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Acquiring an existing vineyard is far more favorable that puchasing land, planting vines, and maturing a vineyard to the point of wine production, due to the large up-front costs. However, very few are for sale in the Southeast, therefore locating a suitable property is difficult. Due diligence is critical and placing a value on this property is difficult due to the value being highly dependent on the transitioning state of the grape harvest, stage of wine production, and inventory at a point in time.
On behalf of the buyer, Oceancrest provided due diligence on a number of wineries over the course of eighteen months. Ultimately the buyer went under contract to purchase a vineyard, winery, and restaurant in the Yadkin River Valley of North Carolina. Extensive due diligence proved that many potential avenues for revenue growth at the property were possible by diversifying the sales platform and adding a tasting room. With that, Oceancrest formulated a comprehensive buisness plan to take effect upon acquisition of the subject.
Industry experts were brought in to help identify deferred maintenace of the equiptment, as well as to gauge the health and remaining life of the vines. They were integral in outlining a capital improvements plan to cure the deferred maintenance, improve the vines, and ultimately increase overall wine production without having to purchase additional equipment and grapes.
During due diligence, we found that the original offering reflected P&L numbers that were completely incorrect and without basis. Further site visits and interviews with the owner, staff, and employees added light to the daily, monthly and yearly operations, as well as clarified the ambiguities in the property's financials.
With all of the newly obtained information on the subject property, a purchase price 42% lower than asking price was accepted. However, two weeks prior to close, it was discovered that the debt service on the loan had not been paid in eighteen months and that the property had multiple leins including a significant lein held by the IRS for unpaid property tax.
Given the defaulted status of the loan and the leins senior to the debt, the buyer chose to rescind the offer. If not for thorough and exhausing due diligence, the buyer would have puchased a property that, although was presented to provide positive NCF, was actually unable to cover expenses and debt service.