries are for sale in California, Oregon and Washington, the most ever, according to Rob McMillan, executive vice president and founder of the wine division of Silicon Valley Bank.
The properties have too much debt, were new arrivals to the wine market or have owners who are looking to retire as competition rises and profit margins fall, he said.
Average prices are $150,000 to $200,000 an acre for a vineyard planted with red varieties such as cabernet sauvignon and $115,000 an acre for white grapes such as chardonnay. The most desirable sites in Rutherford and Oakville can fetch $250,000 an acre.
Mortgage defaults will also hit Napa residential parcels owned by hobbyists, or those who intend to produce 100 to 300 cases a year, according to Deborah Steinthal, principal of Scion Advisors which predicts that hundreds of properties will go into foreclosure.