How expensive is your lease?

[briangaylor]

We are about to sign our lease and while our numbers 'work for our situation and projections Im curious where in the spectrum I fall among other breweries.


We are looking at about 8700 Sq ft @ $11.50 NNN(~$2). Its for a cold shell in a brand new light industrial building that faces one of the busiest roads in a large suburban town. Also got $20/sqft in improvement funds.

Its certainly a lot of money going out the door each year ,but the placement is a lot better than I was planning which should boost our taproom sales.

[jebzter]

We are at $1.20/sf incluing NNN, under a mile from the freeway, 5000sf, good public transit access and parking. Unless you think you will get the foot traffic you need, 11.50/sf would kill your margins. I wouldn't touch it, but that is based on my business plan and experiences.

[briangaylor]

We are at $1.20/sf incluing NNN, under a mile from the freeway, 5000sf, good public transit access and parking. Unless you think you will get the foot traffic you need, 11.50/sf would kill your margins. I wouldn't touch it, but that is based on my business plan and experiences.

Wow - what city/state did you find that for?

[ExNovo_PDX]

Wow - what city/state did you find that for?

I have you guys are talking about rates in different terms, one being per year, the other being per month...

If there exists a place with $1.20/sf/year out there, I'm moving there and starting over.

[briangaylor]

I have you guys are talking about rates in different terms, one being per year, the other being per month...

If there exists a place with $1.20/sf/year out there, I'm moving there and starting over.

I am thinking the same thing. My numbers were yearly... which I guess would translate into about $1.13 in monthly terms.

[kdiddled]

That's a pretty solid price per square foot, as long as all the other requirements are there (height, loading dock, reasonable upgrades to utilities). Hell I'm renting to myself and will be higher than that.

[kdiddled]

Wait no, not quite. Not doing NNN

[briangaylor]

I just hope the leaseholder improvement funds go as far as I am hoping they will. We have just short of 300k to go from cold shell to build a taproom and install (but not purchase) the equipment.

[Rick Hoffman]

Also got $20/sqft in improvement funds.

Is this amount typical?

[briangaylor]

Is this amount typical?

My realtor made a big point of telling me 'nothing is typical'. This is my first commercial transaction so I cannot comment on the validity of this. If you need more improvement money, prepare to agree to pay more per sq ft per year/month. The developers/landlords all have a number in mind and can be slightly flexible on how they meet it. Dont need any tenant improvement funds? I bet you can negotiate down the monhtly rent. Need a lot? Prepare to have it go up.

[Montanaandy]

Lease Expense

The $13 psf range was what we were looking at with one build to suit lease that we were looking at. However, the building was an old brick auto repair shop that would be renovated to house a brewery. We were given about the same build out allowance (around $175K) and had to assume $75K of the projected $250K total buildout costs. We were looking at leasing around 5000+/- square feet so we were provided with around $35psf for buildout. We also had another build to suit that we looked into which would have been a new building that would have been built to house our brewery. That never got off the ground because the landowner/lessor decided to pass on the project after extensive negotiation and work. We are currently looking at a situation such as yours where we would lease shell space (5000 sq ft in a 10,000 ft building) and have it built out to house our brewery. We have not yet begun negotiations on the build out allowances, price psf, etc.

8700 square feet is a large space and roughly 10K in rent each month is a lot but you mentioned that your projected numbers bear this out. My recollection is that we were looking at $5K per month to lease the aforementioned auto repair space we were interested in which we could swing with our projected numbers.

As long as your numbers are solid and based on our experience(s) with a number of build to suit lessors who were initially very interested in doing a build out for us but then getting cold feet when it came time to sign the actual paperwork, if you can find a lessor willing to do the buildout and provided the numbers you have stated and who will actually sign on the dotted line and enter into a contract with you I say go for it.

[Smlsound]

We were given about the same build out allowance (around $175K) and had to assume $75K of the projected $250K total buildout costs. We were looking at leasing around 5000+/- square feet so we were provided with around $35psf for buildout.

Okay...I own a small brewery (2,500 sqft and another 600' out doors) and I've never heard of anyone getting an allowance for buildout costs. So...treat me like I'm a five year old and explain what this means.

[Montanaandy]

Okay...I own a small brewery (2,500 sqft and another 600' out doors) and I've never heard of anyone getting an allowance for buildout costs. So...treat me like I'm a five year old and explain what this means.

Smisound:

In our case the buildout allowance was the amount that it would take to convert a former autobody shop into a functioning brewery in a 5000 square foot space. The water lines had to be upgraded/installed at 1 1/2", three phase electric needed to be brought in, the wooden trusses that spanned the space had to be sandblasted to bring the wood back to its original/natural beauty, etc, etc.. It is essentially an upfront loan from the landlord to help get the space into working shape and to allow the brewery to begin operations and produce revenue. The landlord factored the amount of the buildout costs into our lease so that he would recover his investment (the purchase of the building and the renovations that went into the building) along with a fair rate of return on his investment. The lease on the space was for a period of 10 years.

[nickfl]

Thats not an unreasonable deal, if the location is good. The rest is a bit high for a light industrial spot, but the tenant improvement allowance is quite a generous amount. I can't judge your location of course, but I think it is worth pointing out that traffic count means very little when it comes to breweries, the nature of the neighborhood is much more important. I know a brewery in our area that in located on one of the busiest surface roads in the state in what you might describe as the country/redneck part of town but has much smaller taproom numbers than other breweries that are located on quite roads adjacent to hipster neighborhoods. Know your audience and trust realtors and especially commercial landlords as far as you can throw them.

Oh, and to actually answer your question our lease started around 7 something per sqft plus triple net and we got around 100K towards buildout. This is for about 11,000 sqft.

[Fullcourt]

TI Allowance

It is not very common to have Tenant Improvement Allowances included in a brewery lease, but as you can see it does happen. It happens more often in new construction and total rehab of a larger building in which the brewery is taking part of the space. The building owner has to finish the new or rehab either way, so they agree to "customize" it to serve a brewery. Most will then amortize the cost into the lease over time.
But everything is negotiable.

I also agree with nickfl in that a busy street does not always justify the additional rent. People will find you wherever you are. What a lot of breweries in Los Angeles have discovered is that there are many craft beer drinkers who work in industrial areas, which means that they will show up for happy hour during the week.

FYI, I am a commercial real estate broker who has helped breweries find a spot and get open in the Los Angeles area. I would recommend that you utilize the services of an industrial broker. If you are having problems with the broker you choose, then get another one.