Realtor Bill Kunde grew up in a famous winemaking and viticulture family in Sonoma County and has spent 40 years working in the wine industry. After receiving his associate’s degree from Santa Rosa Junior College in 1975, he managed his family’s Kinneybrook and Wildwood vineyards until 1992, when he became director of operations for Kunde Family Estate in the Sonoma Valley. He’s also worked in sales and sat on the board of directors for the winery. He remains a principal in the business.

In 2005, Kunde received his real estate license and started KM Properties in Santa Rosa with his business partner, real estate attorney Sue Michaelsen. KM Properties specializes in selling wineries, vineyards and vineyard estates.

Wines & Vines: What sort of wineries and vineyards are on the market these days in Sonoma County?

Bill Kunde: With regard to wineries, we see a variety of properties available. Artisan wineries with very small production and limited tasting rooms; large-production, 100,000-plus-case facilities and “showcase” wineries with mid-range production and full tasting room and event facilities are available. Most winery sales are private, due to the nuances of the industry, such as relationships between wineries and third parties -- growers, distributors, wholesalers/retailers, employees, proprietary information, etc.

What any potential seller has to keep in mind with a winery sale is that these transactions will not happen overnight. It takes time to find the right buyer or buyers for a particular property and scenario. Buyers know that there is inventory out there, and they know the challenges that are facing the industry. Buyers are taking their time and analyzing properties very carefully before making decisions to purchase.

Vineyard sales are challenging in the current economic environment. Buyers are afraid of paying too much for a property before prices hit bottom, and therefore they are cautious about jumping into the market and writing purchase contracts. Buyers want to see fruit contracts, and they want to see vineyard prices that reflect the current grape and economic market conditions.

As with wineries, there are a variety of vineyards available for sale, and again, not all of these are publicly and actively marketed but are nonetheless available. Lifestyle vineyards as small as five acres -- and up to 25 acres with homes on the property, all the way up to vineyards with more than 100 acres -- are available for purchase. A majority of the available vineyards are less than 30 acres.

W&V: Is anyone buying bare land with vineyard potential?

Kunde: Bare land is not in high demand in Sonoma County. Currently there is a good supply of planted vineyard available for sale, and investors want to see cash flow and return on their investment. Planting a new vineyard puts off any cash flow from grapes for at least four years. We do see some clients looking for plantable land in other counties, particularly the Central Valley areas.

Existing vineyards can produce cash flow at the next harvest. Planting costs, on the other hand, can range from $20,000 per acre for mostly flat land with minimal site preparation to more than $50,000 per acre for steep, rocky parcels and/or land needing tree and boulder removal. After preparation and planting costs, a new vineyard owner won’t see any significant fruit production for three to four years -- and up to seven years for full production. Prices for planted vineyards have fallen to the point that it usually doesn’t make sense to buy bare land, which is currently selling for $40,000-$50,000 per acre.

W&V: What circumstances are causing people to sell?

Kunde: While every situation is unique, we see some common themes with people choosing to leave the winery and/or vineyard industry. Not all sales are being prompted by the bad economy. First, there are those sellers who invested in the wine and grapegrowing business years ago, when prices were more affordable. They have equity in their properties but are ready to transition into retirement or less time-consuming ventures.

Second, and sometimes related to the first scenario, you have family-owned ranches and wineries where a generational transition is not an option. This can be for several reasons, such as the next generation having other career interests or family obligations in other geographical areas.

A third theme we see with sellers is that the economic challenges facing both the industry and the nation at large have left growers and winery owners depleted of energy and sometimes the economic resources to continue in the industry. Wineries are not continuing grape contracts with growers, and if they do renew or continue, they are negotiating for cheaper grape prices and/or less fruit.

Credit is harder to come by for owners to carry them through cash-strapped times, as lenders want to see cash flow in order to service any debt. For wineries, moving inventory has also been more challenging.

W&V: Who are the buyers?

Kunde: Larger buyers are looking for purchases that can aid them strategically in their industry portfolio (such as adding a well-established brand), adding geographical variety with properties in counties where they are not represented, adding “trophy” properties that help to bring in consumers, or adding production capacity. Smaller or first-time buyers are looking for properties that have cash flow, growth potential -- both in production and brand value -- and are priced correctly.

Buyers, in general, are looking for growth potential in winery properties. That means not only expanding sales but also gaining better avenues of distribution and profiting from other assets of the property, such as event venues and even homes that can be rented out for income. A brand with a strong presence in the market or that shows good growth potential is attractive to buyers.

We are also seeing foreign investors as they seek opportunities to enter the industry or to expand further into the industry. Our company sees the most activity coming from Asia and Canada. With foreign investors, sellers need to be patient, as communication and transactions move slowly.

W&V: Has the economic downturn slowed or even put a stop to the development of “lifestyle” wineries?

Kunde: Yes. Historically, lifestyle wineries don’t produce returns suitable to sustain themselves without some sort of outside funding. These wineries tend to sell directly to consumers through their tasting rooms or wine clubs, with little to no distribution. Buyers want and/or need to see cash flow for their purchase to support itself without outside help.

W&V: What do sellers need to keep in mind if they are serious about finding a buyer?

Kunde: Today’s buyer is looking for return on investment and cash flow. Sellers need to keep this in mind when pricing their property. Buyers are looking for 5% to 8% return on investment. Determining winery value is more complex because of intangibles such as goodwill and brand value. For vineyards, a simple way to figure a return on investment is by taking the net operating income (income from all sources on the land, grape income, rental income, etc.) and dividing by the value (sales price). This gives you the expected capitalization rate.

Depending on the buyer, solid grape contracts can be one of the most valuable assets of a vineyard seller. Sellers should have available records going back at least three years -- five or more years is preferable -- showing harvest tonnages; a survey and/or good parcel map; planting data including rootstock and clones; wine samples, if available; accolades from the wineries that purchased the fruit; and all analyses of the vineyard -- from soils to water. These will be expected by the buyer and show that the seller is organized.

W&V: For years, many potential buyers considered themselves priced out of the market in Sonoma and Napa counties, so they went elsewhere. Do you see this type of buyer coming back, now that prices have dropped?

Kunde: Yes, but slowly, and more so in Sonoma County than Napa County. Prices are slowly correcting themselves in Sonoma County and becoming more in line with a return on investment for the buyer. Per-acre prices for planted land in Sonoma County are currently $60,000-$90,000, compared with $70,000- $125,000 a few years ago.

Proportionately, Napa Valley vineyard prices have declined less than Sonoma County prices over the past several years. Higher grape prices and the perceived prestige of Napa Valley have helped keep land values from declining.

A resident of the Santa Cruz Mountains, Laurie Daniel has been a journalist for more than 25 years. She has been writing about wine for publications for nearly 15 years and has been a Wines & Vines contributor since 2006. To contact her or comment on this article, e-mail edit@winesandvines.com.