High End Wine Sales Fueling Napa Deals

SAN FRANCISCO – A new era for California’s priciest wine regions began Feb. 1, when PlumpJack Winery partners bought 50 acres in Napa Valley’s Stags Leap district, home to heralded vintners Shafer Vineyards, Clos du Val and Cliff Lede Vineyards.

The purchase kicked off a sales spree for premium properties across the state that’s poised to climb to $800 million by year’s end, the most since the 2007 market peak, according to Demeter Group, a San Francisco-based consumer investment bank and advisory firm.

“It’s been a complete turnaround,” said Stephen Rannekleiv, lead U.S. wine analyst in New York for Rabobank Nederland, the Utrecht, Netherlands-based bank that finances agriculture businesses. “There’s lots of interest in good California properties right now. If you’ve got vineyard acreage, it’s a hot commodity.”

Renewed dealmaking follows three years of plunging demand for high-end California wine, which accounts for more than two-thirds of U.S. bottle sales above $20, according to data compiled by Nielsen Holdings. The recession that started in December 2007 turned luxury consumers into bargain hunters “dancing on the graves of bloated wine inventories,” Rob McMillan, wine division founder at SVB Financial Group’s Silicon Valley Bank, wrote in an April 17 industry report.

Purchases of California premium wine totaled $410 million in the 12 months through July 21, up 14 percent year-over-year and better than the 11 percent gain for all U.S. luxury producers in the period, store-scan data from New York-based Nielsen show. High-end wine sales are advancing at more than double the rate of overall wine sales, with north coast warehouse shipments up 12 percent in the first half of 2012 from a year earlier, said industry consultant John Gomberg, based in Woodside, Calif.

Credit availability is unlocking sales, as mortgage distress abates and wineries streamline operations, said Jeff Menashe, Demeter Group’s chief executive officer. Vineyard defaults plunged last year by 61 percent in Napa and 44 percent in Sonoma from the 2009 peak, when 18 properties in each county entered the first stage of foreclosure, according to DataQuick. For the first seven months of 2012, only four vineyards in Napa, 50 miles north of San Francisco, and eight in Sonoma were in default, the research firm said.

“Luxury wine has gone from having significant headwinds to meaningful tailwinds,” Menashe said. “The industry is growing at the ultra-premium end. Everyone is trying to push up.”

Distressed sales in 2011 were limited to “fringe” properties outside prime growing districts, according to a year-end summary by the California chapter of the American Society of Farm Managers and Rural Appraisers.

“It’s a fairly healthy situation, with access to credit again and strategic buyers looking for really good property,” said Bill Stevens, Silicon Valley Bank’s wine division manager in St. Helena, Calif. “Wine producers got right-sized.”

The lender’s wine unit had $374 million in mortgages secured by real estate as of June 30, an 8.1 percent increase from the end of 2011, according to an Aug. 8 regulatory filing from the Santa Clara, Calif.-based company. About $500 million in vineyard and winery deals in the north and central coast regions of California were completed this year through Aug. 13, Demeter Group data show.

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