The Price of Dirt

The Price of Dirt

You’re sitting on the veranda, a glass of wine in hand. The sun is setting on the lush, green vineyard. You can almost feel the moment when those little clusters of grapes turn red.

Your own vineyard, a beautiful lifestyle in bucolic wine country: Peter Mayle made his name and fortune writing about it, Frances Mayes made it a Tuscan industry. It’s sexy, and the dream of wine lovers everywhere. Does the heart throb quite so rapidly while watching corn grow? Of course not.

What is it about a vine that makes us covet the land it grows on? And if we act on our desire, is it a wise move or slippery slope to disaster? The answers are as varied as the owners and the vines. It all comes down to ego, romance, location—and the dirt.

“You are investing yourself as well as your money,” says Vic Motto, CEO of the Global Wine Partners, an investment bank, based in Napa Valley “The single most important factor is you and your personality. You become part of the terroir.”

We’ve taken a look at vineyards around the world. Here is where to look and what to expect. Here is the advice from those who have done it and those who sell it. Here are the questions to ask yourself as you search for your sweet acres under the Tuscan sun—or Barossa, Napa Valley, New Mexico or Slovenia.

Follow the Money
Other than the dream, there are two factors that motivate individuals to buy vineyards: investment and lifestyle. Sometimes the two come together and you hit the jackpot. But more often you have to make the choice. Do you want to make money, or do you want the truly enviable lifestyle that can go with owning vineyards and potentially making wine with your name on the label?

The fact is, it is hard for an individual investor to make money in vineyards. The big boys are out there, buying vineyards and sourcing grapes at the lowest possible prices. Companies such as Constellation and Gallo (see sidebar) manage the problems, buy and sell grapes and control supply. For global wine companies and their investors, vineyards and wine are about making money.

Still, every day around the world in the critical 30- to 50-degree latitude band, vineyards are bought and sold, wineries take on new ownership, investors back private consortiums and virgin land is planted with vines. Wine is hot. And every day, more and more people are making wine.

People are buying vineyards because they want the lifestyle that goes with living in a beautiful setting surrounded by vines, and drinking their own wine. These are smart, hard-working people who buy vineyards with their eyes wide open; yet they are still surprised by how much work it is (to do it themselves or to arrange to be done), just to get to the moment when they enjoy the sunset over their vines.

Let’s imagine you’re one of those people. Your enterprise is small. Perhaps you started out thinking you’d just like to keep the wine to drink and give to friends. Then the bills start pouring in and you decide to sell the wine. This is when you discover that you are just one of many sitting in a sommelier’s waiting room with your baby. There are more than 2,000 wine brands in California alone. Now that it’s time to find shelf space or placement on a restaurant wine list, the bottle you lovingly created is competing in a global market.

So let’s make it clear what we mean by “investment” from this point on: You, as an individual investor in a vineyard property, are not going to make Warren Buffet-level returns by buying those vines. No one is going to get rich with under 100 acres. You can make a living with 40 or 50 acres; under that, it’s a hobby. In all cases, if you work hard and do well, you might just pay for the lifestyle.

And in all cases, it’s a long-term investment. “It is 10 years from the time you plant a vine to the market. It’s eight weeks for a head of lettuce,” says Terry Hall, communications director for the Napa Valley Vintners Association (NVVA). “So wine is a very long-term business investment. That’s why it’s critical people plan well.”

Making a living and making a profit involves much more than just watching the vines grow with friends visiting for the weekend. As a career, consider creating a consortium, do your due diligence, consider tax breaks, financing, and leaseback.

Dan Lynch, who made his fortune with a clever knowledge of computers and investments, bought into Napa Valley starting in 1991. “The allure of Napa is huge.  It is so damn convenient: close to a big city, in the country, gorgeous, fine wine region,” he says.

Last year he sold his vineyards, but as a high profile Napa Wine Auction buyer with joie de vivre, he still gets calls from people looking for the wine life.

“Oh, I tell all who want to get the bug that it is expensive, technically challenging, marketing challenging, a great place to wake up to, and a slippery slope as far as lifestyle excesses,” he says. “At least for those with the inability to stop drinking easily after a few. I think the boutique end of the wine world has an excess of people looking for excess.”

Jonathan Maltus wasn’t looking for excess, but rather a chance to turn his business acumen to winemaking. Fifteen years ago, he sold his engineering firm, took the cash and bought a 19th century château and vineyards in France’s Saint-Emilion, a UNESCO world heritage vineyard site with wines that top the price scales. He rebuilt the winery and started selling his Château Teyssier reds and, later, whites. But he was always looking for the best terroir. A small plot next to Château Angelus became available and he bought it. From these grapes, his Le Dôme now sells for $200 in tiny quantities. Then he took this strategy to Australia and bought old vines and built a winery in the Barossa Valley. And now he is looking in Napa Valley.

Maltus doesn’t live in all three locations but he buys where he would potentially want to live. For a long time, he looked in Africa, his and his wife’s homeland. But nothing clicked. He gave up Africa for Australia.

It is a global gamble. He says he spends more time on the telephone “flogging the wines” than nearly anything else. This is a truism heard from every person interviewed.

Maltus’ advice? If you can’t decide between buying a racehorse and a vineyard, buy the vineyard. “You are then saying, ‘I don’t care about losing the money.'”

Follow the Dream
Most of the buyers now coming to Napa Valley are looking for lifestyle, say the analysts and market watchers. “They want the trophy house with a vineyard,” says NVVA’s Hall. More than half the wineries in Napa make fewer than 5,000 cases. Potentially, a one-acre hobby vineyard estate can be $200,000 just for the raw land.

“If you go back to Napa 25 years ago,” says Motto, “a third of all the grapes were sold to the co-op or to Gallo and put into Hearty Burgundy. Some of the grapes from the same land are now making $100 wine.”

Lifestyle buyers buy for emotion and logic, and emotion always trumps logic, says John Bergman of Bergman Euro-National, a realtor in Sonoma County who sells vineyard estates and wineries.

The range of buyers is great, observes Bergman. There’s the young hedge fund manager who makes $700,000 a year and up; he’s in his early 30s, has a family and is looking for an escape. There’s the young professional—whether a doctor, an attorney, a high tech entrepreneur—who wants the beautiful lifestyle, wonderful wines, great restaurants. And there’s the retired couple, looking to live out the dream.

An Australian couple who asked not to be identified for this story decided to buy the lifestyle, a lovely 19th-century house. The vineyards were untended and at first they thought, “We’ll rip them out.” Of course, they didn’t and now the five acres of Merlot and Cabernet Sauvignon are thriving, thanks to much more work than they envisioned. Vacations, parties and doctor’s appointments are planned around pruning, replanting, tying the vines as they grow, driving the tractor, trimming the vegetation in the vineyards, chasing the birds, checking for disease and pests, worrying about frost and hail and running samples to the wine lab as harvest approaches, then harvesting, crushing, pumping over, blending, tucking into the cellar to see how fermentation is going and bottling. And they don’t even want to sell any.
But when they open a bottle of wine, it is theirs.

There are other options for the lifestyle seeker. In the Valle de Uco, an hour and a half from Mendoza, Argentina, private vineyard estates are booming and many of the investors are American. For $80,000, you  can buy a few acres and then build a house in a situation that would be similar to buying into a country club with a golf course, with the Andes in the background. Somebody else keeps the vines in check, you benefit from the lifestyle. Fincas Calitina has vineyards and custom designed villas, a micro-crush winery, restaurant and spa.
Another private vineyard program there is developing as a consortium, or a commune of wine lovers. David Garrett, who made his money in the high tech industry, is interested in making great wine. And so are the investors in his project who are buying three- to 10-acre parcels, overseen by Argentina’s top winemaker, Santiago Achaval, Rob Lawson of Napa Wine Company and Michael Polenski of Napa’s Blackbird Winery and Vineyards. It is not a housing development, but a resort is on the property and a winery is nearing construction.

Where to Look
Napa Valley remains an excellent investment, according to every analyst we spoke to. Buy where the gold is, not the silver: when the market falls for grapes, gold falls last. You can’t control Mother Nature, you can’t control the economy, but you can control where you buy and how you manage it. Buying at the top end is an insurance policy, involving less risk yet, paradoxically, more money.

How much more? Napa vineyards go for $200,000 to $300,000 an acre in top spots; Pomerol, France can be as high as $1 million; the Côte d’Or in Burgundy is $350,000 and up, despite a slight slump in 2006. But most of Bordeaux? Unless it’s a premium cru classé vineyard, a Ford truck is worth more than an acre of vines.

All of California is hot right now, says Motto, whose bank deals exclusively with wine-related investments and tracks vineyard prices globally. “California is the place to be; there is no region of the world doing better than California that I can think of,” he says.
An essential factor in deciding where to buy is the restaurant scene, advises Bergman. His advice sounds odd but think about it. “For the lifestyle, you have to have all the attributes, the finest restaurants, the finest wineries, finest hotels,” he says. “Lifestyle is not just the grapes, it’s the creature comforts and being close enough to a city to get your city fix.”

What does that rule out? Vineyards in marginal lifestyle areas, no matter how nice the trophy house. Bordeaux is a good example. The city itself has scores of good restaurants. Saint-Emilion has a small group of restaurants, including a Michelin star. But it’s hard to eat in the Médoc, even though it produces some of the world’s best wines. In fact, few of the Bordeaux winery owners actually live there.

Burgundy, however, though some of the most expensive vineyard land in the world ($350,000 and more an acre when you can even find an acre, sometimes it’s just several rows of vines), is a terrific food region. You will find Michelin stars and bistros with food that marry so well with the Pinot Noir and Chardonnay. Like Napa, Burgundy’s Côte d’Or and Côte de Nuits, are small. Dijon, known for its culinary delights, is a half hour away. Trophy houses are hard to come by.

The Douro Valley in Portugal is a spectacular backdrop for the summer. Vineyards are on huge slopes, indigenous vines growing grapes for Port and for the surging dry red wine business. Yet, even the region’s largest landowners, the Symingtons, retreat to Oporto, a seafood gastronomic capital, in the winter.

Adelaide, the Sonoma of Australia, has a wide range of restaurants, thanks in part to being a university town. And vineyards start just outside of town. But go farther afield and you will be asking what’s on the barbie.

The South African city of Cape Town boasts wineries in the nearby Stellenbosch and Franshhoek regions that are among the most beautiful in the world. They abound with restaurants, many featuring the exotic herbs and spices of the area and the many cultures that converge there. A great investment, but dependent on the politics and security.

In Chile, you have to come from the coast and from the mountains to Santiago to find premier quality food. Italy would seem to be a foodie’s dream, but it depends on where you are. Within a half hour of Florence and you are in food heaven. Two hours farther south, Montalcino and Montepulciano have very few restaurants and as with many rural areas in Europe, you can tire of the same type of food all the time, as good as it might be. In the southwest France’s Armagnac country, even foie gras and magret de canard gets old. No Thai, Indian or Mexican food.

Kaj Ahlmann bought 4,500 dramatic acres in Lake County, California a few years ago  and is gradually increasing the grape crop for his Six Sigma wines. He considers this home a retreat. But he says more restaurants “would be nice.” Napa’s St. Helena is just over the mountain, but it’s a dark, twisty, no-cell-phone drive no one would want to make back home after dinner and wine. Another Lake County winery owner, Jerry Brassfield, helicopters to his second home and winery with spectacular views in the new High Valley appellation, and brings his chef. Neither would want to be anywhere else, though.

If you are working on Wall Street, does it make sense to spend a day traveling in each direction—to California or to France—to drink wine in a beautiful setting? There are other options. Connecticut’s oldest vineyard, in Litchfield, is on Sotheby books for $1.9 million. And door-to-door it’s only 113 miles, taking just over two hours. Long Island’s outer reaches, always a favored getaway, are also making headway.

Researching this dream is a lot of work in itself. “Look at each vineyard individually, the history of production, vineyard designation, the wine itself,” advises Bergman.

David English, who advises on property acquisitions in Mendoza, Argentina, calls it the used car approach. “You need to know what you are getting into,” he says, noting everything from whether the land supports good vines and low frost risk to the currency and political situation for foreign properties.

And always keep in mind the oldest axiom in the wine book: To make a small fortune in wine, be prepared to spend a large one.

Published on March 22, 2008
Topics: VineyardsWInemakingWineries