This post appeared in the Oregon Beer Growler, June 2013.
As many operators of craft breweries and pubs will attest, there are many challenges to locating and securing the right facility.
It is a process and there are many steps required to assure that the real estate deal gets to the “end zone” -- a signed lease.
The first step is securing a solid team to work on your behalf.
This should include your investors/lender, a corporate attorney, CPA, architect and a commercial real estate broker. The commercial broker can save the tenant a ton of time by exposing what properties are available, confirming the zoning, understanding the market and knowing what concessions are available to the tenant.
“Working with a broker is a great decision. My search was very specific for building size, zoning, occupancy and price. Having a knowledgeable broker who understands this maze is critical. Looking for a location by myself before working with a broker was a futile exercise,” says John Harris who recently secured a location for his new brewery and pub.
Once the team is established, a solid business plan needs to be completed. This business plan is an essential tool in selling the landlord that this craft brewery and pub has a “solid business plan and they will make it as my tenant.”
I have recently completed two transactions where this approach was taken and we were successful in negotiating and completing the transaction.
The first transaction was with Indio Spirits Distillery where we located a site in Tigard with close proximity to Bridgeport Village. Due to high content of alcohol there was a significant amount of tenant improvements being required by the fire marshall in order to gain occupancy. The deal and tenant were effectively sold to the landlord and the deal was consummated.
The second transaction was a little more challenging, but the team enabled John Harris to locate a space for his highly anticipated brewery and pub.
The 14,100 squre-foot warehouse conversion to a brewpub was not a quick and easy transaction. The owner of the building had some apprehension on changing the use of the building from a general warehouse use to the brewpub concept.
From the building owner’s perspective, this was essentially a “start-up” business and there were some concerns that if the business did not make it, the landlord would be left with improvements that may or may not have residual value.
With the help of an excellent business plan and a solid team put together by Harris, the building owner finally agreed to proceed with the deal.
So even if one of the founding fathers of the craft brewing industry like John Harris faced a challenge to locate and negotiate for space, this certainly provides evidence that it may not be easy.
Harris responds, “The needs of a future tenant and those of a potential landlord are - well most often not aligned. Whether it is rent price, tenant improvement dollars, deposits, conditions, this can be of all over the map.”
Additionally Harris suggests, “Patience is very important. It took me ten months to find and negotiate the site I have secured.”
What are the keys a craft brewer needs to focus on in securing a facility:
In addition to the previously mentioned business plan and team, one of the big keys to securing a location is having a good story to tell the Landlord. The landlord has to believe that the project and the tenant are going to be successful. The last thing a landlord wants to deal with is a tenant that doesn’t pay rent or defaults on a lease.
Location, Location, Location
When opening a new business, everybody already has the preconceived notion on what sub-market he or she wants to be located in. Start there first, but be flexible and willing to look at other sub-markets. There may be the perfect building and site located in another area.
Zoning is a huge factor when determining a location. The craft brewery use is generally fits in multiple zones. These different zones include commercial, (CS – Commercial Storefront, CG-General Commercial, etc.) These zones can limit the amount of manufacturing and distribution but allow a much larger brewpub area. These zones are generally more expensive to lease as they allow ‘higher and better’ uses.
Ex’d (Central Employment) is the most flexible zone in the City of Portland as this allows industrial and commercial uses. (and residential as well.)
IG1 (General Industrial) is unlimited in size of manufacturing and distribution, but is limited in retail space of up to 3,000 square feet. This zone will offer the least expensive rent than other zones.
In addition to the sites zoning, pay attention to these items:
Loading: Dock High and/or Grade Level Doors
Electrical: Will your equipment require 3-phase power and how many amps.
Water: Is there sufficient water service and is drainage line easily accessible.
Seismic: Is there a change of use that will require significant seismic upgrades.
Exposure: How important is exposure, traffic and signage does the site offer.
Clear Height: How much clear height in the warehouse will be required. Generally 18’-22’ is a number that allows flexibility.
Restrooms: More than likely additional restrooms will be required due to the occupancy level. Does the existing infrastructure allow for more restrooms?
Parking: Obviously this is a huge amenity, especially given the recent issues with developments being permitted without parking being required. There are a vast amount of successful pubs that do not have parking, but it sure is a nice amenity.
Please keep in mind that landlords will more than likely include language in the lease agreement requiring the tenant to restore the premises to its original condition.
And lastly, a deal is never completed until both parties have a mutually executed Lease.
As Harris quips, “It is not over until the ink is dry ... or the fat lady sings. This is true. It is important to continue looking even though you have a location and are negotiating. This is not necessarily to leverage the landlord- it is more for you to not stop looking until you have a SIGNED deal.
It can be a long and frustrating road to a site. I was surprised how hard it was to make this connection. Do not assume that a site is the easiest in fact it is the hardest!”
Brett Bayne is a commercial real estate broker and partner with Macadam Forbes Inc. in Portland.
Since 1994 his primary focus has been on the sales and leasing of industrial and office properties.