Harvard's California Land Buys May Be Driven By Water

Harvard University has been buying up California vineyards in a move that appears to be driven less by the future value of the land than by the water that lies beneath it.

Within the past six years, Harvard Management Co., the university's endowment manager, has been purchasing Central California agricultural properties through Brodiaea Inc. and other business entities, the Wall Street Journal reports.

As climate change creates more severe drought events in California, property with access to water is expected to gain in value. Harvard is not the only investor taking advantage of anticipated water shortages driving up the value of properties that have access to groundwater, but the investment has been lucrative for the university.

Harvard's vineyards are now valued at $305M, up three times from their value in 2013, the WSJ reports. At the same time, the $39B endowment fund has had to write down its overall natural-resources investments due to poor performance.

Some worry the Harvard-owned vineyards, which have drilled numerous wells over the years and in some cases were accused of drawing down groundwater to the point that nearby residential wells went dry, could pivot from agriculture to sending water to Southern California cities as water woes worsen, the WSJ reports. Harvard's investing guidelines and filed plans indicate it plans to use the water from its wells to grow grapes.

The question remains among farmers, residents and those in government about how much landowners should control local groundwater. Subterranean aquifers contribute about a third of California's annual water supply, according to California Magazine.

A key component to agricultural land in California is the water rights that go along with it. Previous state water battles have been over the use of surface water.

California history originally upheld "riparian rights" that allow those who own property by a natural body of water the right to use it, based on an 1886 state Supreme Court decision. Then, in 1928, voters amended the state constitution to require beneficial and reasonable use of the state's water, KCET reports.

Under that rule, water was piped to cities, and some lakes were drained in the effort to water the city of Los Angeles. The result was a decision to limit excessive use to protect a natural resource — water — as a matter of the public trust.

Landowners have rights to the groundwater beneath their property as subject to the reasonable and beneficial use requirement, the Water Education Foundation reports. But there is no permit required and the state does not generally manage groundwater use.

In some cases, aquifers in the San Joaquin Valley have been drained to the point that the soil has settled by 20 feet, California Magazine reports.

Water has become a battleground with different groups making different demands ranging from environmental conservation to farming to supplying water to city residents, and there is an increasing realization of how closely the state's groundwater and surface water supplies are connected.

In 2014, Gov. Jerry Brown signed the Sustainable Groundwater Management Act to develop local plans to limit groundwater use by 2020. It remains to be seen what effect such regulatory moves may have on the value of agricultural land investments such as Harvard's.