Want to Buy a California Vineyard? Assess the Opportunity

Corey Dahline, Managing Director and Wine Lender at First Republic Bank
May 14, 2019

Buying vineyards has become an increasingly popular move among affluent individuals and couples, both for the lifestyle benefits of owning property in wine country and as an investment opportunity. But buyers must do their research — not all vineyards are financially fruitful.

Tony Correia, a leading land valuation expert who specializes in California’s wine-growing regions, recently explained this trend and how buyers can better assess a potential vineyard purchase.

Q: Why are more people becoming interested in buying vineyards?

Tony: There’s been growing interest in vineyards since the end of 2009’s Great Recession. We’ve seen all types of buyers. Big wineries have continued buying up vineyards, but we’re also seeing an influx of affluent buyers from places like Silicon Valley, Texas and even Europe and Asia. Some see it as a pure investment, while others sell their homes in the city and want to relocate to wine country. This increased demand has led to soaring vineyard prices — spanning anywhere from $50,000 an acre in lower-demand areas to more than $400,000 per acre1 in very high-demand areas like Napa Valley.

Q: What are the most important factors someone should consider before buying a vineyard?

Tony: Vineyards are capital-intensive ventures, and anyone pursuing this dream should be aware of the capital requirements and work involved in developing a successful vineyard operation. The most important factor is always location. The top vineyard sites are mostly taken, so new ones are a real challenge to find and acquire. The best vineyards tend to be in the premium American Viticultural Areas (AVA), specially designated areas for wine-grape growing that are generally most expensive. But there can also be great opportunities outside those AVA areas for buyers who understand the market and what to look for.

Another very important consideration is water. In recent years, we have experienced extreme drought in California, and have seen water sourcing come under tremendous pressure. We’ve seen farmers —particularly in California’s Central Valley — have their water supplies cut off completely, causing severe stress. Even if a vineyard has a creek or river running through it, the owner may not have rights to use that water. So, you must understand what your rights are to water sources in your area, how stable they are, how much water you’ll realistically get from those sources, and what it’s going to cost you.

It’s also incredibly important to have a home for your grapes. What I mean by that is, know in advance who will be buying your grapes and that you can sell them at a profitable level. Ideally, line up a grape buyer willing to sign a long-term contract.

Q: How do you view vineyards as an investment? How do they hold value over time?

Tony: Many small vineyard owners won’t see great returns from selling their grapes because the operating costs can be very high per acre. So the real return often comes from the capital appreciation and future sale of the land — not the yearly cash flow. Some areas, such as Lodi, California, are more cash-flow- and production-oriented, but they’re not typically the areas that lifestyle buyers are drawn to. The good news is that the highest-quality vineyards generally don’t lose value, and many have grown in value tremendously.

For 2017–2018, for example, grape prices from higher-demand areas like Napa saw the continued positive growth witnessed over the last two decades. However, grape prices from other areas like Monterey and Santa Barbara, and even some varietals in Sonoma, declined in 2018.

From an investment perspective, having a home site — meaning the ability to build a home on a vineyard — can add millions of dollars to the price. That may be worth it to certain buyers, but the home site generally does not generate income. So that can be a drag on the profitability of a property.

Q: What are the biggest mistakes you see people make when buying a vineyard?

Tony: I sometimes see people buy vineyards with unrealistic expectations in terms of the economics. You have to know what you’re getting into and hire the best people you can afford to ensure smooth and profitable operations. Before you buy a vineyard, it’s incredibly important to know you have a buyer for your grapes. If you do the right due diligence, it can be a terrific investment.

1. Correia, T. (2017, May) The Future of Vineyard Values. Wine Business Monthly, pp. 72-78.

The views, opinions and recommendations in this article are those of the interviewee and do not necessarily represent the views, opinions and recommendations of First Republic Bank. The information in this article is presented as is.