Appraising a Winery
Provenance or Market Value
In vino veritas. There have been times when the team at Argianas & Associates has been called upon to appraise wineries – not your typical agricultural appraisal to be sure. As you may find when calling to speak with professionals, the scope of the appraisal (to value the land, structures, and improvements of the real estate) is often complicated.
“What we often see are very passionate owners wanting to discuss the uniqueness of their products,” shared Alexander Argianas. “Unfortunately, this is not necessarily what the scope of the real estate appraisal is going to focus on,” he added. While we have a deep appreciation for wines and can enjoy rosé all day, the appraisal is going to be of the real estate only, that is the land, structures, and improvements. While the provenance and history of the vineyard may be considerable, when we discuss market value of real estate our goal is to disentangle the going concern operations from the real estate. What is a reasonable buyer going to pay for a like-kind value in exchange or in other words, market value.
Boxed Wine Need Not Apply
If the winery is simply a location to produce wine itself the value is in the land with the going concern operation a separate concept although wineries’ real estate is subservient to the business value.
But just like the wonderfully diverse wine selection at your local grocer, wineries are not one size fits all. For wineries that host events, and weddings, and generally have a stable source of revenue in addition to the production of wine, there’s value in that. “Some wineries will have operations during the day and invite the public to on-site restaurants, tastings, and an activity center,” said Alexander. “If the property can demonstrate sustained demand, that is obviously going to affect value.” In other instances, wineries may operate bed and breakfast operations or rent out facilities for wedding events. A careful review of operations will be reflected in the income approach of the report. Equally important, sales of wineries should be representative of properties with similar amenities.
In other cases, while a winery may be a great owner/user operation, it may not suit itself for corporate/non-owner purchasers. If the owner built a million-dollar primary residence on the winery property, the pool of prospective buyers will be cut significantly. Buyers looking to establish a presence in an area by acquiring additional vineyards or an operating facility won’t necessarily want to buy a million-dollar house. Owners should consider adding a nice mobile home on the property or building a practical, three-bedroom, two-bath, ranch-style house for a couple hundred thousand dollars. That way, even if the prospective buyer doesn’t want the residence, it can be used by the vineyard master or visitors who come to the winery.
Components of a Winery
A winery/vineyard is a building or property of grape-bearing vines that produces wine, or a business involved in the production of wine, such as a wine company. Some wine companies own many wineries. Along with wine-making equipment, larger wineries may also feature warehouses, bottling lines, laboratories, and large expanses of tanks known as tank farms (for fermentation and storage). The science, practice, and study of vineyard production is known as viticulture. Often a misunderstanding of the field, the valuation of the wine itself is a separate proposition than the valuation of the winery.
Wineries need not necessarily be one size fits all. Some operations import left over grapes/product to be fermented on site. While these facilities may not have rows of trees, they do have a considerable investment in trade fixtures, air handling equipment, lab space, production space, shipping and receiving, and infrastructure.
In wine, the process itself can have great importance; however, for real estate only valuations the value is subsumed in the land, structures, and improvements. Anything beyond the real estate is beyond the scope of what a real estate appraiser does.
Don’t Get Tangled in the Vines
Appraisal of any property type often comes down to the critical thinking involved. While there are classical things to consider for the valuation of wineries, as is true for any appraisal, not all wineries are the same. Importantly entanglement issues with the going concern often mean that the real estate (land, structures, and improvements) is subordinate to the business valuation of the winery.
While our friends in wine might not like to hear this, after a thorough review of the highest and best use considerations, a winery’s highest and best use may not even be as a winery! “Wineries are often built up in agricultural areas of low density at the time of construction” shared Argianas, “this also means that over time, the pathway of development may eventually develop near the winery.” A component of highest and best use analysis is the use of the land that will be maximally productive, in this case, the land may be more valuable for commercial development than continued winery operation. In these instances, the land per square foot may be more valuable to a commercial developer than for continued winery operation.
Are you looking for an experienced team of Chicago real estate appraisers to valuate your special purpose property? Call the team at Argianas and Associates, while we may not be able to chat over a glass, we’re ready to put our real estate appraisal experience to work for you. Give us a call at 630.390.0113 or complete this form.