How To Start A Brewery: Selecting The Right Property
It took us well over a year of searching properties before signing a lease for Wooden Hill’s location. During that time we attempted to lease three other properties that didn’t work out for various reasons. We even considered buying a building and nearly put in a few purchase offers.
Breweries are complex business operations, especially with a taproom. Assuming most new breweries these days are going to both brew and serve beer to the public at an on-site taproom, the challenge is to find a space that suits wholesale beverage manufacturing, wholesale distribution center, and retail bar/restaurant.
Here’s what we learned along the way.
1. Brewery Needs
The first thing we learned about looking at commercial spaces is to immediately determine the sizes of the water, sewer, electric and gas supply coming into the unit (or at least the building). Breweries need a lot of all of these utilities and it can be very expensive to upgrade. It’s important to know these facts about a space before submitting an offer.
Check out these utility requirements from Specific Mechanical Systems. In general, the water main should be at least two inches in diameter and the sewer main 4 inches in diameter. In a building with multiple tenants, the water supply to each unit may be smaller than the water main for the building. But as long as the water main for the building is of sufficient size, the cost to run a new water line from the building water main pales in comparison so installing a larger water main for the whole building (for example, $5k vs $10-50k for a new main).
Tip: If the building already has a sprinkler system installed, the water and sewer supply to the building are most likely adequate.
Gas supply is usually not as expensive to upgrade and we’ve found most commercial buildings tend to already have sufficient gas supply. Unless you’re planning an all-electric small brewery (10 barrels or less), you’ll be using a lot of natural gas for the steam boiler or kettle burner.
Three-phase electrical power is most preferred for brewing equipment. This provides a more stable current for electrical motors (such as pumps and rakes). It should be at least 200-400 amps for the brewery alone. Our initial build out called for 800 amps in 9,000 square feet of brewery and taproom space. It’s possible to get away with single phase power for smaller brewing systems, but most equipment manufacturers will require three-phase.
Most industrial buildings have access to heavy power like this, although it may not yet be installed at the building. Even if a neighboring tenant in the building already has it, you may still need to run a new 3-phase service to your unit. We found this out the hard way. Frustrating. The cost to upgrade power can range from $5-50k depending on the distance of the building from the nearest three-phase power grid.
Some local codes require a fire suppression system for breweries. If you plan to have a taproom and want it to be open air to the brewery, you generally must have a sprinkler system.
Without a sprinkler system, fire-rated walls separating the brewery and taproom are needed. This is because fire codes are dependent on the occupancy classification of your establishment. A taproom and brewery have different occupancies, thus they have different fire control requirements. As with anything that depends on occupancy, the space with the highest occupancy classification wins (when you see “high occupancy” think “high cost” and “highly regulated”).
Avoid looking at any buildings that doesn’t already have a sprinkler system unless you have a large build-out budget or the landlord will add one. These are costly to install – about $2-3 per square foot of the entire space. They may also require significant water and sewer main upgrades, which is not included in that cost.
Some older buildings have sprinkler systems that aren’t up to current code. We ended up having to replace a number of sprinkler heads in our space.
It’s helpful to have access to a loading dock, although not required. In addition to all of the equipment that will be delivered during installation, breweries receive frequent deliveries of materials. If a dock isn’t available, a drive-in door and forklift will suffice.
If the building has a shared loading dock, verify actual usage among the current tenants and if there are any restrictions to the hours it can be used.
Tip: Think carefully about your realistic shipping and receiving needs. If your space doesn’t have its own dock, how will this impact the labor required to move materials further?
2. Taproom Needs
Taprooms have higher occupancy ratings, so more restroom stalls are required (which, you guessed it, means a higher cost to build). For example, our taproom occupancy will be less than 200 people but our local code calls for three stalls for men and three stalls for women.
Unless you’re looking at a former high occupancy space, you’re probably going to have to build more/larger restrooms. Industrial and warehouse buildings are not designed for high occupancy so will have very few restroom facilities.
Tip: Large mixed use (warehouse + office) buildings sometimes have common restrooms of sufficient size shared by the building tenants. This is a big bonus if it’s easily accessible for patrons of your space and is adequately finished.
Along with the higher occupancy of a taproom comes higher parking requirements. Local codes vary greatly on specific parking requirements depending on how your establishment is classified. Even if the local code doesn’t require much dedicated off-street parking, consider how your location will impact customers driving to visit the taproom. If there’s consistently not enough parking and most people drive in your area, customers may begin to avoid visiting.
Tip: Even if a multi-tenant building seems to have a lot of abundant parking, all the spots may already be allocated by code to existing tenants based on their type of business and occupancy rating. Increasing the occupancy of a unit may actually result in a deficit of parking spots according to local code.
As a retail business open to the public, be aware of ADA codes regarding how accessible your establishment must be to people with disabilities. This has implications to restroom design, height of ordering/pick up counters, parking spots, and number of accessible entrances and exits.
Tip: If entrances and exits are not at ground level, ADA-compliant ramps and/or lifts may need to be installed.
3. Location and Zoning
Typically, breweries are only allowed in industrially-zoned districts, but some cities are starting to loosen regulations around this. Brewpubs that don’t distribute are sometimes allowed in more traditional business districts similar to typical restaurants.
Learn about your local zoning regulations before starting your search for a building. It is sometimes possible to receive a zoning exemption from a city, but this is usually a lengthy application process combined with public hearings. It’s best to stick to looking within zones where a brewery is already permitted, if possible.
Tip: Contact the area’s zoning or planning office directly to verify a building is in a zone that permits your type of brewery without the need for a special exemption.
4. Leasing Considerations
It’s best to find a building with a brewery-friendly landlord. We’ve discovered that building owners generally fall into one of four categories:
- Will not consider a brewery tenant under any circumstances.
- Will allow a brewery but not a taproom (usually just concerned about liability of the public drinking alcohol on premises).
- Open to having a brewery and taproom (hey, if you’re willing to pay, they’re willing to lease it).
- Super pumped about having a brewery/taproom tenant (will go above and beyond to help).
After having encountered all of these types, we love #4 the best and found that in our current landlord. You’ll be making major changes to their building and will need their assistance more than you probably think, so it’s important to have a landlord that supports your business and is responsive to your requests.
Tip: Think of the landlord like a business partner – what qualities are important to you?
Lease Rate and Expenses
We’ll publish a more detailed article about leases later on, but here are the basics. Commercial lease rates are generally structured in one of the follow ways:
- Gross Rent = total rent including tenant’s share of building operating expense and property taxes (often also includes the utilities)
- Triple Net (aka modified gross) = three net rents consisting of (1) the base rent; (2) tenant’s share of property operating expense; and (3) tenant’s share of building property taxes.
The property’s operating expenses are often abbreviated as “CAM”, or “common area management.”
Unlike residential leases which are advertised as the total monthly rent amount, commercial rental rates are typically expressed in price per square foot per year. This is what is meant when a commercial broker says the price is $X a foot. To calculate how much it will cost per month, multiply the rate by total square feet and then divide by 12 months.
Example: $8 per foot for a 2,500 square foot unit.
($8 x 2,500) / 12 = $1,666.67 per month
If a 10,000 square foot unit is advertised as “$10 per foot gross”, this unit costs $100,000 per year in rent but includes CAM and taxes.
A 10,000 square foot unit is advertised as “$10 per foot net-net”. This means the base rent is $100,000 per year and doesn’t include CAM and net tax expenses. The CAM and taxes will be expressed as a per square foot rate as well, but can increase or decrease year-to-year (usually increase).
Tip: Always ask whether the CAM and taxes are included in the rental rate if it’s not clear. Commercial properties advertised as $X per month often do not include CAM/taxes, which makes it appear at first glance like a great bargain.
Tenant Improvements (TI)
Since businesses have so many unique real estate requirements and often sign multi-year leases, it’s common for landlords in retail or mixed-use buildings to offer a credit towards part or all of the build-out expenses. Some landlords even have their own construction crews to perform the work on behalf of the tenant.
Some landlords offer TI loans that are structured into the lease payments. Provided the interest rate and terms are competitive with traditional bank loans, this is generally a good way for a business to fund the build-out.
Tip: The cheaper the rent and shorter the term, the less likely a landlord will offer a TI credit or loan. TI credit is often negotiated rather than advertised as a specific amount, such as “Will Build to Suit”.
6. Property Selection Checklist
By now, you probably feel like you need a strong beer. To help make all this easier to digest, I put together a PDF checklist you can use to summarize your findings while evaluating locations. Click here to see it.
Finding the right property is about time and compromise. Focus on the things that are must-haves for your brewery, and make reasonable compromises for the rest.
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