David English moved to Argentina over a decade ago from the U.S. and has been advising foreign investors in wine country since 1998 through his company English & Associates. He spoke with Luxury Latin America about the upsides and downsides of investing in the main wine–producing region of Mendoza, Argentina.
What service does English and Associates perform for foreign investors interested in Argentina and what kinds of problems are you set up to solve?
We offer a variety of pre and post–purchase real estate services in the agricultural sector: property scouting, financial analysis of a potential investment, title checks and price negotiation, as well as property management for non–resident owners. English & Associates is a professional services firm and not a real estate agency. We represent only buyers/owners and do not charge commissions or other realtor fees.
What makes Argentina attractive for investors in the agricultural sector?
There is still a large gap in values between agricultural real estate in Argentina and land of similar quality in other parts of the world. This fact, coupled with the excellent climate and the purity of key natural resources (air, water, soil, etc.) make Argentina an inherently attractive investment opportunity.
What are some of the unique challenges to investing in the Mendoza area?
Understanding that Argentina is a cyclical country by nature is key to successfully investing here. One must be prepared to ride out the low points in the typical 7 to 10 year economic cycle in order to reap the benefits of the high points.
Also, it is important to understand that business moves at a slower pace in Argentina but the rules of the game (tax and labor laws, for example) change more often than in countries like Canada, the UK or the USA. An investor who does not live in Argentina really does need someone they can trust who is on the ground and looking after their interests in the country on a day–to–day basis. That's what we do.
Typically, how long does it take one of your clients to get to the point of profitability on their investment in a farm, vineyard or winery, if they do it right?
There is not standard length of time, since each investment is unique. What one has to keep in mind is that the wine industry in particular is quite capital intensive. Returns are low or nil for a number of years, as capital is tied up in wine, barrels, supplies, etc. while the wine is aging, being sold and being developed into a successful brand. All this takes time, and time truly is money. Also, economy of scale is critical with agricultural ventures. Whether one owns a grape farm or a peach farm, the larger the piece of land over which fixed costs can be spread, the better.
Have you worked with clients or heard of investors who have really lost their shirt investing in the agricultural sector in Argentina?
Unfortunately, it is common that investors from overseas try to do things on their own in Argentina as if they were booking hotel and plane reservations on Travelocity or Orbitz. Those who have the attitude that they don't need the help of experienced in–country consultants nearly always end up paying too much or getting burned. On our Web site we have real examples of poorly advised investors who ended up losing fortunes because they chose to work with the wrong people (or no one at all). In the end, hiring a firm like ours saves investors tremendous amounts of time and money because there are so many potential pitfalls in Argentina.
I've seen some information on fractional programs there, where investors can take a more passive role in a vineyard project by buying a portion of a larger estate. How many of those are really active? What are the pros and cons of this approach?
There are currently seven of these "Vineyard Villa" projects in Argentina and we know the principals of nearly all of them. In fact, we are often hired by people looking to purchase in one of the projects to give an independent opinion on price, location, soil quality, business model, etc.
All of them are real projects, but each one is in a different stage of development. The pros are that the investor can purchase a small lot in a large project that is relatively worry–free and benefits to some extent from shared resources (tractors, tools, labor, etc.). The cons are that the cost for a lot is much more than what one would pay on the open market (not part of a project) and there is a lack of flexibility in decision–making due to community by–laws and regulations.
It seems that North Americans have mostly gotten the value proposition of Argentina's wines from Mendoza and are getting comfortable with buying them and ordering them in restaurants. What's the chatter there in terms of what's working from an export standpoint and what hurdles are still ahead in terms of acceptance?
From the Argentine perspective, the news is good in terms of exports. The Mendoza wineries are ready and eager to export to the United States. The tremendous improvements in quality and in supply over the past five years have positioned them well to do so. In fact, for the first time ever, last year Argentine wine exports exceeded those of Chile.
The biggest hurdle in terms of acceptance is just for Argentine exporters to build on the existing momentum despite the slow–down of the US economy. They must leverage the fact that Malbec is a high–quality low–cost alternative to more expensive wines from other parts of the world in order to capture market share.
What's your house wine and what's your favorite local splurge?
One of my favorite Mendoza wines is Terraza Malbec Reserva 2003. It's fairly priced and what I drink most often. Another of the best wines coming out of Mendoza is A Crux by O. Fournier. It's what I drink when I want to splurge!
Interview conducted in June, 2008 by Timothy Scott. To learn more about investing in Mendoza, follow this link to English and Associates.
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