So You Want to Buy a Vineyard in California?

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You’ve set your sights on an agricultural investment, living the dream on a hilltop surrounded by grapes destined for fine wines. But are you ready to buy a vineyard in California right now?

At Cru Land Company, we provide brokerage and advisory services to determine if the answer is yes. And if so, we help you develop a Wine Country investment strategy most suited to your overall investment objectives. We subsequently identify and evaluate opportunities that are aligned with your goals and work hand-in-hand to execute, and finally, close on the acquisition.

Buying a vineyard is a very different process than buying a house - even a fancy house. There is significant analysis throughout the selection process and multiple layers of due diligence required prior to close. Our role is to guide our clients through their buying journey. We follow the road map below to ensure the process is both smooth and thorough.

Choosing a California Wine Region

The first step in the investment process is choosing a wine region in which to invest. Napa and Sonoma may be the first to come to mind, but California has an array of counties that produce top-quality fruit and wines. These lesser-known regions are perfect for discovering, or developing, the next up-and-coming vineyard. (1)

In fact, we have an upcoming blog series titled Appellation Series that will touch on many of California’s 143 unique AVA’s (American Viticultural Areas). 

 

California is world-famous for its wines for a good reason. The climate and terroir perfectly meld in numerous regions throughout the state to allow vintners to turn out fantastic wines.

Forbes

 

California wine regions are differentiated not only by wine styles and varietals grown but by the price and availability of the land. Certain regions may be a better fit than others, depending on your personal preferences and goals for the vineyard.

What is the Objective of Your Vineyard in California?

Once you’ve identified a region to invest in, it’s important to consider your investment objectives and goals for the vineyard itself. What are you looking for?

  • The highest return (ROI)? 

  • An opportunity to actively farm the vineyard to make wine personally or commercially? 

  • A trophy vineyard to sell the fruit to the most acclaimed wineries in the world?

  • A weekend retreat with a hobby vineyard on the side?

There are an endless number of motivations and there’s a vineyard out there that suits them all.

Practically speaking, it’s also important to consider the amount of time and capital one wants to put into the investment.

Now we’ve identified our region and our long-term goal for the investment. The next question is - what type of land do we want to invest in to execute that goal? From an agricultural investment perspective, we are typically looking at either investing in open “plantable” land (for a vineyard development project), or an already producing vineyard. Those are the most agricultural-focused investment opportunities. The land could also include an estate, a winery, or other amenities that may or may not provide additional business opportunities.

Plantable Land

The main benefit of buying open plantable land for a ground-up vineyard development is that it allows the buyer to select a site that’s most closely aligned with their investment objective while subsequently tailoring the new vineyard development to meet that objective.

Here are two examples of vineyards designed with vastly different objectives in mind: 

  • A boutique ridge top Pinot Noir development with the fruit bound for an ultra-premium bottling

and

  • A high-yielding, valley floor Chardonnay vineyard development with higher volume but lower value fruit destined for a mid-tier wine

With ground-up vineyard development, instead of adapting your investment goals to match the land, you can develop the land to match your investment goals.

Mature Vineyard

The alternative to buying land for vineyard development is buying a vineyard that is already mature and producing a stable crop. The benefit of this strategy is that the vineyard is already in production and should be generating revenue. The downside is the vineyard is planted “as is”. That means varietal, spacing, clonal, and rootstock selections are already in place and do not provide the buyer with an opportunity to tailor it to their needs.

In addition to evaluating the site fundamentals such as location, elevation, orientation, slope, and water, as you would with plantable land, with a producing vineyard it's also imperative to analyze both near term revenue and long-term prospects of the vineyard. Will it need to be redeveloped in the future?

How Do You Plan to Farm the Vineyard?

Now we’ve identified our region, our objectives, and the type of ground we plan to buy – how are we going to farm the site? There are typically three options: Direct Operate, Custom Farm, or Lease it out.

Direct Operate

Directly operating a vineyard is where the owner farms the land themselves or with the help of an in-house team. Successfully operating this way requires a high level of expertise, planning, hiring, and possibly training, as you would expect with any in-house team. The upfront work may be more intensive, but the level of control and potential cost savings over time are benefits of this approach.

Custom Farm

This is where a professional vineyard management company is hired to farm the vineyard. The ongoing costs are typically higher than direct operating, but this option requires much less knowledge and engagement on the owner’s part. Vineyard management companies can be a great option to take time and stress off an owner’s hands. It can also provide them with the ability to scale through additional investments.

Lease to a Winery or Vineyard Management Company

Under a lease structure, the owner leases the vineyard, and typically all its operations out to either a winery or vineyard management company. The lessee is typically responsible for all the farming and in control of the crop, whether that be for their own use (in the case of a winery) or to sell the crop, in the case of a vineyard management company.

 

Under this structure, instead of paying to have the vineyard farmed, the landowner is being paid by the entity leasing the vineyard. This is typically either a flat ($/ac. fee) or a percentage of the crop rent, or a mix of both. This structure is generally the most passive and lowest risk investment strategy for an owner. The trade-off is that target returns are typically lower under this approach.

Is a Vineyard a Good Investment?

We’ve navigated the process to select a region, identify our objectives and what type of land we’re going to buy, as well as how we were going to operate the land. If we’ve gone through this process, presumably, we believe owning a vineyard in California is a good investment. It certainly can be an excellent long-term investment, however, as outlined above there are a lot of decision points. Optimizing the investment requires a thorough and diligent approach throughout the process.

Vineyard ownership is a capital-intensive venture that requires significant up-front investment and a healthy ongoing operating budget. But, if managed well, the vineyard can benefit from positive annual crop returns as well as appreciation over time.

Having a solid vineyard management plan in place is paramount to any vineyard’s success. If the goal is to make wine from the vineyard, employing an appropriate production strategy and an innovative marketing campaign is key.

One final, less quantifiable benefit to owning a vineyard is that it’s an excellent way to diversify your investment portfolio. It’s also a perfect excuse for wine aficionados to enjoy life on the farm, surrounded by grapes and beautiful country hills.

How Much Does a California Vineyard Cost?

In California, land and vineyard values vary wildly based on the location and its viability, or quality as a vineyard. The most renowned areas of Napa Valley can command prices of $500,000 per acre, whereas vineyard values in outlying areas can be $25,000 - $30,000 per acre.

Land prices are driven primarily by the value of the crop. According to California Grape Crush, Napa Valley Cabernet Sauvignon grapes averaged over $8,000 per ton in 2021, whereas Cabernet Sauvignon from the Central Valley averaged closer to $500 per ton. However, the pricing is also driven by overall real estate fundamentals and the general desirability of the area. Napa, Sonoma, and Santa Barbara Counties, for example, not only produce excellent grapes and wine, but they are also highly desired areas in which to live and own land.

In addition to the pure vineyard, or plantable land that’s being invested in, there may be additional value components such as a winery or an estate home on the site. All this is to say there’s no “one size fits all” for California vineyard pricing. The prices found in various regions certainly factor into our criteria as we are selecting the region for investment.

It's worth noting that water has become gold these days in California and the value of good quality, high production, secure water cannot be underestimated. Determining water quality and availability is key in evaluating any vineyard ranch on the market.

Are Vineyards Profitable?

Yes, vineyards can be profitable over the long term - and many are! It can take several years before the revenue becomes reliable enough to start generating a return, however, which is why it’s important to carefully consider all aspects of the investment. This is what we at Cru Land Company dedicate ourselves to, day in and day out - finding profitable vineyards for our clients.

What Kind of Profit Can a Vineyard Make?

The profitability of your vineyard will depend on many factors such as location, scale (size), farm-ability, and the quality and yield of the vineyard crop.

 

A rough back of the napkin example for exploring profitability will look something like this:

Gross Revenue = Total Crop Yield (number of tons)

x its Fruit Price ($/ton)

Less the Total Cost to Farm and Cost to Carry = Net Revenue.

 

This is a very rough analysis. There is, of course, significant analysis that goes into evaluating a vineyard's financial potential. Returns from vineyard and winery ownership vary widely. Some do exceptionally well while others struggle. The team at Cru Land Company analyses the financial viability of all vineyards we present to our clients. We consistently guide them towards their dream vineyards and those with the potential to be highly profitable investments. 

Additional Opportunities?

In addition to the vineyard income, supplemental revenue streams may provide additional opportunities. This could include using the estate for short-term rental, vineyard tours, or perhaps even weddings.

It should be noted, however, that a “conditional use permit”, may be required for these uses. Permits are needed on a per county basis and some counties make this process much more arduous than others. The viability of these opportunities can be vetted during the evaluation process to see if these revenue streams can drive additional returns to the property.

It's Time to Buy?

We’ve crystalized our criteria including our region, investment objective, vineyard and land preferences, varietal, size, and additional amenities. Now the search begins!

At Cru Land Company, we keep an extensive, up-to-date database of land and vineyards being publicly offered for sale. We also track and catalog properties being confidentially marketed by other brokers as well as those for sale directly by owner. These opportunities are then made available to our clients.

 

With our criteria in hand, we'll identify the most ideal sites, including those that are both on and off the market. We’ll work with you as a buyer to evaluate them with a vineyard and investment potential and negotiate on your behalf for an acquisition. In escrow, we'll manage the extensive due diligence. Once you are the proud owner of your dream vineyard, we will provide any additional support services you'd like.

Your Guide to Agricultural Land Investments

You deserve a real estate agency that specializes in your interests, providing you with the knowledge and expertise that comes with over a decade of experience.

At Cru Land Company, agricultural investments are made simple. We provide you with a platform for investment growth and a local presence that you can rely on.

You’ll benefit from not only a tailored real estate experience but also premium advisory services, helping you make the right choice based on your goals and desired location.

Contact us today to learn more about our process and discuss your next agricultural land investment.

 

References:

1.              Forbes, Off the Beaten Path: Six Wine Regions in California to Search Out That are Not Napa or Sonoma, https://www.forbes.com/sites/hudsonlindenberger/2021/12/23/off-the-beaten-path-six-wine-regions-in-california-to-search-out-that-are-not-napa-or-sonoma/?sh=1f538e3f5847