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Despite Record Drought, Harvard Invests in California Central Coast Vineyards

But the University’s $61 million purchases have some wondering if they’re buying grapes or water

Kasey Carpenter
Posted: April 3, 2015

California's four years of drought are raising painful issues for residents and farmers alike. Now, recent vineyard acquisitions in the state's Central Coast wine regions by Harvard University's endowment fund are triggering suspicions among locals that the school's investment managers are grabbing valuable water resources.

The Central Coast is no stranger to institutional-grade investors: Prudential, John Hancock and Travelers are just a few of the larger names who have made sizeable land purchases with the aim of farming vines. And Harvard's fund is no stranger to agricultural investments, with interests ranging from timberland to dairy farms. But as California's drought continues to worsen—Gov. Jerry Brown imposed mandatory water restrictions on April 1—some residents are speculating that water rights and access in a water-starved region is what Harvard was buying.

In February 2014, Harvard Management Group (HMG), the investment arm of Harvard University’s $36 billion endowment fund, bought a 7,622-acre cattle ranch in Santa Barbara for $10.1 million through subsidiary Brodiaea Inc. The company also spent $51 million for two parcels in Shandon, part of Paso Robles, in July and August of 2012. That's about 10,000 acres in total. Brodiaea also managed to secure rights to drill 16 new wells on the lands not long before officials put a hold on any new rights.

Based on the growing value of potential vineyard land, the deals make sense. So why are people suspicious of Harvard’s purchases? No one would speak on the record, but some point out that Brodiaea paid well above market value for the properties and that they bought them door-to-door rather than at auction. They also point out that the company hired Grapevine Capital Partners of San Luis Obispo, of which Matt Turrentine is a partner, to make the deal.

Turrentine also happens to sit on the board for the Paso Robles Agricultural Alliance for Groundwater Solutions (PRAAGS), and more than a few residents of the Central Coast see this as proof of their claims that Harvard wanted water rights. Neither Turrentine nor Harvard responded to requests for comment for this story, but speaking to Mercator Research, an agricultural research and advisory firm, Turrentine claimed that any purchases made by Brodiaea for HMG and any benefits to water rights are “purely coincidental." 

That hasn’t helped calm residents who are facing drought restrictions or farmers who are seeing the price of water for irrigation reach record highs. Last summer, the price per acre-foot exceeded $2,000 versus an average of $70 in a normal year. Harvard’s long-standing policy of not commenting on investments has only deepened speculation.

Dana Merrill of Pomar Junction Vineyard and Winery also manages several parcels for Harvard via his company Mesa Vineyard Management. He dismisses the rumors. “Harvard is no different than any of the other institutional investors who have bought land in the area since the 1970s," he said. "Water is a major consideration, but only as a dependable supply to their vineyard investment, not as a resource to sell.”

What is being called nefarious actually makes good business sense. Buying direct and paying more is a smart way to secure land in a timely manner, sidestepping costly bidding wars. And hiring a longtime Central Coast resident and vineyard-specific real-estate agent who also sits on the PRAAGS board seems smart at a time when water is scarce. Any investor looking to buy vineyard land would look for land with water rights, on which additional wells can be drilled—what good is a vineyard if you have no water?

There's also a flaw in the suspicion that Harvard might sell the water. “While the Coastal Branch of the state water project does in fact traverse Harvard lands," said Merrill, "raw well water cannot be put into the line, as it contains chlorinated water. So I do not see a likely conspiracy there. There simply is no delivery method to ship water out.”

“The Harvard group is smart and realizes that the Central Coast as a region is making incredible wines respected by critics and consumers alike," said Georges Daou, of Daou Vineyards in Paso Robles. "They’re no different from any other family that invested here, they just do it on a bigger scale. I herald their effort, which validates all of the small family wineries in this region that have pioneered making world-class wines.”

Droughts have a way of turning neighbors against neighbors, and an outsider like Harvard is an unsurprising target. As California's situation worsens, disputes over water are going to be just as loud as praise for wine.

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