David Freed Reflects on Silverado's Success

David Freed is the chairman emeritus of two Napa Valley-based firms that own 10,000 acres of vineyards and sell to 100 wineries.

Long the public face of Silverado Wine Growers and Silverado Premium Properties, David Freed is now chairman emeritus of the companies, two of the most successful vineyard investment firms in the business. With more than 10,000 acres of vineyards in California, the two companies sell grapes to more than 100 wineries.

Freed hasn’t talked much about the business, however. “Institutions prefer low visibility,” he admitted.

As Freed transitions out of management, however, Wines & Vines interviewed him to find out more about the company. He remained reticent about numbers but explained why the firms have been so successful when a number of other highly visible vineyard investment firms failed.

HIGHLIGHTS

- In a progression of investors, $564 billion TIAA-CREF now owns Silverado Wine Growers and Silverado Premium Properties.

- As David Freed transitions out of management, he speaks with Wines & Vines about how the Napa-based companies grew.

- Freed cites a focus on generating income as a critical element of their success.

The history This year is the 32nd anniversary of the founding of UCC Vineyards Group, Freed’s original wine venture. It’s also the 22nd year since Freed helped found the annual Wine Industry Financial Symposium to improve the dialogue between growers, wineries and the financial community.

In 2012 TIAA-CREF, a financial services firm managing $564 billion in assets, acquired the portfolios of Silverado Wine Growers and Silverado Premium Properties, which it now operates as Silverado Investment Management Co. Mark Couchman, the long-time president of Silverado Wine Growers and Silverado Premium Properties, is president.

The industry hardly noticed when TIAA acquired Silverado’s portfolio, but in truth, Freed said that it was just one in a progression of investors.

He had first invested in a vineyard as UCC Vineyard Group, acquiring 50% in a Carneros AVA-based Pine Ridge vineyard, which the company held for 27 years. UCC later transitioned into Silverado Wine Growers.

Freed, who was practicing corporate and tax law in San Francisco, Calif., formed Silverado Premium Properties for institutional investors with Couchman, a property-investment manager for Prudential, in 1998. “Silverado Premium Properties was always dominated by large investors,” Freed said. Silverado Wine Growers was the investment vehicle for smaller investors.

Silverado Premium Properties originally had two major investors: principals of Texas Pacific Group (now TPG) and Colony Capital, a firm from Los Angeles, Calif. Over time, John Hancock and Harvard University invested, then TIAA-CREF invested in the company and eventually bought out the other investors.

TIAA-CREF completed its acquisitions of Silverado Premium Properties and Silverado Wine Growers in 2012, and Mark Couchman continues to manage the portfolio. Freed is no longer involved in the management.

TIAA-CREF had its origins in a fund Andrew Carnegie established as a retirement fund for college professors. Freed says that it controls a high percentage of pension funds for professors in the United States. “It’s very high principled. TIAA-CREF, the large teachers’ pension fund, has been investing in agriculture since 2007. It made its first Silverado vineyard investment in December 2007 via a portfolio investment.

“It’s a good match for the 25- to 30-year life of a typical vineyard since professors typically retire after 25 to 30 years,” Freed noted. He added that vineyards rise in value over time unrelated to stocks or other real estate cycles.

TIAA-CREF acquired most of Westchester, an agricultural management company, in 2010. As of Dec. 31, 2013, TIAA-CREF controls approximately 28,000 acres of California vineyards through its Westchester and Silverado entities.

Vineyard values Freed, who is 71, is now chairman emeritus and acts primarily as a resource for the company. “Mark (Couchman) has been president since 1998,” Freed said. “He did the hard work, and the wine industry knows he runs things.”

“We are in the business of generating income,” Freed added. “Couchman knows the institutional investors. They need a return on assets. We need to generate more and more income.”

He contrasted Silverado’s strategy with that of Premier Pacific Vineyards, which largely imploded when it lost the confidence of its biggest investor, the California Public Employees’ Retirement System (CalPERS).

“Their goal was to find and plant the best vineyards, then sell them,” Freed explained. “Unfortunately, that didn’t generate income during the development phase, and they had significant debt on the property.”

“On top of that, if the time came to sell during a recession, as occurred recently, they had a problem.” Freed admits that his group bought some of those vineyards, but it’s become more challenging as wineries scoop up vineyards to ensure grape supply.

At the recent Vineyard Economics Seminar, Couchman admitted, “We continue to buy and sell, but it’s harder to buy than three years ago. We don’t have any competition among institutional investors, but it’s hard now to pencil out the returns.”

He also commented that vineyard values lag grape prices by one to two years, but they continue to rise as grape prices rise.”

Though it has vineyards in the North Coast, Silverado’s largest concentration of vineyards is in Monterey County, Calif., and it has been expanding in Paso Robles—a prime spot for value Cabernet.

Conditions now are very different from 2005, when a large surplus of grapes forced Silverado into making bulk wine. They hired winemaker Alison Crowe and started doing custom crush for private labels and negociant brands that wanted wine rather than grapes. Some customers prefer to buy wine, but most buy grapes. Freed said that recently, this operation has taken about 5% of its production.

David Freed can take pride in his 30 years of success in vineyard investment. He continues to shepherd the various financial forums he started, and it’s unlikely that we’ve heard the last of his other activities.