LUR 114 | Texas Vineyards

 

We’ve heard of building long-term wealth from investing in real estate properties such as multifamily homes, storage spaces, house flips, rentals, and the like. But how about getting Texas vineyards into the game? Hubbard Capital Group managing partner, Keeley Hubbard, is here with us today to talk about her role in specializing in multifamily and Texas vineyard investment opportunities and helping others achieve their financial life goals. Keeley shares with Lisa Hylton how she showcased her sales expertise and associates it with her family’s real estate background. Listen in as Keeley walks us through her career experiences, from building the multifamily space empire to growing vineyard investments.

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Investing In Texas Vineyards For Long Term Wealth With Keeley Hubbard

I am super excited to bring you another amazing guest. This episode’s guest is Keeley Hubbard. She is a Managing Partner of Hubbard Capital Group, an investment firm specializing in multifamily in Texas vineyard investment opportunities, where she is relentless in exceeding her investor’s expectations. She has several years of sales experience, both as a top producing executive. Her experience as a VP of sales for an international company has garnered her numerous awards for record-breaking sales and rapid company growth. She now runs her own sales coaching firm and helps business owners create financial freedom so that they can design a life that they love and good stuff. Thank you so much for coming on the show, Keeley. I appreciate it.

Thank you for having me.

To kick things off and to get stuff started, my show is broken down into three parts. A little bit about the background on the person, then we get into the meat of the episode, and then we wrap things up with my Level-Up questions. To get started, where in the US do you live?

I live in Fort Worth, Texas.

What do you and your family love to do for fun?

I’m close to my family. My dad and I are in business together. I’ve got three siblings and we’ve always stayed close over the years. I’m usually hanging out with my family. We like to go to different restaurants. We go hang out at the ranch. Pretty low-key stuff but we always have a good time when we’re together.

That nicely teases us up into getting into the meat of this episode. You said that you and your dad are in business together. While I introduced you, we talked about vineyards. Prior to that, I also mentioned multifamily. Can you talk about how you and your family got started investing in real estate in general?

My father is a professional trader. That’s his background. Since 1997 he’s been trading forex and futures. We started noticing a lot of shifts in the market. A lot of people are experiencing that now, wondering if this is the top of the market. The Federal Reserve is doing a lot of things that are creating some uncertainty in a market that doesn’t operate like it used to. We decided to move out of the markets and into hard assets a few years ago.

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My dad has experience with commercial leasebacks in the ‘80s. He’s been an entrepreneur his whole life. He used to run 500,000 square feet of warehousing. He used to run big commercial business operations, but we are now circling back to the real estate field. We believe you follow the money. If the money is in the financial markets, you invest there. I truly believe that real estate is where it’s at and in hard assets now.

This is so appropriate because I did an article on LinkedIn and Facebook. Sometimes my articles go at different times on these social media platforms. It was on stocks versus real estate and breaking down for readers some of the pros and cons of investing in the stock market in general. Even though your dad was not in stocks but more in FX, and now moving into the real estate space. Going from there, some of the pros and cons in that space. When your dad decided to move into the real estate space, did you right off the bat decide to start a business together or were you already working in sales in another area, and then later decided to join your father?

It’s interesting how it happened. My dad and I have been in business together before. I have been in sales for seventeen years, but my career took off with the financial education company that we owned a franchise of back in 2010. That’s where we started together in business as a family. At the time, my father was managing money as well. He loved teaching people how to manage their own money in the financial markets. We eventually ended up selling that business and I went on to work for corporate. I take my sales process and roll it out to the entire company. That’s where I built my career as a VP of sales, then I quit because I got tired of building somebody else’s empire.

When I quit to start my own consulting firm, that opened up my time to be able to go back into business with my father. That’s when we realized the shifts in the market. He was making great money for our investors when he was actively trading. He was trading the forex market, which controls every other market out there. He was very much actively watching the stock market as well. When he decided that we needed to shift into hard assets and asked me if I wanted to partner up and go into multifamily, it was a no-brainer for me.

From trading FX down into multifamily and then eventually, into vineyards. Before we get into vineyards, talk a little bit about your strategy in the multifamily space. What are some of the types of assets do you guys focus on acquiring when you were focused on multifamily?

The market that we’re in now is in Lubbock, Texas. Out in West Texas, it’s one of those markets that people don’t know about until they start hearing that it’s exceeding all of the other major cities in Texas in terms of rent, growth and occupancy. It’s got great important employment sectors. The largest employers are education and healthcare. We fared well in the midst of COVID but we love the Lubbock market. We’re typically looking for 100-plus units, Class B and C, value-add deals. We’re typically trying to double our investor’s money over 5 to 6 years. To be able to do that, I can’t invest in my backyard in Dallas Forth because it’s too expensive. It always depends on what your investors are willing to put their money in. That’s what directs what you’re looking for in terms of your acquisitions.

Can we move a little bit then now into vineyards? What made you guys decide to invest in vineyards and how do you do that? Are you buying existing vineyards? Are you building them yourself?

These are ground-up development. It’s interesting how it happened. I was on Whitney Sewell’s podcast and a guy named Mason Moreland called me. He was like, “I need to talk to your dad.” Because I was on the podcast, I think he asked a similar question like, “What’s your family up to?” At the time, my father has been looking for a ranch for a couple of years. He always wanted a family ranch. He’s going to run a cattle operation. He also wanted to put some vineyards on the property because you don’t make a ton of money off of cattle. You’re not doing it for a profit center. It pays for the land. He learned the profit margins in vineyards from my brother-in-law who was working for a rancher.

LUR 114 | Texas Vineyards

Texas Vineyards: It always depends on what your investors are willing to put their money in, and that’s what directs what you’re looking for in terms of your acquisitions.

 

We thought, “I’ll put 20 to 30 acres.” I mentioned that when I was on the podcast with Whitney Sewell. This guy named Mason Moreland called me and he was like, “I need to talk to your dad about vineyards.” I come to find out a year and a half later, Mason and his partner, Rusty Dutton are vineyard experts in the Texas market. They’ve already got 350 acres of vineyards out in what’s called the High Plains AVA. It’s near Lubbock. It’s 40 minutes outside of Lubbock, which is crazy because that’s where all of our properties are as well. Now the vineyards are right there and it’s the perfect climate for growing grapes. We spent the last few years underwriting this because they’ve already got 350 acres of their own. It was privately financed.

They said, “We want to scale this because there’s such a huge demand for Texas wine and there are not enough grapes.” What’s happening is a lot of these wineries are buying grapes from California to try to fill the gap. You know how Texans are. We are very proud of our state. We don’t like that there’s juice coming in from California. My dad said, “I know how to scale this.” My dad has always been a visionary and knows how to take something small and 10X it. We partnered with Mason and Rusty. That’s where it all started. I love multifamily. Don’t get me wrong but I haven’t been as excited about something like vineyards in probably a decade because of the opportunity that’s there for us and our investors.

Let’s jump right in. What are some of the opportunities for investing in vineyards?

You’re investing in ground-up development. It takes about 4 to 5 years to get to a full harvest. Grapes are not an annual crop, but there are massive profit margins set for a couple of reasons. Number one, Texas land is inexpensive. To get an ideal 1 acre of land in California that’s got ideal water sources, great soil, great climate, you’re looking at $15,000 to $20,000 an acre. The land in Texas that we’re looking at that has the ideal climate, that’s very similar to Central California, dry, hot, ideal for growing grapes, that has great water sources and great soil is only $2,100 to $3,000 an acre, compared to $15,000 to $20,000 an acre in California. The problem of what’s happening in Texas now is there are only 5,000 acres total of vineyards for wine grapes.

The demand is closer to an additional 2,000 to 3,000 acres. Those grapes are being shipped in from California. It carries this stigma for a lot of Texans that it’s not a Texas wine. Now, the laws state that it can be labeled a Texas wine as long as 75% of the grapes come from Texas. A lot of Texas wineries are trying to shift that and change it but the state will not until there are enough grapes to supply it. We met with one of the head winemakers in one of the biggest wineries here. Even for his own wines, even though he could put 75% Texas grapes, shipping 25% of those grapes from California and label it Texas wine, he won’t. All the wines that are labeled Texas in their line are 100% Texas grapes.

A lot of these wineries are having challenges because there are not enough grapes to fill the demand, and the demand continues to grow. The other challenge is out of those 5,000 acres, most of them are pretty small vineyards. They’re like 50 acres, 60 acres and the price point of the grapes that they’re selling are close to $3,000 per ton. It’s always measured in tonnage in this world. A lot of these wineries, to be able to produce a good bottle of wine like a table wine for dinner that’s high quality, you could get one from California for $15 to $20 a bottle. In Texas, for the exact same quality, it’s $30 to $40, sometimes even as high as $50. The reason for that is the grape prices are so high because a lot of farmers in Texas are using outdated farming methods. They’re doing everything by hand.

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When you look at what California is doing, California is completely mechanized. They’ve got massive tractors that are pruning and harvesting their grapes. In Texas, to give you an example, to prune and harvest 320 acres or to run 320 acres, it only takes two people with the correct machinery, versus a lot of the Texans or all of them in Texas that are using outdated methods by hand, it’s taking 60 to 80 people out in the vineyards to be able to do that. You’ve got these high labor costs, which cuts into your profits, which is making them sell their grapes for $3,000 a ton. It is not allowing wineries to produce a lower price point quality bottle of wines. You’ve got all these challenges in place here and nobody has brought in California methodology and technology until now.

Our partners are running the only vineyard in Texas with what’s called high wire trellising, which is how California runs their vineyards, and a beautiful tractor that’s $550,000 called a Pellenc. It’s what manages the vineyard. It goes across these rows and it prunes, harvests, sprays. It does everything that you would have 60 to 80 people doing by hand. It allows you to scale. Because we have such reduced labor costs, we can sell our grapes for substantially less. All of a sudden, we become in high demand for these wineries. That’s how all this came full circle. I know it’s a lot of information but that’s the opportunity because there is no competition. Nobody is coming in and transitioning these older vineyards into what California is doing.

It feels that you’re bringing capital in to be able to make that transition, to be able to purchase the equipment and that stuff. On top of that, you’re doing ground up. You’re building your own vineyards ground up as opposed to acquiring other vineyards as well. Connected to that, can we talk about some of the underwriting assumptions? If someone who’s reading this is thinking, “I’d love to invest in a vineyard but what do I don’t know that I need to know?” The first thing is probably underwriting some of the different assumptions and maybe other things, given that you’re the wine expert.

Our underwriting is as extensive as underwriting in multifamily. There are so many factors that play into it. The biggest one that’s going to affect the investment overall is the price that you’re underwriting when you’re going to sell the grapes because that’s when you make your money. It’s when you sell the grapes each year after harvest. We’ve done our underwriting at $1,400 a ton for the grapes. The price point in Texas has averaged over $1,600 a ton for more than ten years. It hovered between $1,600 to $1,800 a ton for more than a decade. We’re very conservative in our underwriting just like we are in multifamily because we realized you can’t count on every single thing to go perfect to achieve your investor returns.

A lot of our investors know that about how we underwrite multifamilies. They trust our underwriting in the vineyards. The grapes selling price point is a big piece of that. Another huge cost that we’ve got in this world is insurance. A lot of people say, “What about weather-related issues or pests or things that could happen?” It’s funny because we had an investor party. It’s interesting that you can do this compared to multifamily. One of our family friends who’s an investor of ours in multifamily was like, “I want you all to come over. Brings some Texas wine.” We brought charcuterie boards and he brought over 30 of his friends. We talked vineyards. We were doing a presentation and talking about the returns. He raised his hand and he said, “Keeley, tell them that this is a guaranteed investment.” I was like, “We’re never allowed to say that. Let’s be a little more conservative here.”

LUR 114 | Texas Vineyards

Texas Vineyards: The biggest thing that’s going to affect the investment overall is the price that you’re underwriting when you’re going to sell.

 

What he means by that is we’re paying extremely high insurance premiums. When we’re at a full harvest, those vines are producing 12 to 15 tons per acre. For comparison, the average Texas vineyard is only producing about 2 to 3 tons per acre. Because we’ve changed the trellising and the way the grapes would grow, we’re able to produce 12 to 15 tons per acre. We’ve got insurance to cover the income at that production level. Our insurance is $400,000 to $600,000 a year in premiums to make sure that if we had some weather-related disaster like a tornado and it wiped out all 320 acres, were covered by insurance. It would probably be the most extreme that I could think of. We wouldn’t have a tornado that is going to wipe out that many acres out there but worst-case scenario, if we did, were covered. Things like hail were covered by insurance.

The other thing too that’s great about this area with frost is it gets colder out in the High Plains. When Texas had this crazy freeze in 2021 January, February. We got down to negative 1, negative 2. It was down to negative 10 out in the vineyards. It produced a better harvest in 2021 because it stressed the vines. This is the type of fruit that you want to stress the vines to make sure that they’re growing a solid root system and stock because these will last for 25 years. Even at 25 years, when the yield starts to go down and they’re not producing as much, we just start replanting.

It is a legacy play because these vineyards will be there for 40, 50 years. Things like frost, we’re not as concerned about because our vines are dormant longer. The biggest risk in a vineyard is when you start getting the buds and the vines are coming out in their grain. That’s when they are the most vulnerable but because of the High Plains, we have long winters. We don’t have that risk because our vines are dormant longer. There are a lot of advantages to being out in the High Plains AVA. If you’ve ever been to Napa or Sonoma, it’s not somewhere that you want to visit and think like, “It’s going to be so beautiful.” It’s beautiful. I love being out in the vineyards but it’s flat. There are no trees and hills.

It’s flat and hot in the summer. There’s no humidity. It’s a dry heat but it’s the perfect climate for growing grapes, which is we don’t deal with humidity. Here’s another interesting fact. When people think of Texas wine, they think of Fredericksburg. Fredericksburg is a little mini Napa, Sonoma, super fun to go visit, lots of wineries. They’ve got an acre of grapes in the front, but over 75% of the grapes for all of those wineries in Fredericksburg come from the High Plains AVA, where our vineyards are. It’s not as pretty out there if you want to go visit. A lot of people don’t even know that Texas is number five in the US for the largest wine grape production. It’s pretty large. It’s not like California but we are number five. We plan on increasing that in the rankings very soon.

This is like a gem that you guys discovered. It’s an area where there are perfect weather conditions, soil and water, natural resources to grow the different grapes and the vines. Also, an industry that isn’t equipped with the automation and the types of machinery that the neighbor next door California has and has been doing for many years. Being able to adopt those, which then requires the capital to be able to do that. One of the things to me is when I hear about ground up, I always think that this is an appreciation play. Is that correct in thinking about that? As people think about investing in vineyards in this way, they would not be investing for cashflow from day one. This is more of a long-term play in terms of their investment.

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You’re right. That’s the conversation that I’ve had with our investors. They’ve got a portion of their portfolio that they put into multifamily when they’re looking for that cashflow. There is a portion of their portfolio that’s a legacy play. They want to create generational wealth and that’s what this is. We typically put a time horizon of ten years on the investment for our investors to achieve the returns that we’ve set out. I know we can’t get into returns but your cash-on-cash returns are typically double what they are in multifamily because there are these huge profit margins in this world. If you can wait four years before you get your first distribution, the fifth year is when we’re hitting full harvest.

This is going to sound super corny. My dad said it and I laughed. He said, “The juice is worth the squeeze.” In a way, it’s worth it. Why investors love this is there is an infinite return component. Even after that ten years, we have not scaled our investors out of the investment. They’re staying in and they still maintain their equity and it will continue to cashflow substantially for the life of the vineyard. They love the idea that they are building that generational wealth and these vineyards can last 40, 50 years. It’s a unique investment.

There are two things there. Number one is the infinite return. For those people who don’t know what infinite return is, if you can get into that. Secondly, after you return to people all their capital, do the splits change? Some people, when they returned people’s capital, they then change the splits.

Infinite return means that you got all of your money. If you put $100,000 in an investment, you have all of your capital back, plus the returns that were projected when you first went into the investment. You have no money in it. You’ve made all the money that you thought you were going to make, but the property or the asset continues to cashflow after that. You have this infinite return component. There is a refinance in year eight. Just like we refi a multifamily property, we’re going to refi the vineyards to pull a lot of capital out. Our investors are made completely whole at year eight. The other thing too that a lot of people don’t realize is there are incredible tax advantages. Madison Specs is running cost segregation for us. We’ve got depreciation very similar to multifamily on the vineyards as well.

In addition to that, you’ve got write-offs or losses that pass through for the first four years since we’re burning cash that you can apply against your first return that comes through. It’s not a taxable event until even year eight of the vineyards. After year ten, you ask about splits. Right between your 8 and 9, when our investors are made whole, we do shift from a 70/30 split to a 50/50 split but their cash-on-cash returns are doubled what they’re seeing in multifamily. It’s still an incredible investment for the long term. The reason that we kept them in instead of scaling them out is because we truly feel like we’re building a legacy. We want them to invest in more than one block.

We’re in the middle of raising for block 1 now, and then we will start blocks 2 and 3. We’ll continue until we’ve got a few thousand acres that will fill the Texas supply gap, then we’ll move all through the Central US. States that are all through the Central US are buying from California now too. There are extremely high shipping costs and a lot of risks involved. It’s a lot easier for us to ship straight up through Texas and the High Plains to these states.

LUR 114 | Texas Vineyards

Texas Vineyards: Have fun in the process of investing because when you suck the fun out of it, you lose all your creativity.

 

You also mentioned blocks. Can you talk about how the vineyards are broken down into blocks? What do you mean by blocks?

In the agricultural world, 320 acres is referred to as a half section of land, so 320 acres is what we’re calling one block of vineyards. It would be similar to 320 units if somebody were investing in an apartment building. It’s 320 acres in this case. The reason that we’re doing 320 acres is our director of vineyard operations spent three years studying Gallo and Constellation, the biggest wineries in California, how they are operating and what their efficiencies are, and brought that to Texas with their existing 350 acres that they’ve got.

That’s how we built up operational plans, so 290 of those acres are fruit-bearing. Vineyards are being planted. The remaining acreage is set aside for what’s called turn rows or the space at the end of each row for our tractors to be able to turn around. Plus, we’ve got some acres set aside for metal barns and structures to hold equipment.

Moving from that, the last question before I wrap up with my Level Up questions that I want to ask you is about the team. For someone reading, a lot of people feel like, “I don’t think I would ever be able to do this because I have no experience in vineyards.” Can you talk about the importance of building a team, attracting a team, and working with other people in building any business, be it multifamily or vineyards?

I’m assuming you’re talking about the general partnership side. What’s that quote, “If you go by yourself, you can go fast, but if you go together, you’ll go far.” It’s the same concept here in any big project like this. My dad and I couldn’t do this by ourselves because we have the financial experience, the raising capital, the scaling experience and structuring an investment. We haven’t spent three years in California like our partners. We’re not out in the vineyards every single day like our partners.

People want to be in control. When you’re open to releasing some of that control and finding good people that share the same business values as you do, then that’s when your opportunities open up. I remember a few years ago when I didn’t know anything about multifamily and I was building an investor slide deck for our first project. I’m asking my dad, I’m like, “What does this mean? I’ve got to explain it to investors.”

I was learning as I went, even though he had all the experience on the underwriting side. I’m always willing to put myself out there when there’s something new to be learned or something that maybe scares me or makes me uncomfortable. That’s the stuff I run after because that’s where your growth is. You want to change your life. You want to grow your business. You got to do stuff that makes you uncomfortable. It’s not that it’s complicated. It’s usually that it’s just new, and new things fare sometimes. It’s the ability to partner, put yourself out there, and push yourself out of your comfort zone. I know that sounds so cliché but those things that give you a pit in your stomach, embrace it. That’s the stuff you want to run after.

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This leads me to my Level Up questions that I ask all my guests. The first one is, what are you grateful for in your life now?

There are so many things to be grateful for. I am so grateful for my family, that both of my parents are alive and in great health. I realized that it’s not like that for everybody. People remind me every day that to have both my parents and my siblings, and for all of us to be so super close is rare. Growing up, my parents wouldn’t let us stay mad at each other as siblings for very long. There are four of us and there are only five years between youngest to oldest. We’re all crammed in there, close in age. After fights, they would make us hug it out or they’d put us in the same t-shirt.

Have you seen those memes on Facebook? That was my life growing up. It was like, “No, you all are going to be as close as possible until you make up.” It has maintained our friendships and our relationships as siblings to this day. I’m so grateful to have a family that’s got my back no matter what and to have that support system in my life.

What has attributed to your success and continuous growth?

It comes down to realizing that life is not a dress rehearsal. We have this one life to live. All the things that we maybe are afraid of or doubt ourselves, we’re our harshest critics. Everybody in your family or close friends are like, “You can do it. Run after it, Lisa. It can’t leave in your mind.” You’re like, “What about this? What if people think this? What if I fail?” It’s all these things, but what if you succeed? You’re never going to know until you go for it.

My success for more than a decade has come down to me going for it and doing things that scare the crap out of me, doing things where I was worried if I would fail. I’m worried about what people would think and truly realized that I’ve got this one life. Today is gone. Tomorrow’s another day but I have a limited number of days on this Earth. I’m determined to figure out why I’m here. I’m not going to figure that out if I’m playing it safe. It’s running full speed towards everything that this beautiful life has to offer.

Lastly, what do you now know that you wish you knew at the beginning of your journey?

That it’s not as hard as I made it out to be in my head. It’s like raising capital. It can be easy. We make things so complicated in our minds. I got a phone call from a man that I met through LinkedIn. We had a great conversation. He called me up. He’s like, “I want to invest in the vineyards.” It can be that easy. It can be fluid. It doesn’t have to be this stressful, “We got a $5 million capital raise. How are we going to do it?”

LUR 114 | Texas Vineyards

Texas Vineyards: People want to be in control, but when you’re open to releasing some of that control and finding really good people that share the same business values as you do, that’s when your opportunities really open up.

 

We’re going to do it and it’s going to happen easily. It’s speaking those things and having fun in the process because it should be fun. When you suck the fun out of it, you lose all your creativity. There’s no joy in the journey. Why are you doing it? Take all the pressure off and realize that it can be easy. It is easy if you have that mindset about it.

If the audience wants to learn more about you, what is the best place they can go to learn more?

They can go to our website, HubbardCapitalGroup.com or InvestInVines.com. Either one will take them to the same place. On social media, you can find me there. I’m always checking my messages. I’d love to connect.

Keeley, thank you so much for coming on the show. I appreciate it. There are so much values about vineyards. I had never known it was possible to invest in them but that’s what the show is about. We are showing people that it’s possible to invest in vineyards and here’s this company that is doing it. Let’s do it.

Thank you for having me, Lisa. You’re an incredible host. I’ve enjoyed it.

You’re welcome. Thank you.

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About Keeley Hubbard

LUR 114 | Texas VineyardsKeeley Hubbard is Managing Partner of Hubbard Capital Group – an investment firm specializing in multifamily and Texas vineyard investment opportunities – where she’s relentless in exceeding her investors’ expectations.

Keeley also has over 17 years of sales experience as both a top producer and executive. Her experience as Vice-President of Sales for an international company has garnered her numerous awards for record-breaking sales and rapid company growth. She now runs her own sales-coaching firm, helping business owners create financial freedom, so they can design a life they love.

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