In Part 1 of our series on Hobby vineyards in the Bordeaux region we established a definition for this type of vineyard estate. Above all it will be an estate that is not required to be a primary source of income for the owner or need a return on investment to justify its purchase. This has until recently been driven by an owner’s ability to make that financial decision – in other words to purchase the vineyard knowing that if it does not make a profit it will not have an impact on their lifestyle.
In recent years we have started to see investors recognizing that by assembling certain key ingredients they can provide a product that is increasingly in demand by vineyard lifestyle buyers. The buyers are those seeking to enjoy the vineyard lifestyle without moving full time to France to lead the farming and wine selling operation and in addition avoiding exposing their global wealth to French taxes.
A vineyard will typically yield about 6,000 bottles per hectare per year. So even a small vineyard of 3 hectares will produce well over the limit of personal consumption, even if you have a very very big and thirsty family! Size is one of the criteria for a hobby vineyard but equally, we will always see a higher proportion of the value of the estate weighted to the residential portion of the property than the vineyard parcels. For example, take a €2.5m Euros vineyard estate, the valuation breakdown might look something like this:
Residence – €1,600,000
Guest accommodation – €200,000
Vineyards – €200,000
Winery, Business, Equipment and trademark – €500,000
Hobby vineyards never have a greater proportion of value in the vineyard and winery compared to the residential portion of the asset value. Conversely, if we think about it purely from as a business operation, an investor owner would want to limit non-financially productive assets to as close to zero as possible: in other words they would probably not want a residence on site at all.
What is the ideal hobby vineyard then? We are going to look at a few examples of what could be considered above all, lifestyle purchases.
To be a successful hobby vineyard project three main categories must be satisfied for the discerning buyer:
- Emotions
- Convenience
- Minimizing cash inputs
Developers and investors are starting to recognize the value that they can create for a lifestyle hobby vineyard buyer and in response we are seeing focus on these categories as this new asset class emerges.
Emotions
The estate must have a setting that inspires. A beautiful view, fruit trees and orchards, authentic French architecture and a well-appointed interior. Guest accommodation is often sought and entertaining is usually a core value of the hobby vineyard buyer. The buyer rarely if ever wants to start a renovation project and in many cases they prefer to purchase fully furnishes and “turnkey.”
In addition to the physical attributes of the estate, the buyer is often passionate about wine and wants to learn as much as possible about the wine making process. Being close to their vineyards is important as are privacy and security.
Finally, buyers love the idea of having a personal connection with the wine. This may take the form of designing the label, naming the wine, influencing the style and taste of the wine and in all cases having the privilege of putting their name to each bottle.
Convenience
Running the day to day operation of a vineyard business is not convenient – it is skilled work and requires a lot of thought, strategy and commitment. Many hobby vineyard buyers are already involved in other career pursuits so adding the running of another business can be an obstacle to a purchase. The best the hobby vineyard buyer wants to be involved in the strategic decision making only but most commonly they want to keep their involvement to a minimum. The hobby vineyard can however be structured in a number of ways to ensure operational convenience.
- The farming and wine sales can be outsourced. One such example would be to the local farming wine co-operative which will contract with the owner for the use of their land. This ensures all operating responsibilities and paperwork are separated from the owner.
- The farming can be kept in house (which would require hiring someone) or directly subcontracted to a company that offers such services and the sales can be outsourced to the local co-operative as above.
- The farming and sales can be put under a farming lease contract
- Some vineyards are very tiny – perhaps only one hectare of vines. In this instance owners sometimes keep all their wines – using them for hospitality, gifts and their own consumption.
Minimizing Cash Inputs
With a co-operative contract the owner will typically be paid a little more than the cost of farming. In this instance, a small return is likely each year. The other alternative is a farm lease (“fermage”) which also outsources all farming and wine distribution – usually with a neighbouring vineyard owner. With nearly all other operational structures there will be a small risk of cash inputs, but the quid pro quo is that the hobby vineyard owner can have more influence and control over the wine. This latter point is a sliding scale whereby the more risk of cash inputs the more control is available.
The Hobby Vineyard asset class is one to watch. If structured correctly it can provide buyers with access into the vineyard lifestyle they are seeking while at the same time ensuring that the weight of operational responsibility and wine sales does not become a burden. Contact us at Michael@VineyardsBordeaux.com if you have further questions you would like to explore.
Written by Michael Baynes
