Crafty Landlords: What Owners Need To Know Before Leasing To Beer Brewers

In June 2013, the Texas legislature passed Senate Bills 515, 516, 517, 518 and 639, which may sound like a string of boring legislation. But those bills allowed breweries in Texas to grow like fermented yeast. As craft brewers look to gobble up space across the state, landlords do not always understand or accept the property requirements.

By 2014, Texas’ craft brewing industry topped $3.7B of economic impact. That number has only grown. 

The Texas Alcohol and Beverage Commission has licenses for 150 brewpubs and 107 breweries as of 2016, compared to three brewpubs and 12 breweries in 2012. Central Texas is the hub — the number of beer producers in the region grew by 657% from 2007 to 2016, according to CBRE Research. As of last year, Central Texas accounted for just over one-quarter of all Texas breweries.

Landlords want in on this hot (or ice cold, rather) trend, but the requirements for a brewery are different than a typical food and beverage footprint.

"We get contacted by brokers and landlords frequently saying, ‘I have a great property for a brewery,’ but it rarely happens,” Texas Craft Brewers Guild Executive Director Charles Vallhonrat said.

There is often a disconnect between what a brewer needs and what a landlord wants, Vallhonrat said. The tenant improvements, zoning, production facility requirements and parking ratios can pose issues for breweries looking to lease space in established buildings. Part of TCBG’s job is to bridge that gap. 

Tenant Improvements And Landlord Realities

Greg Leftwich co-founded Four Corners Brewing Co. with friends Steve Porcari and George Esquivel in 2012. The brewery is slowly transitioning from its original Trinity Groves lease to a Cedars location that it owns. 

“Being a tenant, you have to live with certain restrictions. As business grows, some of those become more and more relevant,” Leftwich said.

“Breweries and brewpubs typically have to make modifications that landlords don’t like,” Vallhonrat said. They cut out flooring to add drainage systems and they often require serious plumbing and electrical upgrades. “We tell [landlords] to be flexible and prepared when trying to get a brewery in their space,” Vallhonrat said.

Matching Properties To Tenant Needs

CBRE’s Bryan McMurrey and Sergio Negrete brokered a deal in November 2016 for Hops & Grain Brewing’s production facility at Mark Shields’ Crossroads Center in San Marcos. The Austin-based brewery’s expansion went smoothly largely because the 11K SF site was originally a grocery store. 

"This deal was probably easier than a majority of others because we had a landlord and a tenant that were a perfect match," Negrete said. 

The former grocery had 20-foot ceilings, lots of electrical capabilities, 130 surface parking spots and a loading dock and ramp ready for distribution. The decades-old building was also due for some updated plumbing, so it was easy to upgrade pipes throughout the building to fit Hops & Grain's needs with one permit and contractor for the whole process, McMurrey said.

The location has been successful both for the tenant's desired distributing capabilities and for the landlord's tenant mix. 

McMurrey and Negrete said microbreweries as anchor tenants can bring in more restaurant interest. Restaurants want to set up shop close to breweries so that when patrons have had a beer, they can get a full-service meal next door.

McMurrey and Negrete’s Hops & Grain lease has brought new restaurant interest to the Crossroads Center.

While researching the craft beer industry, CBRE Director of Research Robert Kramp was surprised at the sheer heft of the market’s growth. 

The national beer market topped $107M in 2016 and craft beer accounted for about 22% of that, according to CBRE. 

“There’s an accumulating effect that benefited from deregulation on small beermakers,” he said.

Vallhonrat's prescription for mitigating issues later on as brewers and landlords enter into agreements is easy to swallow. 

"It's important for both groups to go visit some breweries. Look at what build-out requirements are and what they look like in different facilities," Vallhonrat said.