Jackson, Gallo, Silverado drive vineyard expansion

Dec. 08--The top three owners of vineyard land in Sonoma County -- Jackson Family Wines, E&J Gallo and Silverado Premium Properties -- largely began their buying sprees in the 1980s, when vineyards cost half the price of what they sell for today.

Their demand for premium grapes would help drive up land prices as they targeted top vineyards and undeveloped land to plant new vines.

Today, the three companies own about 8,800 acres planted to grapes, according to a Press Democrat analysis of county property tax records. The vineyards, buildings and equipment on that land have an assessed value of $436 million, although the actual market value is likely far higher.

Their vision of the future -- and their access to capital -- drove an expansion that has helped turn Sonoma County into a global brand.

The county's largest vineyard owner, Jackson Family Wines, was a fraction of its current size when founder Jess Jackson set off on a vineyard buying spree in the mid-1980s. At the time, his flagship brand, Kendall-Jackson, was selling about 54,000 cases of wine a year -- about 1 percent of what it sells today, said Jon Fredrikson, a longtime wine industry analyst and consultant.

Jackson assembled a team, including Fredrikson, that sent a mass mailing to large vineyard owners in Sonoma County asking whether they'd like to sell their properties.

"At one point -- this is crazy -- I wrote to every vineyard owner that owned more than 100 acres in Sonoma County, and we had a tremendous number that came back," Fredrikson recalled.

"We became so active that we were kind of like a captive agent for Jess, just finding properties, and he had a whole organization of people that were constantly reviewing deals and buying, buying, buying. The prices were right, and he was able to get financing, and Kendall-Jackson was growing. And it took a lot of guts to do that, because the '80s were rough times."

Jess Jackson, who led Jackson Family Wines with his wife, Barbara Banke, until his death in 2011, fashioned a strategy that would leave his company with 3,230 acres of planted vineyard land in Sonoma County today. His vineyards can be found throughout the Alexander Valley, Knights Valley, Bennett Valley and more.

Jackson loved to plant on hillsides, and the company continues to pursue those properties. Its recent acquisitions have been at elevations as high as 2,000 to 2,500 feet, said Hugh Reimers, chief operating officer for Jackson Family Wines.

"We definitely like mountains, and Barbara is following on with that philosophy," Reimers said.

Aside from a brief interview with Reimers, Jackson Family Wines declined repeated requests for interviews for this story.

E&J Gallo Winery, which owns about 3,170 planted acres in Sonoma County, began buying grapes here nearly 80 years ago to funnel into its wine production based in Modesto. Grape growers appreciated Gallo as a major buyer, but often bristled at the low prices the company offered for grapes.

"Ernest (Gallo) himself was reluctant, really didn't see the growth in premium wines the way Jess did," Fredrikson said. "So it was a slower start. And then as opportunities arose, they bought more vineyards."

The company planted roots in Sonoma County in 1977 when it purchased Frei Brothers Winery and its 200 acres of land, followed by acquisitions of apple orchards and ranches that it converted to vineyards in the 1980s.

Under Matt and Gina Gallo, the grandchildren of E&J Gallo co-founder Julio Gallo, Gallo Sonoma acquired more properties through the '90s, accelerating its pace in the latter half of that decade.

Gallo developed a reputation for reshaping the land with massive machines when it purchased former Italian Swiss Colony vineyards in Asti in 1989, using Alaskan oil pipeline equipment to shape vineyards that could be farmed with tractors the company used in the Central Valley.

Representatives from Gallo declined repeated requests for an interview, according to spokeswoman Kelly Conrad.

Both Gallo and Jackson Family Wines have been major players in the vineyard land acquisitions over the past several years.

"They have become our major competitors in acquiring new vineyards," said David Freed, chairman of Silverado Premium Properties, a Napa-based company that owns vineyards from Santa Barbara to Sacramento and sells its grapes to more than 100 wineries.

Freed's investment group was buying vineyards outside Sonoma County in 1982 while he was working as a tax attorney in San Francisco. At the time, investing in vineyards yielded tax advantages, he said. Freed was drawn to Sonoma County when Prudential Life Insurance unloaded vineyards in the late '90s.

"I'd like to say that we love Sonoma County, but the answer is Prudential put this vineyard package up for sale, and the largest composition of that package was Sonoma County," Freed said.

When building Silverado Premium Properties, Freed paid in the high $30,000s per acre. Today, those vineyards are worth in the high $70,000s per acre, he said.

"I would guess there's been a very nice appreciation," Freed said.

Silverado now owns about 2,500 acres in Sonoma County, and about 10,000 acres statewide, Freed said. Public records show that Silverado owns about 2,375 planted acres in Sonoma County. Ledbetter Properties, a company that owns Vino Farms, which farms Silverado's vineyards, owns another 500 planted acres.

Increasingly, the grape-growing company finds itself bidding against its winery customers for vineyard properties.

"If you look at the last 10 years, Silverado has been acquiring vineyards over those 10 years," Freed said. "It's only in the last three or four years that the major wine companies have decided that they need to protect their supply and protect their grape cost and have been very active in the vineyard space."

Bill Foley, owner of Foley Family Wines, also bought key vineyard properties in a buyer's market, when wineries were struggling through the recession in 2008 and 2009 and many needed to unload expensive properties. Vineyard values in Sonoma County have spiked 30 to 40 percent since that time, he said.

"I believe the easy deals are behind us," Foley said.

Although he's the 10th-largest vineyard owner with nearly 800 planted acres in Sonoma County, Foley still wishes Jackson Family Wines and Gallo would leave more properties for the "little guys" like him, he said. Jackson Family Wines was very opportunistic about buying in recent years and was constantly looking to buy land, he said.

"If they wanted it, they generally got it," Foley said. "They could close quickly. They weren't afraid to step up and buy it."

(You can reach Staff Writer Cathy Bussewitz at 521-5276 or [email protected].)

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