CalPERS, however, is said to be making an exit. In October, it fired Premier Pacific Vineyards (PPV), a Napa-based vineyard development company in which it had invested $200 million. By March 2011, the value had plummeted 40 percent. The properties are unofficially on the block, and CalPERS has hired Menlo Park-based GI Partners to manage the investment.
"There are a lot of people interested in those vineyards for the right price," Freund says. "CalPERS does not want to piecemeal the sale of these properties. They are huge parcels--too big for most wineries to buy. But [wineries] could form a partnership and buy them together and divide the fruit."
What went wrong? The value of the land, after all, did not decline. And according to Zepponi, there is "very little risk" associated with investing in vineyards compared to wineries. "When it comes to the low end/high end, you have to buy it right and farm it right," he says.
Of course, low-risk is not no-risk. David Freed, chairman of the highly successful Silverado Winegrowers and Silverado Premium Properties, has argued for years in favor of pre-plant contracts.
"People have been hurt by treating it as a spot situation and worrying who the buyer is going to be when the trucks are pulling out of the vineyard," he says, pointing out that half his payroll consists of seasoned marketing people deeply knowledgeable about grapes. "We've had most of our grapes pre-sold going into each harvest."
Targeting the very high end of the super-premium wine market ($25 and up), PPV developed properties in California, Oregon and Washington. It rode the high-priced Pinot Noir wave before the Crash, and it sold three properties it developed in 2007 and early 2008, reportedly at double-digit returns. But when the economy collapsed and consumers traded down in wine prices, it couldn't sell its fruit.
"Nobody could make reasonably priced wine with high-priced fruit," Zepponi says. "And certainly nobody was going to be signing long-term contracts, particularly with high priced fruit."
The PPV (ie CalPERS) vineyards are massive. Although not yet developed, for example, the plans for the highly controversial Preservation Ranch in Sonoma County involve clear-cutting 1,700 acres of Redwoods, a gravel-mining operation, industrial-scale water diversions and building 90 miles of roads.
"[PPV's] vineyards are first-class," Freund says, "but the cost was above and beyond what anybody else had ever spent. They were dynamiting out stone to get these vineyards in."
And for a grape grower, it was a relatively high-risk strategy.