Last week I kicked off writing again with the post So, you want to buy a Winery? If you enjoyed the article please subscribe via email, “like” the social media post where you saw it, or share it with others.

The intent of this blog is to mix in personal stories with the experiences and lessons learned of being a new winery owner. The mix seems to work for every cooking blog out there, i.e. 4 pages of stories and pictures and then 1 paragraph of recipe (it’s ZA’ATAR SHORT RIB STIR-FRY for dinner tonight!).

Before we get into the winery side of things, let’s start on a positive note. Puppies. Who doesn’t love puppies? Maybe next post we will start off with a dancing baby…

In the Spring of 2020 I went from traveling 300,000 miles a year on a plane to zero. Covid had hit and we suddenly had a lot more time to spend at home with the family. In between the 13th and 14th Zoom call of the day my mind would wander to what’s next? My day job continued to do well, Julie and I would split time at Hollyhock Vineyard and the Bay Area, and financially we were now in a place I never expected to be.

Just before Covid hit we had been contemplating buying a vineyard in Portugal on the Douro river and doing something similar to Hollyhock. If you have never been to the Douro it is a sight to be seen. When Julie and I first visited in 2014 we didn’t do much research ahead of time. After a 45 minute drive from Porto we began to descend into the valley and all of a sudden we were surrounded by Egyptian pyramids. Each level of a massive pyramid (mountain) was occupied with a single row of vines. The people were friendly, the Port wine amazing, the dry red wines were an absolute surprise, and it was affordable.

The idea was to purchase a small vineyard and qualify for the Portugal Golden Visa program. If you purchase a €350,000+ property and fix it up then you and your family can qualify for an EU Schengen Visa. After a few years you can become a Portuguese (and EU) citizen without having to live there full time. Dual Citizenship here we come! At the conclusion of a day job event in Lisbon I rented a car and did a whirlwind trip through the country in less than 24 hours to scout things out. Upon returning to the USA this little thing called corona virus entered our lexicon, borders shut down, and out went the idea of Portugal.

Around that time I had been keeping a watch on the Paso Robles vineyard market when the St. Hillaire Vineyard popped up for sale. It was a great property, well kept, but too similar and too close to Hollyhock. One night we were entertaining with the Vukelich family who were shopping in the Central Valley for a farm for their parents to live on and for them to have a vacation spot. “Mark, if you don’t buy St. Hillaire… I will. It is a perfect property for you two! Go read Small Vineyard Business Plan and make it happen.”

And they did! After renaming it to Vukelich Vineyards they have done amazing work there already. You can rent their farm house here.

While Mark and Heather went through the buying process for St. Hillaire/Vukelich, it led me to ponder putting down more roots and expanding in the Paso Robles area. Hollyhock Vineyard has been great for our family. We converted the farming to organic and sustainable. We have been able to provide income not only for our family but also for Juan who has treated the property as if it as his own. It has been rewarding to see visitor’s photos and the joy it has brought (maybe slightly less joy when things go wrong for visitors and we get a call 🙂 ). Julie and I have been hands on with harvest each year and even expanded to a legally bonded wine brand.

For investing, I find stocks, bonds, and mutual funds are boring. You can’t sleep in them and you can’t drink them. Thus I reached out to Paul Shannon at Pacifica Wine Division again.

• Me: “Paul, keep your eye out for any west side vineyard properties.”
• Paul: “You looking for a winery or a piece of land?”
• Me: “Just land I think, I don’t want to own a wine brand. I like being a landlord.”
• Paul: “Do you need a vineyard already planted?”
• Me: “Nope, I have time on my side and can develop it”
• Paul: “You sure? Putting in a vineyard is a lot of capital and permitting”
• Me: “It can’t be too hard. Maybe I will put a winery on it some day and rent that too.”
• Paul: “You sure? The county has gotten really strict on permitting, might be really expensive”
• Me: “It can’t be that bad can it?”
• Paul: “Will cost you millions just to permit”
• Me: “Hmmmm……”
• Paul: “You should buy Rotta Winery. It is a fully functioning winery and vineyard.”
• Me: “No way. I went to Rotta a few years ago. Didn’t like it. People were rude. Weird site. We don’t want to be in the wine business”
• Paul: “Perfect location, probably a good price, it’s historic”
• Me: “No way!”

For the next few months Paul humored me and would send listings of land, vineyards, and a couple wineries. One of them was intriguing but the timing wasn’t right. It had multiple tasting rooms but no vineyard. Congrats to Rangeland who is now located there!

After each property Paul would send me, this exchange would happen:

• Paul: “You should really check out Rotta”
• Me: “No, Rotta is not good, it has a horrible reputation.”
• Paul: “It would pencil.”
• Me: “Ugh! Go away.”

Finally, after about six months Paul said the magic words:

• Paul: “You should really check out Rotta… can’t you do some smart business or tax stuff with it?”
• Me: “Ummm….. maybe?”
• Paul: “Don’t you like to fix up old things?”
• Me: “Ummm… yup I guess so”

Reflecting back on the past 20 years, my passion has been to take broken or worn out things and fix them up.

When I graduated from college I did not receive financial aid and financed the six figure tuition through student loans. After student loan payments I didn’t have much money to invest with. What I did have was sweat… sweat equity. In between shooting down nukes and debugging call center software I began buying old houses and fixing them up. Not because I intended to flip them but because I needed a place to live and I kept moving! Each time I moved I couldn’t bear to sell the house after the hard work I had invested so I would rent them instead.

I didn’t grow up being very handy but my mother did her best to teach (force?) me to learn how to paint walls and strip wallpaper. A couple of uncles taught me how to sweat pipes and do basic electrical. I learned the rest from Home Depot’s 20$ orange “Home Improvement 1-2-3” book, You Tube, and lots and lots of trials and errors.

I realized that I enjoy:

• Learning about history and restoring things to be the best they can be
• Being hands on, the action of doing something yourself, making mistakes, learning
• The design process: including not only looks but daily use and function
• The build process: something new every day to see
• The community: providing work and livelihood to people who become your friends
• The finished product… and the satisfaction that goes along with that

Lets Take a Look

I finally heeded Paul’s advice to take a look at the Rotta Winery For Sale.

Good Bones: when a property has been lived on for 112+ years and been able to operate through prohibition and two world wars it has to be solid. Furthermore, as we investigated we learned that the original owner had already done a large number of infrastructure improvements such as ground water, waste water disposal, new electrical service, foundations, etc.

Good Soil: the hills are made from solid calcareous shale. When you ‘rip’ the ground for planting you are bound to pull up massive boulders. This calcareous rock was once an ocean floor and provides the perfect ground for head trained and dry farmed vines. When you walk the property you are bound to see rocks with whale vertebrae or other fossils.

Location: Paso Robles Willow Creek AVA on the west side. There are 11 AVAs in Paso Robles and the west side Willow Creek AVA is considered one of the best if not the best. Think Turley, Saxum, Linne Colodo, Denner, and L’Aventure vineyards. Originally I wanted to be on Vineyard Dr or Highway 46. However, as I thought about what I would want to create as an end product I preferred to be just off of the main roads. Less overall traffic would lead to more privacy and a more relaxed vibe. Just around the corner or over a hill would be perfect. Plus, it is the only winery on Winery Rd and just off Vineyard Rd.

Good Neighbors: when you stand on the Rotta hill and look around you have nothing but high quality neighbors. Turley is not only a top winery but are dedicated to sustainable farming and heritage vines. Guyomar and the Stanislaus’ have led the way in steep slope farming. The Swan’s have been ranching cattle for decades, were close friends of the original Booker family, and have an excellent collection of whale bone fossils collected from our hills.

History: it has been settled since the 1800’s and operated continually as a vineyard and winery since 1908. It even has a very well written history researched by Libby Agran.

Reputation: in 1945 there is a news article describing how Rotta Winery produced and sold 85,000 gallons (35,000 cases) of Zinfandel. In 2010 Rotta had over 1,000 wine club members. In 2013 it was sold. Unfortunately the new owners were located out of country and had a number of strategy missteps such as trying to focus on scale and distribution at a time when direct to consumer and higher quality wine was leading the way. As such the reputation soured among the locals. For better or worse it had soured so much that by the time we looked at buying it people had just forgotten it existed. Heck, when someone asked on the Paso Robles Wine Fanatics Group who has the best Zinfandel in Paso not one person even mentioned Rotta. At least 3 people recommended Tablas Creek who doesn’t even make Zinfandel! It is easier to improve a reputation everyone has forgotten about vs. negative about.

Permitting: the property already had a historic study completed, a Minor Use Permit in place to operate as a winery, construction approval for both the existing fermentation building nd to restore the original winery ruins and tasting room. Depending on which documentation you believe it came with either a 20,000 case or unlimited case production permit. As I have learned since… this is a big deal.

Taxes and Financing: during the Hollyhock Vineyard and Small Vineyard Business Plan research I learned how taxes and financing are handled makes a huge difference in a purchase. In this case the property came with a large amount of inventory (33,000 gallons!) and equipment (tractors, winery, 300+ barrels, tanks, etc).

Hmmmm….. maybe there is something here. Just like when buying a vandalized house out of foreclosure you need to look past initial impressions and see what is possible and not just what is visible. Now the question is whether or not I can convince Julie that this property may not look majestic now but will be a property to last for generations. Just like the Bailey House in “its a Wonderful Life”:

Let’s do Some Research!

We invited Ryan and Nicole Pease from Paix Sur Terre over to join Julie during her first look at the property. When we walked into the member’s lounge there were fruit flies everywhere. As we went through the building we kept smelling something funky. We jumped into Ryan’s truck and drove up to the top of the hill. The views were amazing, but the zinfandel vines were not. Virus, disease, or lack of farming perhaps? After a harrowing journey down the other side of the very steep hill we came to the ‘bio swale’ which was supposed to be a natural way to remove impurities from waste water. It wasn’t maintained and smelled like…. impurities? We walked over to the metal building which served as the winery. It definitely wasn’t sexy, but it was at least cooled, had a large crush pad, and (mostly) working equipment. I believe Ryan gave me something like this lifeless stare:

The next trip was next door to talk with Ishka at Guyomar. If you haven’t been there I highly recommend it. He does a nice spread of food to pair with the wine and hosts you in his home. He shared stories of the ups and downs of the Rotta Winery and all of the things to be aware of or careful of. At the end Julie gives me the look of “Bill you crazy”. Fortunately, at the end, Ishka points out two things. First, the soil is tremendous for wine grape growing. Second, the permits are worth the price of the property alone. I give Julie the look of “Yup I be crazy”.

Julie had one last trick up her sleeve to convince me that “Bill you crazy”. It was the ultimate trump card… Lucas J. Meeker! Lucas is a close family friend of ours and his father started The Meeker Vineyard in Sonoma / Healdsburg in 1984 and has successfully run the winery for 37 years. Every Christmas Lucas would come (right after months of harvest) and educate us on all the horrible things that go wrong at wineries, why they are such tough businesses to be in, how things aren’t always so sexy, and the real pragmatic underbelly. He is also an avid teacher of the wine business.

Julie said, “Run it by Lucas, he is the Grinch, he will never approve and he will tell you ‘Bill, you crazy'”.

Lucas and I jump on a series of Zoom’s together and I walk him through everything I know. The location, the inventory, the neighbors, the equipment, the housing valuations, the typical Paso wine prices, fruit prices, etc.

Julie was right. Lucas did indeed say “Bill, you crazy”, but he didn’t stop there…

“Bill you crazy if you don’t buy this”

CHECK. MATE.

She Said YES. Now what?

Originally in this article I was going to cover more of the business considerations that go into purchasing or owning a winery such as valuation, financing, tax approaches, Williamson act, rough business model, the process, etc. but after talking with a few folks I decided to focus more on the story and the why rather than the mechanics. The rationale was that most people’s eyes would glaze over with the nerd aspects.

Since I should probably sell some wine to cover operating costs here is my offer: If you are interested in the nerdy business aspects I am happy to either jump on a Zoom with you or host you at the winery. You buy the wine to share and I will bring the spreadsheets.

Next week we will continue with the articles listed in So, you want to buy a Winery? and specifically how did we go from buying a winery with no intention of owning a wine brand to being focused on creating a wine brand. If you enjoyed this article or if it at least helped you procrastinate during a work Zoom call please subscribe via email, like the social post, and share with friends.

So, you want to buy a winery?

… is a question I never asked or thought I would ask.

Here begins our story.

I grew up in Maine. A place everyone seems to have vacationed to but no one is actually from. My first alcoholic beverage was the #1 Best Selling Allen’s Coffee Brandy. Wine? I am pretty sure the only wine there was made from Blueberries or from this idyllic sounding place called Boone’s Farm. As for whether or not to buy *anything* let alone a winery, that decision was limited to whether or not I could afford to buy gas for the 1984 Nissan 300zx which served double duty as both my car and home.

Yet last weekend my wife Julie and I were sitting in our “new” winery’s conference room interviewing marketing firms (agencies?) about why they should be the ones to help us create a new brand, assist with the existing brand, and sharpen our strategy. As they asked us questions I am sure our confused faces looked like this:

How did we get here?

In October 2020 we purchased the historic 35 acre Rotta Winery & Vineyard property in the Willow Creek AVA in Paso Robles. Our top notch neighbors are Guyomar Wine Cellars and Turley Wine Cellars. In the past 9 months we went from having zero plans to own a winery, to now owning one of the 3 oldest wineries with a facility sized to make 20,000 cases a year. We have had to learn on the fly how to run a tasting room, service a wine club, hire a new team, assess the 30,000 gallons of inventory, blend and bottle a few thousand cases, rip out and replant 75% of our vineyard, choose the vines and rootstock, choose new equipment and barrels, find architects / contractors / engineers / government liaisons, design multiple buildings and landscape, install WiFi, fix clogged toilets, drop an entire pallet of a friend’s wine on the floor, yell at Quickbooks, all while working our day jobs and trying to be good parents. Phew!

Throughout the past year we have been asked multiple times:

• “What is your vision?”
• “What wine style do you want to make?”
• “How do you want to be portrayed?”
• “What is your voice?”
• “What is your plan”

For a long time I could not answer those questions andI don’t believe people would accept:

• “I don’t really have vision yet.”
• “We bought the winery as an accident.”
• “I love all types of wine, why do I need to choose?”
• “My voice is extremely loud and loquacious and I am a tech nerd, who most people love to hate these days.”
• “Do I need a plan? Can’t we just wing it and figure it out while we go?”

When I looked around at the other winery properties in Paso Robles and Napa they all have an “About Us” or “Our Story” page that details how on a hill in Tuscany they met the love of their life and shared an amazing bottle of 1982 Brunello di Montalcino. From that moment on the couple knew they were destined to search far and wide for just the right soil and terroir to plant their sustainable and organic vineyard that they would farm by hand to make the penultimate wine in the world. Add in a few vineyard photos, get a well known wine maker or consultant, and you are off!

All I know is … that is not us.

We have a track record of just jumping in and figuring things out as we go.

• I dropped out of high school and moved out without a plan
• I moved to San Francisco to live on a boat, but I had never slept on a boat or driven (pilot?) a boat
• Julie and I bought a vineyard in Paso Robles but we had never farmed (So you want to buy a vineyard?)
• I went to work at a Network and Security company, but I have never done Network or Security

What qualifies us as wine makers or winery owners?

Not much. I am pretty good at business, technology, and thinking outside of the box. We do however consider ourselves to be wine and winery fans. We have visited over 50 Napa, 35 Livermore, 187 Paso Robles wineries and visited the wine regions of Valpolicella Italy, Tuscany Italy, Barolo Italy, Bordeaux France, Moravia in Czech republic, Yarra Valley in Australia, Duoro Valley in Portugal, and even a winery in Maine (not Boone’s Farm). It is something that we enjoy doing as a family (mother in Law and 6 year old daughter too). Our favorite places have had areas for the kids or dog, great views, education, and great people.

There is no better motivator than a fear of failure. More importantly we have a desire to learn and experience things. Luckily there are great resources out there:

• Where Wine Takes You by Adam Montiel Podcasts
• Tablas Creek Vineyard Blog
• Fellow winery owners and operators (Paix Sur Terre, Tablas, Epoch, Booker, Grey Wolf, Copia, Denner, Villa Creek etc.)
• Leading and Managing Geeks and Nerds

The last entry above is a blog I have written over the years to document my lessons learned in the tech industry. People assume I authored it to educate others. The truth is, it is how I force myself to slow down, reflect, and simplify things. If you can convey stories to others and help them learn then you have just simplified for yourself.

Back to the Vision and Voice of our new winery. With help we will develop it, but here are some principles:

• CURIOSITY, EDUCATION, EXPERIENCE: when a person experiences something positive they feel good but the memories fade. I have been fortunate to have consumed a lot of fancy dinners in my life, but other than a general positive feeling I couldn’t tell you what the dishes were. However, in Italy a woman invited us into her home and taught us how to make carbonara with fresh pasta, raw eggs, guanciale, and parmesan cheese. I can remember not only the exact ingredients but how her kitchen looked and how much fun my daughter had. Combining Education + Experience has made me Curious to learn and do more.
• TRANSPARENCY & AUTHENTICITY: I learned in my career that we portray versions of ourselves that we want others to believe. I think that wastes a lot of time and energy. When we purchased the winery we were advised us to be super secretive, not to share our ideas or people will steal them, never look anything other than cool or hip or accomplished or in control, portray a vibe that makes others want to aspire to be like you. I don’t think I can do this. I don’t think we would want to do this. The approach that has worked for me is to be transparent and authentic to who you are. If you are transparent and authentic then even if someone doesn’t like your decisions they can at least understand the rationale behind why you made them.
• COMMUNITY & PEOPLE: when I reflect back I can see how lucky I was at key points in my life to have people or advisors nudge me one way or the other. Julie and I are fortunate to be in a place where we can pay this support forward and support our local community, the environment, and our team. If someone is willing to work hard and stretch themselves then how can we help with our experience, knowledge, or facilities?

A good test of these 3 principles came up when authoring our first job posting. I collected all of the examples I could find from fellow wineries and tried to merge them all together. It took hours. I was struggling. I felt the life and enjoyment leaving me with every key typed. So I stopped and reflected for a minute. “This is our winery and we don’t have to be like everyone else. What is the job YOU would want? What would be authentic?”

What does any of this have to do with a Winery?

I know I know, you just want the juice, the fermented grape juice. I promise you, that will be coming.

We may not have started with a plan to own a winery, but we have definitely developed one since. Julie, our team, and I do not want to build a traditional winery where you come, taste at a bar or have a 1 on 1 seating, then buy your bottles and leave.

We want to build a place. A place with potential in the soil, the vines, the buildings and most importantly, the people. A place that creates wine that will outlive both ourselves and the trends of today. A place where we can meet like minded people, socialize with each other, and build relationships. A place where we can be hands on and learn not only about this place, but other places and wines near and far. A place that you don’t just visit but that is your home away from home and your friends’ home away from home. A place we would be proud to leave to our daughter. A place that our daughter would be proud of us for creating.

This is the type of place I would like to build, that I would like to be a part of.

Come along for the ride

It would be great to have you join us on this journey. We decided to go down this path as we believe that what we wanted didn’t exist yet. We have already met countless interesting and helpful people who have become friends. That is something money can’t buy. I am sure we will make mistakes. I am sure lots of people won’t understand what we are doing or enjoy everything we do. That’s ok, there are lots of things we don’t like too.

Below are a list of future blog post topics and dates that will help fill in the blanks on our project and efforts.

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Sep 5: It may be good to diversify and get more real estate…. or a winery?!

• The Day Job was successful … we should probably diversify our gains. More real estate perhaps?
• The accidental journey to purchasing the historic Rotta Winery property

Sep 12: Rosé all Day…

• Day 1. Sign ownership documents on the patio
• Day 2. Phone your friends, pick fruit, make wine, friends leave
• Day 3. Realize you have no idea what you are doing, phone more friends…

Sep 19: You can do whatever you want with the new winery … except make and sell wine.

• The one agreement Julie and I had when buying the winery is that we did not want to get into the business of making and selling wine via a wine brand and competing with our friends in the business.
• That agreement lasted about 45 days.
• The story of the people and individuals who changed our mind and set us down a very different path

Sep 26: Hump Day. 27 things that have gone … not according to plan

• This 350 year old oak will be the centerpiece of our garden! … and then it chooses year 351 to die.
• Old Vine Zinfandel! … and then you learn it was planted on its own root stock and you have Phylloxera
• I am a hands on owner! … and then you tear your bicep off
• … 24 other surprises

Oct 3: Well Bill, what will your wine making style be?

• Deer. Headlights.
• “I dunno… I like all wine, let’s make the best wine?”
• The (beginning) of how we decided on our vines, wine, and factors that go into developing your wine style.

Oct 10: Crushin’ it with Friends

• When I was a headstrong high school drop out a few people took notice and challenged me to do more. One person wagered that I could go to college and get passing grades and if I did so I wouldn’t have to repay the tuition. Another pushed me through the application process and made sure I didn’t quit.
• It wasn’t the money that was invaluable, it was the support and infrastructure. How do we pay that forward?

A bit of background on the author…

I started my illustrious career by dropping out of high school, moving out on my own, and working in auto collision repair. After realizing that I have a complete lack of hand eye coordination and had ruined one too many cars I re-enrolled in high school. Upon completing my BS/MS in Computer Science I timed the job market perfectly by graduating in 2001, a time now referred to as the ‘Dot Com Bubble Burst’. I quickly accepted a job at MIT Lincoln Laboratory that provided plenty of fun and sun on the beach, but I neglected to read the fine print that the beach was in the middle of the South Pacific and I would be responsible for tracking and shooting down nuclear missiles.

After shooting down an ICBM or two and saving the free world I observed my colleagues jumping on the corporate hamster wheel and thought “the grass is always greener” right? I hear cubicles are cool. I re-enrolled in school again, received my MBA, and spent 20 years being a software nerd, handling crisis management, and being a geek who could speak (a.k.a sales). Most recently I have been able to ring the opening bell at Nasdaq in NYC Times Square and continue to build a team of super nerds who can help countries and companies be same from cyber attacks and successfully work from any during covid and beyond.

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For Sale: Custom Luxury Tiny Home built by Daniels Woodland in Paso Robles CA. Daniels Woodland is known for creating completely custom high end Treehouses, Tiny Homes, Cabins, and Theme Park Attractions. Their handiwork is chronicled in their TV Show Redwood Kings on Animal Planet and the construction of a sister tiny home on Cabin Brothers on DIY Network. We searched for the right home builder for over a year as we wanted a wall of windows to highlight our amazing views.

All pictures, pricing, and details may be found at the main listing:

A big hello from Hollyhock Vineyard to our 600+ readers.  As a reminder you can subscribe to updates via email on the right hand side.  Apologies on the delay in updating it has been a crazy few weeks with the recent Hospice du Rhone event (topic of next post) and Bill getting a new ‘day job’.

As you can from the picture of Julie and I with the Mourvedre bloc the vineyard is in full growth mode!  It is exciting times.

A Frosty Reception

This has been an odd year so far in Paso Robles with a very warm winter and a major el nino that ended up being a bit more temperamental with only spurts of rain.  One of the major side effect of this weather was the earliest bud break ever recorded in Paso Robles.  Early by a whole 2-3 weeks.  Bud break is when the grapevine has been dormant/sleeping for the winter and starts to wake up.  The vine begins drawing water from the soil and growing the buds until they burst into new shoots and leaves.  On the right is a picture of a young Grenache vine whose bud had burst open into small leaves and a baby shoot (the stem).  This picture was taken in mid February.  Happy Valentines day!  Early bud break by itself isn’t a bad thing by itself.  Jason Haas at Tablas Creek does a good job describing how if the weather remains warm and tropical due to el nino everything will be fine (Budbreak, 2015: Early, like 2014. Cue the frost alarms. – Tablas Creek).  However, this can be a very sensitive time for the young fragile new shoot.  If frost does come, the shoots haven’t hardened off yet and they can easily be damaged and die.  Why is this bad, won’t more just grow back?  Yes and No.  Unfortunately the buds that will create ‘fruiting’ shoots/canes (the stems) are actually developed last year and are only sprouting now.  If those die then any new shoots are unlikely to create fruit at worst or product it late or at a much lower yield at best.  For the impact that can have just look back to 2011 and the worst case scenario in our Small Vineyard Business Plan.  Instead of an average yield of 18 tons of Grenache only 5 tons was harvested.  This is a difference of $26,000 (13 tons * $2000) and wipes out your entire profit and puts you into the red.

As new owners we were crossing our fingers that bad luck like that happens only once a decade and we would get beginners luck.  For weeks we were safe and temperatures hovered in the low 40’s.  Until one afternoon we get the following text…. “burned”…. “frozen”… “No we can’t do anything, try again next year”.  Doh!

Grape Growing is definitely a business where you have no periods of no action and then 4 hour bursts that make or break your entire year (frost, harvest).  Game over, try again next year.

I am a glass half full kind of guy which is a good balance to Julie whom I affectionately refer to as being “Hampty” (Glass Half Empty).  Maybe it is the Maine’ah in me but when hit with a bad situation just assess the damage, figure out what is in your control and what isn’t.  We immediately looked at our satellite maps to see how bad it was and how much actually got hit with the frost.   Our top block is our Morvedre and the lower block where the house is contains the Grenache.  The red areas are below the Walnut tree and the low depression area next to our neighbor.    It was here that the cold air rushed down from the hills and settled creating the frost.  Glass half full = ‘Oh, thats not too bad, it is only about 5-10% of our harvest, we aren’t that $%&!’ed”.  I won’t share what the Humpty view was 🙂

Grenache is the closer block where the house is.

So what does frost look like?  Below is one of the mature Grenache vines.  On the left you can see brown curled up leaves and brown dead stems.  You can also see a frost damages shoot above the new baby ones on the right.  Grenache is a very vigorous vine and loves to grow.  That is a good thing.  The bad thing is that those new shoots are not in ideal position.  They are on the underside of the vine rather than the top.  That means they will have a harder time being sturdy and carrying what ever fruit may grow.  It is geometry and mechanics.

A bit further up the hill on the border of where the frost occurred is a younger replacement Grenache vine.  Here you can see on the right that all of the shoots were burned and died.  On the left those new buds hadn’t burst until after the frost hit and are growing as normal.  

Happy our trusty golden retriever is out there to let us know it is all ok (and campaigning to be included in the next Wine Dogs coffee table book https://www.winedogs.com)

So where do we go from here?  Well, you irrigate that area a bit, cross your fingers, hope you get some fruit out of that section, and then plan for next year.  Another shout out to Tablas Creek and their entry on Frost Damage and Recovery.  Amazingly and thankfully they are one of the few wineries/vineyards out there posting information on these topics that growers like us can leverage.

Of course, these secondary buds are not always in the places you’d prefer, and it means a summer for the vineyard crew of carefully selecting which canes are allowed to grow and which will inhibit the air flow around the vines and have to be removed.  On the positive side, all of the rain that we received last winter means that the vines grow vigorously, and should have enough energy to spare to still produce decently off the secondary buds. (2011)

Juan, Dee (our consultant), Jordy (Tablas Creek viticulturist) will need to brainstorm on frost protection strategies for next year.  Most likely we will put in some sprinkler systems.

Culling the Herd – Shoot Thinning

So what is next?  Shoot thinning!  This is when you go vine by vine and pluck off the new baby shoots that you don’t want.   “Why would you do that?!  Don’t you want all the shoots you can get so you can grow the most fruit and make the most profit?”  Actually no.  If you look back at the Small Vineyard Business Plan it calls out the concept of yield vs. price.  The less yield you get the more concentrated the grapes and flavors.  That is why some bottles cost 2 bucks (chuck) and some are $45.  That is because some vineyards grow 20 tons of fruit per acre and some do 2.

At Hollyhock vineyard each vine (trunk) has 2 arms (the vines going sideways).  Each arm has about 4 spurs (last years shoots that were trimmed back to a stub).  Each spur is trimmed back so that there are 2 buds on it that will grow into a shoot (the green vines you see growing straight up with leaves).  Each shoot can carry 1-2 clusters of fruit on it.  What happens is that even though you may trim back last years shoots to only 2 buds, vines are vigorous creatures and tend to still put out lots of new shoots in unexpected places.  Right now while they are short (6-18″) you are able to go vine by vine and pluck off the extras so you only keep the two best upward facing strong shoots per spur.  It is best to do it early because if you allow them to grow the unwanted shoots will tangle with the desired shoots and it becomes much more labor intensive to pull them off and it increases the likelihood you will break or damage them.

Shoot thinning is one of the major activities in the vineyard for the spring (pruning, shoot thinning, mowing), this will be followed by canopy management and dropping fruit later in the year.  Since this activity is very labor intensive and time sensitive (the shoots are growing!) we will be bringing in a small labor crew of 4-5 additional people to help Juan.

The Mourvedre block growing well with shoots about 12″ long.

A Mourvedre shoot.  If you look close enough you can see the berry clusters already forming!  The shoot is the green stalk.

Juan our vineyard help (aka the guy who knows what he is doing) is teaching this me (aka the guy who has no idea what he is doing) how and why you shoot thin.

Thanks for checking in on the vineyard and we will post again this weekend on the Hospice Du Rhone event and the helpful culture in Paso!

Thanks everyone for the great reception.  So far we have had over 575 unique visitors from 22 different countries.  As a reminder you can subscribe on the right to get email updates of all new posts or follow us on twitter @HollyhockVines and on Facebook.

Following our last post, Small Vineyard Business Plan, was the topic of financing the vineyard.  Today we will cover the types of loans and pros and cons.   This is an area where I am not a complete expert but will endeavor to share what we learned.   However, financing is highly variable and each lender has their own criteria.  This is where an experienced commercial realtor or contacts you make at other local vineyards and wineries can really provide value.

Differences between Vineyard & Residential

During our evaluation we found the following differences between purchasing a typical first or second home and purchasing a second home + vineyard:

• Acreage: conventional loans via Fannie/Freddie have provisions on what constitutes a residence.  In particular it must first and foremost be a residence as its primary use and it must be similar to nearby residences.  This means if the property you want to purchase is 10+ acres and most nearby residences are all under 1 acre then it may not qualify as a residence and instead as a farm.
• Vines: via the same qualifiers as above a conventional residential loan cannot loan on a commercial/income producing farm.  That means if you want a residential loan on a vineyard + house property the appraiser cannot assign any value to vineyard and cannot include any income produced by it when assessing whether or not you can afford it.
• Distance from Civilization: I am not sure about all of the details on this one but all of the banks and insurance providers asked about it.  Even though our property was only 5 miles from town it almost prevented us from getting home owners insurance until our agent ‘found a loop hole’.  Sometimes I just don’t want to see how the sausage is made…
• Rentals: this one seemed to be bank specific.  Some banks were ok with having a rental unit or renting the property out part time and others disqualified it.

Loan Types

• RESIDENTIAL
  • Down Payment: 35% for a second home (10-20% for primary)
  • Interest Rate: typically the same or 0.25% higher than prevailing mortgage rates for primary homes.
  • Terms: the same as a primary home mortgage, typically 15/30 year fixed or a 5/1 or 7/1 ARM.
  • Lender Types:
    • National Bank & Resale to Fannie/Freddie: these include banks like Wells Fargo, Bank of America, etc.  These banks have very strict qualifying criteria because they package up your loan and typically sell it to Fannie Mae or Freddie Mac.  They can usually offer a better interest rate.
    • Local Bank and Portfolio Loan: A locally owned and operated bank like Heritage Oaks Bank in Paso Robles or Saco Biddeford Savings in Maine.  These banks have their own money that they lend and therefore they can decide on their own criteria.  This allows them to include a vineyard, extra acreage, etc.
• COMMERCIAL
  • Down Payment: 50% if you have not previously owned a farm and cannot show multiple years of commercial experience.  35% for qualified commercial growers.
  • Interest Rate: typically the same or 0.5% to 1% higher than prevailing mortgage rates for primary homes.
  • Terms: the majority of the commercial loans we looked at were ARMs.
  • Lender Types: these can include Agricultural lenders or specialty banks like Silicon Valley Bank (SVB) and their Wine Division.

Income

When you go to qualify for the loan banks will always want to be sure you aren’t stretching beyond your means.  This usually means that your Debt to Income ratio must be under ~43%.  Thus you have two options:

1. You are a Baller: congratulations you are inherently wealthy, have great income, low expenses and can afford a second home even if you generate no income off of it! 
2. Income from Property:
   1. Farming: if you have a contract in place to purchase your fruit for a set amount then a commercial lender and some local lenders with a portfolio loan will count ~75% of this as income.
   2. Rentals: to count rental income you usually need to have a yearly lease in place or documented proof that there have been multiple years of short term rentals and income.  Lenders will typically count ~75% of this as income.

Down Payment

Let’s assume your debt to income checks out and you can afford to pay the monthly financing costs (plus farming costs covered in Small Vineyard Business Plan).  Now you will need to pay for the 35%-50% downpayment.  What are your options?

• You are a Baller: you were employee 100 at Google and just sold off some stock or you are an oil baron who invented fracking.  Being wealthy with a ton of free cash continues to be the easiest approach
• Friends and Family are Ballers: your friends or family worked at Google or in Oil and are willing to lend you money.  Be aware of this approach though as they will likely want to spend additional quality friend and family time at the vineyard and may have opinions on how to decorate the house or operate the vineyard that may not jive with your own preferences.
• Hard Money: if you watch Flip or Flop on HGTV, this is the shady guy who will loan you money at a very high interest rate.  This is typically best for short term loans where you will be able to refinance it within a few months.
• 1031 Exchange: you purchased a different investment property before, operated it successfully, sold it for a profit.  You can now purchase a more expensive property and use the proceeds tax free.
• Home Equity Loan on Primary Residence: if you purchased a property in California between 2009 and 2013 at the bottom of the housing market you likely have built enough equity in your home to buy a McMansion in Texas or a vineyard downpayment.  Credit Unions are a great option and typically offer home equity lines of credit up to 90% the value of your primary home on a 15 year note and ~3.5% interest rate.  The benefit of this option is you can also use the line of credit for the farming portions and working capital.

Scenarios

All of these options can drastically restrict the type of vineyard + house properties you can buy.  Think of these scenarios and the impact:

1. House with land suitable for vines: if the house was owner occupied this means you cannot count any income from rentals or farming.  You will need to owner finance planting the vines yourself.  This means a lot of cash… 35% downpayment, $5k to $40k per acre planting costs, and then 3 years of farming without income.  Good news is that you can likely do a standard residential loan.
2. House with vineyard:  You have options here.  If your personal income is high then you could still do a residential loan with a 35% downpayment and not count the vineyard income.  Or, you could do a portfolio loan with 35% downpayment, count the vineyard income, but pay a slightly higher interest rate.
3. Vineyard with no House: you better have a lot of cash and time on hand.  You will need to purchase the land via a construction loan.  The valuation will likely not place any value on the vineyard so you will need to pay for that with cash on hand.  Then you will need to do approvals for building etc.
4. House + Rental Units with vineyard: this was our situation.  A purchase price of $1.135m and a commercial appraisal of $1.135m.  However, the residential appraisal came in a few hundred thousand less than the purchase price because for a residence they don’t count the full value of a commercial vineyard.
   1. Conventional Residential Loan: the loan limit for SLO is $561k so that would mean a downpayment of $574k + closing costs.  Income from the vineyard and rentals could not be counted.  The prevailing interest rate for a 7/1 ARM was about 3.375%.  However, this type of loan had a low likelihood of satisfying the Fannie/Freddie criteria above due to the income producing vineyard and rentals.
   2. Portfolio Residential Loan: would be 35% down but on an appraisal of only $950k or so.  That means a loan of about $625k at a prevailing interest rate of 3.8%.  That means a downpayment of $510,000
   3. Commercial Loan:  would be 50% down but on the whole value of the property at $1.135 resulting in a $567k loan and a $567k downpayment.  The prevailing interest rate was around 3.875%.

Summary

As you can see there are a lot of factors that go into financing a house + vineyard and it is dependent on the amount of cash you have on hand or access to, your personal income, the rental income, the farming income, and the type of loan you would like.  I am sure there are many more options and it would be great to hear about them in the comments section.

Next Post

Julie and I will be down at the vineyard Thursday evening for the Hospice Du Rhone seminars.  Unfortunately we will be assessing our first major setback – FROST!   This was one of the primary dangers we observed in our Small Vineyard Business Plan and we hit it. Stay tuned for pictures and commentary from the vineyard coming next week!

• The market is shifting more to ‘wine tourism’ and the wine experience rather than just buying and consuming wine. (Napa just passed Disneyland as the #1 tourist attraction)
• Owning a Winery is a hard business with low margins, high opex, a sales/marketing function, and requires full time attention.  It is like the miners during the gold rush.
• Owning a Vineyard is a highly leveraged, capital intensive business (like owning rental properties!)
• Napa/Sonoma is too expensive to buy into.  Livermore land is worth more as house lots than vineyards and is too close to the Bay Area. Lodi is too farm country. Paso Robles, like the three little bears, is ‘just right’.  It is in the middle between LA and SF, has comparatively low land costs, and was named Wine Region of the Year in 2013.
• A vineyard alone doesn’t ‘pencil’ well financially.
• A rental alone doesn’t ‘pencil’ well financially.

Like in the gold rush, why be a gold miner when you could be a business selling to the gold miners?  I believed you could marry a commercial vineyard with rental units to create a leveraged investment vehicle with both cash flow and asset appreciation.  Oh, and unlike a mutual find you can stay at the property yourself and imbibe what it produces 🙂

Unfortunately after googling for weeks and reading a few books I could not find applicable information on the business economics of a vineyard.  There was a ton of information on starting and running a winery, but less so on a vineyard.  I will share more of what I found in my next post, but for the sake of discussion I found the following two sources:

• Tablas Creek Blog – 2009 – “Whither Inexpensive, Artisanal Wine?” 
• Pacifica Commercial Realty – Wine Division – Winery Buyers Guide

• Paul: “So you want to buy a vineyard?  Have you ever owned a vineyard before?”
• Me: “Nope”
• Paul: “Have you ever owned a farm or farmed before?”
• Me: “Well… I grew up in Maine, that is a farming state”.
• Paul: “Yes but have YOU farmed before?”
• Me: “Sure, I had a big vegetable garden in the backyard”
• Paul: “Ummm… OK.  Well, what type of grapes are you looking for?”
• Me: “I don’t really care, I just want a few acres so it will look pretty for the renters of the home that will be on the property”

• More than 1 rental unit (Multiple Houses, House + In law , House + Cottages)
• 6+ total acres and 5+ acres of vines
• If vines aren’t planted then the land should be ideal for planting.
• up to $1m if we need to plant vines
• up to $1.3m if planted and fully operable
• Julie wants the house to be ‘cute’
• Julie wants to see vineyards out the windows.
• West Side – because everyone told us that is where the cool kids are!

• Learning How to Not Fail (and maybe how to succeed): a list of key websites, blogs, books and magazines that we are using to learn fast
• Your Team: there are lots of people involved in a vineyard (Realtor, Vineyard Consultant, Vineyard Manager, Laborer, Contract Labor, Spraying, Trucking, Repair, Labs, Farm Insurance, Tax Expert).  Who are they, where do you find them, what do they do?
• The ‘Industry Discount’: when you are in the industry – it is a synonym for not making much money.  So what is this industry discount thing?
• Going from Conventional to Organic: if your winery isn’t paying a premium for it, should you do it?  What does it entail?  What are the costs?
• Vineyard Activities: what does it actually mean to farm a vineyard and grow grapes?  What do you do?  Explain the activities such as Pruning, Dropping Wires, Canopy Management, Spraying, Mowing, etc.
• Technology for Small Vineyard: the big boys have their toys (sap sensors, wireless meshes, cloud monitoring) but what can the little guy do?  A look at automation technologies, sensors, weather stations, etc.
• Equipment in Vineyard: it isn’t all about technology, sometimes you just got to jump on the John Deere and go for a ride
• Taxation:  if they best way to make a small fortune in the vineyard business is to start with a large one, why do so many people do it?  You usually hear ‘they need a tax write off for their XYZ uber successful business’. Lessons learned on how to account for vineyard expenses and strategies for depreciation, material participation vs. passive activity, etc.
• New Plantings – Portuguese Field Blend and Syrah: while the majority of our acreage is under contract we are able to hold back a ton or so of Grenache and Mourvedre for making a couple of barrels for ourselves.  However, for a true GSM you need the S… Syrah! We are planning to interplant 2 rows of Syrah in 2017 (400 vines).  We are also planning to plant about 100 vines of Portuguese varietals in a field blend.  Where do you source vines, how do you plan the blocks, how do you decide on the clones?
• Contracts and the Winery – Grower Relationship: the fine balance of making this a win-win