William Hill
Premier Pacific Vineyards
275 Battery Street, Floor 13
San Francisco, CA 94111
December 23, 2002
Subject: Premier Pacific Vineyards, and vineyard investment
Garcia River and Gualala River Watersheds
As advocates for the protection of fishery and forest resources in the Garcia River and Gualala River watersheds, the undersigned ask for due diligence to be accomplished in potential investment considerations in these watersheds. It is to this end that we offer the following history, facts, and circumstances for your consideration.
Note: It should be acknowledged that Mr. Hill solicited input on this from the environmental community on this project in a meet in Ukiah, California on December 14, 2002. This letter is in part a response to Mr. Hills request for input.
Land History
Lands (79,000 acres) in the Garcia and Gualala watersheds previously owned (and possibly currently owned) by Coastal Forestlands Ltd., Pioneer Resources, and finally lending institutions, had earlier been part of failed IPO that attempted to market a Real Estate Investment Trust of depleted forest lands. The IPO was initially underwritten by Salomon Smith Barney before they removed their support. There were inaccuracies in the prospectus of the IPO, related to timber land valuation, inventory, and productivity, that amounted to gross misrepresentation of fact.
Statements were made in the IPO prospectus, relative to average inventory of conifers per acre of these lands available for harvest as 12,000 board feet per acre, were grossly inaccurate. The California Department of Forestry estimated the volume of merchantable conifer of these lands to be less than 4,000 board feet per acre. For reference, the average merchantable conifer inventory level in Mendocino County is more than 11,000 board feet per acre.
Due to the depleted nature of these lands, under the California Forest Practice Act, these lands may not be suitable for harvesting until sufficient inventories are established and/or the California Department of Forestry approves an Option "A" document allowing for timber removal. In short, the land is over-harvested and probably not capable of profitable timber production for some extended period of time. Before additional Timber Harvest Plans can be approved on above mentioned lands, stocking and growth rate verification must be demonstrated with the California Department of Forestry - a Conditional Approval of Option A. Verification of status and condition of this document should be validated with the California Department of Forestry.
Also, in the prospectus, the claim was made that the ground represented in the above tract(s) are moderate in slope and historically well managed, thus allowing the use of low cost harvesting methods. It should be pointed out that the average slope on these lands is relatively steep, erosional problems are existing, and large areas are captured by hardwoods (considered a weed species requiring expensive management and control activity). These factors indicate the need for more expensive harvesting methods and rehabilitation activity.
The IPO failure culminated with parties, including lending institutions, involved in litigation to fix contractual and representational responsibility. Now these properties are again proposed for sale and development.
Relationship of Land Condition for Vineyard Use
One might ask how timber land history relates to vineyard use. There are other factors potentially affecting opportunity to harvest conifers or apply other agriculture on the above mentioned lands. These lands are all contiguous (a subset of) to watersheds listed as impaired under Section 303 (d) of the federal Clean Water Act and will be subject to specialized land use control, Total Maximum Daily Loads and pollutant load reduction programs. These programs will affect levels of harvest and development. Under both federal and state Endangered Species Act listing for salmonids and other species a restricted land use scenario is likely. As (specifically) these lands have been noted by the managing agencies to have been extensively harvested in the recent past. Special attention is now being paid to land use proposals on these lands, with the intent of remedy and rehabilitation for historic and ongoing problems.
Claim in the IPO that the lands may be convertible for development of vineyard or sold for other use may be misleading. Conversion of such lands would be subject to limitations associated with such conversion. First, the lands are zoned Timber Production (TPZ). CDF and the Counties of Mendocino and Sonoma are resistant to seeing potential timber lands removed from such zoning. Second, removal of such lands from TPZ zoning would require intensive environmental review - an EIR would be required under the California Environmental Quality Act. Third, suitability of conversion is related to availability of water, access, and slope suitability for production, and to necessity to meet State codes, area Water Quality Control Plans, endangered and threatened species considerations, and county ordinance requirements relative to these limiting factors.
Given the above constraints the economic productivity of these lands, for the most part, for vineyard use is rather limited and subject to great uncertainty.
Other Limiting Factors
Under CalPERS Agricultural Land and Real Estate Investment Program there are certain justifiable goals and objectives. In consideration of Vineyard investment the Board must "Take prudent and careful action while managing the program". This requires careful analysis of the pros and cons of any investment scheme.
With the objective of "Highest possible return possible consistent with a prudent level of risk" all factors must be considered to achieve this end.
What Are The Costs Related to Environmental Considerations? In the case of potential investment of the above mentioned properties have all costs and liabilities been considered? Has the cost of environmental review, mitigations, and related potential litigation, and other permits related to conversion of forestlands and operations (CDFG permits, water rights applications and related review process, engineering geologists, roads and erosion control, biologic studies, fencing, drainage, etc.) been adequately considered? The entire project must be considered, in total, for appropriate environmental review under CEQA.
What will be the cost of complying with the area Water Quality Control Plan - Basin Plan - Total Maximum Daily Load? Road construction and vineyard development will necessitate additional expenses to comply with specific sedimentation controls for affected watersheds - Garcia River and Gualala River.
Effect of Demand (Supply) Impact on Commodity Prices: From PPV website: "The future demand for the highest quality grapes will proceed unabated because of inexorable demographic trends driving the market for fine wines." Do you really expect demand to continue to grow - "unabated"? Are not "inexorable" supply trends driving market prices down for grape varietiles as well as wine?
Purchasing land and planting grapes with attendant roads, fencing, and other development costs is very expensive (with estimated costs being $40,000 per acre or more). If the long term demand, at the right pricing, is not there could this project be another loser.
Dependency on regional and local water supplies: Water in the area is limited. Development of water resources is expensive and may result in environmental conflicts with fish and wildlife issues. Vineyard development in this area, with attendant road construction, water development and irrigation, will necessarily cause interception of the natural hydrology. Limitations, permitting, and environmental review related expenses must be considered. Specialized nature of professional management: A specialized management team would be responsible for assessing market and project needs, investment and construction costs, environmental review and permitting costs, marketing, sales and profit (if any) distribution. The degree of specialization is so great that CalPERS, essentially, has limited management control
Yield history: There is no yield history on the site (area) being considered. As pointed out, you are sort of operating in the dark here.
Appraisal of fair market value: This issue is anyone's guess, given the current condition of the land. As stated above, a realistic estimated value failed to sustain an IPO for Timber REIT. Appraisal is a function of expected , or probable, yield on the properties. Appraisal is also a function of equity value. Will CalPERs and other potential investors maintain equity in a convoluted ownership scheme?
In Conclusion: Signatories to this letter and other interested parties consider conversion of timberlands to vineyards a great threat to already threatened watersheds that have the subject of continuing land mismanagement. And, that such proposed conversion and alteration of the landscape is a threat to the fish and wildlife that inhabit these lands. We, individually and collectively, will work to oppose any such conversion of forest lands in the Garcia River and Gualala River watersheds.
We also believe that investment for such conversion to vineyard use does not make economic sense.
In consideration of CalPERs fiduciary and ethical responsibility to financial constituents and the citizens of California, it is expected that any decision making process must include the rudiments of diligence in valuing the overall impact of the proposed project and risk, as well as expected rate of return. Financial and legal or ethical diligence is obligatory.
We would fully appreciate careful consideration of factors mentioned in your decision making process.
Sincerely,
For Coast Action Group and
Signatories
The following list of organizations are signatory to this letter.
W.F. "Zeke" Grader, Jr.
Executive Director
Pacific Coast Federation of Fishermen's Associations
P.O. Box 29370
San Francisco, CA 94129-0370
Thomas J. Weseloh
North Coast Manager
California Trout
176 Archer Road
McKinleyville, CA 95519
Sierra Club Mendocino Group
Land-Use Committee
Ron Guenther, Chair
P.O. Box 2330
Fort Bragg, CA 95437
Alan Levine
Coast Action Group
Box 215
Point Arena, CA 95468
Peter Y. Dobbins
For FrOG
Friends Of the Garcia
P.O. Box 916
Point Arena, CA 95468
Chris Poehlmann
Coastal Forest Alliance
P.O. Box 61
Annapolis, Ca 95412
Jay Halcomb,
Russian River Residents Against Unsafe Logging (RRRAUL)
P.O. Box 2030
Guerneville, CA 95446
Bob Rawson
Industrial Wastewater Solutions
P.O. Box 157, Sebastopol, Ca. 95473
Don McEnhill
Russian Riverkeeper
Advocate for the River, On the River
PO Box 1335
Healdsburg, CA 95448
Beth Robinson
Town Hall Coalition
P.O. Box 1005
Occidental, CA 95465
Toben Dilworth
Northern California River Water Watch
P.O. Box 1360
Occidental, CA 95465
M. Christina Carpenter
Redwood Coast Communities Legacy Group
<sustain@sonic.net>
Mike Sandler
Program Coordinator
Community Clean Water Institute
P.O. Box 1082
Occidental, CA 95465
Rixanne Wehren, Exec, Dir.
Coastal Land Trust
PO Box 340
Albion, CA 95410
Mendocino CoastWatch
Roanne Withers
P.O. Box 198
Fort Bragg, CA 95437
Friends of Schooner Gulch
P. O. Box 4, Pt. Arena, etc.
Executive Committee:
Charles Peterson, Lucie Marshall, Peter Reimuller.
Barbara Vlamis, Executive Director
Butte Environmental Council
116 W.Second Street, Suite 3
Chico, CA 95928
Cc. List of CalPers Board Members:
Dr. William Dale Crist, President, CalPERS Board of Administration Investment Committee
Robert F. Carlson, Vice President, CalPERS Board of Administration Investment Committee
Sidney L. Abrams, CalPERS Board of Administration Investment Committee
Philip Angelides, State Treasurer, CalPERS Board of Administration
Willie Brown, Jr., CalPERS Board of Administration
Kathleen Connell, State Controller, CalPERS Board of Administration
Rob Feckner, CalPERS Board of Administration
Michael Flaherman, CalPERS Board of Administration Investment Committee
Sean Harrigan, CalPERS Board of Administration Investment Committee
Marty Morgenstern, CalPERS Board of Administration
Mike Quevedo, Jr., CalPERS Board of Administration Investment Committee
Kurato Shimada, CalPERS Board of Administration Investment Committee
Charles "Chuck" P. Valdes, CalPERS Board of Administration Investment Committee
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