Winery Land: Sales and Leasebacks

California wineries that own their vineyards (and related buildings) are often “real estate rich” and “cash impaired”. Bank, and other financing, have been made more restricted due to 2016 bank lending conditions which are often too limited especially in light of the ongoing CA drought which impacts lender’s forecasts for wineries.

So the challenge in 2016 is how to raise capital either by loan or equity investment for CA wineries. In my practice I have developed strategies for creative financing, which include:

1) A sale/leaseback of winery land. The land is sold and the winery leases it back. The winery that already leases their land (or the grapes on the land) may have an arbitrage under a master lease/sublease arrangement. If the winery leases the land for $100k per year, sells the land (and cashes in their equity) while retaining a master lease (for the $100k per year) the winery can use the $100k to pay their lease payment under the master lease due the new owner.

So if the original lease (for the land/grapes) pays the winery owner $100k per year, and the master lease requires a lesser payment (eg. $50k) the winery owner keeps the spread i.e. the arbitrage in this case is $50k per year ($100k-$50k). In addition the winery owner also gets the cash from the sale/leaseback.

2) International Investors: For those affluent international investors who desire to immigrate to the US they may invest in a US based business and receive a green card. For example, under an EB 5 Visa they may invest $1m (and create 10 new jobs) they may qualify for an EB 5 visa and a US green card. Or if they are from a treaty country they may qualify for an E-2 Visa invest $150k+, create 3 or more jobs and get a “rolling” i.e. 5-year green card subject to renewal.

3) If the winery land generates income a private lender may loan funds to the winery, receive a secured interest in either the winery land or in the lease and lend funds to the winery, which are both tax free and may be used for other needs.

If you would like a consultation on any of these matters, please advise (I will waive my $5k consultation fee).


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