When a house becomes a home, er, brewery

I love Denver

It’s been too long! I hope none of you have become bored at work, anxiously refreshing my blog, waiting for the newest post. There are other sites out there..

Anyway, let’s talk about location. Since my last Real Estate post, I’ve learned quite a bit. Last week, I had dinner with a good friend from college who is now a real estate agent (buy a house from Elizabeth S. at The Workman Group right now). We caught up and talked about the brewery, her new house, zoning, college stories, etc. She is really excited about helping me find a house to live in and brew out of, and I’m really excited to have such a great friend and agent helping me with my dreams. Pretty sweet deal, all around. Elizabeth gave me some great contacts for lenders, and some other ideas to get the ball rolling. I’m trying to get her on Twitter. More on this later.

I’m about to copy and paste a few long emails between myself and the TTB. Scroll to the very end for a summary if you don’t feel like reading my email. (Or just click here for the summary)

Around the same time, I emailed the TTB (Alcohol & Tobacco Tax & Trade Bureau – former ATF) about brewing in a residential location. My email to them:

Hello!

I was hoping to speak with someone about the laws and regulations behind brewery locations, specifically about operating a brewery out of a garage in Denver, Colorado. Can you point me in the right direction for who I should speak with? Thanks!

PJ

To my surprise, I got a response within three days. And I believe I sent that on a Friday! Here was their response. It’s a bit long, so if you’re only interested in reading my words, just read the first paragraph:

PJ,

The Federal laws prohibit a brewery in a “dwelling house” (home) and putting a brewery in a garage is a very gray area.  We may or may not approve it depending on the circumstances.  You first need to run your plan by the Colorado Liquor Enforcement Division in Lakewood, Colorado and your local zoning authorities.  If they will approve your brewery then you need to submit a diagram of the brewery and the property (showing where the brewery is located on the property and its relation to your house.)  Also, show distances, especially the distance from the garage (brewery) to the house.  Please fax the information to me.  Also, let me know the decision from your state and local authorities about your plans.   Just for  your records, here is our general reply on obtaining a Federal brewer’s notice:

In order to produce beer, you first need to obtain a federal brewer’s notice.  You don’t need to obtain a federal wholesaler basic permit if you only sell the beer your produce.  If you sell beer you did not produce, then you would need to get a federal wholesaler basic permit.  Let me give you our general reply on obtaining a federal brewer’s notice:

Before you can begin brewery operations, you will have to first complete the necessary forms including a brewer’s notice and bond.  There will be a link at the end of this email to access the forms/information in order to apply for a Federal brewer’s notice.  There is no cost for the brewer’s notice, and we try to process applications within 60 days of the date we receive them.

All alcoholic beverages must also conform to the labeling regulations of the United States.  If you have labeling questions, please contact our Advertising, Labeling & Formulation Division at 1-866-927-2533 or by e-mail at:  alfd@ttb.gov.  Their web site is:  http://www.ttb.gov/labeling/index.shtml.  For information on filing your labels online, click on “Labeling” on the left side of our homepage.

The regulations governing the labeling and distribution of alcoholic beverages can be found in the Code of Federal Regulations, Alcohol, Tobacco Products and Firearms, Title 27 on our web site at: www.ttb.gov.  When you pull up our home page, click on “Code of Federal Regulations” under “Laws & Regulations.”  Part 25 discusses beer and Part 7 discusses labeling and advertising of malt beverages.  Anyone who manufactures malt beverages must file TTB Form 5630.5(d), Alcohol Dealer Registration, before commencing operations.  The payment associated with Special Occupational Tax has been repealed for manufacturers, importers/wholesalers and retailers of beverage alcoholic products, but record keeping and registration requirements remain.

You should also contact each State for information relative to its licensing requirements. To find out more about individual state laws, on our web site at: www.ttb.gov click on “National Revenue Center” on the left side of our homepage, then “State Alcohol Beverage Control Boards” under “Resources.”  This will give you the Alcoholic Beverage Commission locations for each state.  You must be in compliance with them, your local zoning authority and the federal government before commencing operations.

For information on federal excise tax rates, on our home page www.ttb.gov scroll down to “Information by Topic,” then on the “Taxes” line, click on “Tax and Fee Rate.”

Also, please submit a legible photocopy of the Driver’s License or official State ID card of the primary contact person who will be interviewed by phone by TTB regarding the application.  This ID must be of one of the officers listed on your application.

You also need to register with the Food and Drug Administration (FDA) under the Bioterrorism Act. For information on this, go to their website at www.fda.gov and click on “Food”, then “Facility Registration” which is under “FDA Industry Systems.” You should also click on “Bioterrorism” located at the very bottom of our homepage at www.ttb.gov.

Here is a link to the forms/information in order to apply for a Federal brewer’s notice:  http://www.ttb.gov/beer/brewery_brewpub_packet.shtml.  Thank you.

Bob

If you skipped most of that, it’s ok. A lot of the information I already knew. I didn’t know the Bioterrorism part. Good to know. The uplifting part (I’m generally a cynic but a total optimist with this stuff) was that brewing in a garage is a very gray area. That means it’s possible! It’s not 100% illegal, it’s just not always approved. So, yay! I’ve met with an agent at the office in Lakewood, and while it was a few months ago, I thought he had said the TTB has to inspect first, and then they’ll approve. So at this point, my main concern is that I’d buy a house, order the equipment, set everything up, and then get denied. That would be an expensive setback. Game ender, really. I emailed Bob back:

Hi Bob,

Thank you so much for the quick and informative response! I really appreciate you taking the time to look at my issue. I had made contact with the Lakewood office a while ago, but will do so again now that I’m further along with my plans. Do you have any tips or examples of similar situations that were approved? I don’t own a house currently, and plan to buy one for this purpose.. I’d hate to buy a house, get the brewery set up, get it inspected, and then get denied. That wouldn’t be much fun at all. 🙂 Thanks!

PJ

And yes, I put a smiley face in an email to a government official. It’s about beer, c’mon! Anyway, within 12 hours I had a response. Obviously the TTB isn’t part of the efforts to stave off Bacon Lung, or Swine Flu, or whatever it’s called.

PJ,

The Federal laws/regulations don’t allow operating a brewery in a home, but a garage is a very gray area.  If the garage is attached to the home, then it will, in all probability, not be approved.  If it is a detached garage, then we may allow it depending on the circumstances.  I would not want to see you buy a house for the purpose of operating a brewery and we deny you a brewer’s notice at the Federal level.  What you may want to do is submit a diagram to us showing the exact layout of the brewery, a diagram of the entire property showing where the garage (brewery) is in relation to your house, the distance from the brewery (garage) to the house, and documentation from the Colorado Liquor Enforcement Division and local zoning authorities approving your brewery plan.  If they won’t allow you to operate a  brewery according to the plans you submitted to them, then we won’t allow you to either.  If you decide to submit this information to us before you send us a formal brewer’s notice, please fax the requested information to [a fax number]. We can then review it and make a decision.  Thank you.

Bob

This is what I’ve understood from my email conversation with the government:

• The TTB is very responsive! I’m actually excited to have such a fast responding and personal branch of the government to work with. If I must pay taxes and follow rules, at least I can get a person on the phone.
• My plans to start a small garage-sized brewery in Denver is possible, at least in the government’s eye.
• The government doesn’t want me to buy a house if I don’t have to.
• I need to talk to someone about zoning in and around Denver.
• I need to talk to someone about brewing in and around Denver.
• The brewer’s license, zoning requirements, and federal licensing need to all happen concurrently, and hopefully before I buy a house.

My next big step, and pretty much the step that must happen before anything else: Speak with someone in the zoning office. Preferably someone who likes beer. Anyone know someone like that?

For anyone in the same place as me – i.e. opening a brewery, in a garage, etc. – let me know if you want more details on the legal stuff. I have some more detailed information that isn’t on here yet.

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Just writing to say I’m excited.

I don’t have much to write about right now, but I feel like writing something. Things are progressing in a very steady and positive direction. I keep meeting people who are awesome, helpful, and excited about this venture. The occasional bubble-burster is out there – and I really appreciate their feedback, as it keeps me grounded and makes me think – but they are far and few between those who are excited to help out, be a part of this, or just drink our beer when we sell that first bottle. Everyone asks what the brewery is called. I. Still. Don’t. Know. But I think we’re almost there. MHBC might take the cake.

So why the post? Well, I’m brewing right now. I’ve got two buckets mashing (the cooler STILL isn’t ready..). I just tasted a kit brew we did a few weeks ago, and even that tastes delicious. Not up to the usual standards, but still better than a lot of beers I see at bars and stores. We bottled the Rye Dry Stout yesterday – thanks Phill for your help – and it’s SO tasty and SO dark. I’m just overly excited about everything brewery-related right now.

Yes, I love beer. This is obvious. Anyone who’s known me for a while knows that pretty darn well. I also love sharing. Sharing knowledge, sharing stories, sharing my home, sharing a good time. Doesn’t matter. Sharing is caring or something. Anyway, those people who have seen me drink my share of beers through college know that I love hosting, guiding, leading, creating, and overall just making sure those around me are having a good time, sometimes at the expense of my own enjoyment. The more I talk about this brewery, the more I realize that that’s what this brewery is. It’s the epitome of what this paragraph has stated. It’s beer. It’s good beer. It’s knowledge both learned and given. It’s events, gatherings, and stories, all rolled in to a bottle of tasty fermented sugars. I think my excitement today, as I sit on my back porch in the Denver sun, typing away as the starches convert to sugars in what will most likely become a staple recipe in the brewery, is one more step in a very long journey towards these dreams, goals, aspirations, and life.

So ya, this post has no real relevance to the business behind opening a brewery. But I thought I’d share my passion with those who follow this blog. I hope to pour a pint for many of you in the very near future. Here’s to good beer.

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Real Estate

I've heard it's easy to get money for real estate.. Right?

The location of the brewery is a rather important topic that I’ve sort of skimmed over until today. Where we brew is directly related to how much we brew, and vice versa. Brewing in my garage means we can’t have a 30bbl system. Aiming for a 30bbl system means we can’t use my garage. Causation goes both ways there.

The net revenue from brewing is very much related to the size of the batch as well. A bigger batch costs less per beer, and since the beer sells for the same price, a bigger batch is more revenue per beer, and more revenue overall. But, systems of that size, and locations to house those systems, cost a lot more money. A lot more money than we have right now.

I see five main options for possible locations of this brewery: a big property in an ideal location, a small property in an ideal location, and big property in a non-ideal location, and small property in an non-ideal location, and my garage. Let’s look at the pros and cons of each. Please feel free to tell me that I’m completely off base here, and offer your perfect solution in its place.

Flying Dog's old location

Big Property, Ideal Location

I have one property in mind here: Flying Dog’s old space. It’s huge. Around 34,000 square feet. It’s equipped. Most of their brewing equipment is still there. It obviously works well. Flying Dog is pretty successful. It’s in an amazing location. 24th and Blake is a home run away from Coors Field. Blake Street Tavern is next door. And… it’s expensive. $10/SF NNN. That means about $12-15 a square foot (depending on utilities). Do some math, and that’s between $34,000 and $42,500. A month. Just for rent. In list form:

Pros

• Great location
• Proven location
• Huge – easy to expand
• Equipment already there

Cons

• Ridiculously, prohibitively expensive for a startup

Small Property, Ideal Location

I don’t have any properties in mind for this idea. But essentially, find a really small industrial mixed-use property downtown. Brew beer in it. Serve some in house. The main problems I see are 1) it’s still going to be super expensive, especially when we don’t have secured revenue and 2) expansion becomes a problem, especially with that much money sunk into rent. I feel like if we go with a location that we hope cannot house us for very long, we shouldn’t sink all our profits into it.

Pros

• Great location

Cons

• Prohibitively expensive
• No room to grow

Big Property, Non-Ideal Location

A warehouse somewhere far from downtown, such as Broomfield or Englewood, is a much cheaper option. We’d still have the tasting / tap room, but chances are no one would be coming to say hi. The size allows growth in that location, while the cost allows us to hold on to a little bit more of the profits than the downtown version.

Pros

• Cheaper than downtown, though still not cheap
• Room to grow

Cons

• Idea of a tap room or storefront is useless out in the boonies
• Still expensive

Location, Location, Location!

Small Property, Non-Ideal Location

Based on our current conversations about size and starting up smaller, this is becoming one of the top two options. A small (3,000 – 8,000 square foot) property somewhere in a cheaper, industrial area, would suit our needs pretty well. It’s still overhead, which is inevitable at some point, but not $40k a month.

Pros

• Good size for how we want to start
• Potentially inexpensive enough to allow for profits

Cons

• No room for growth
• No store-front / people coming to say hi

That's our garage, on the right. Brewery?

My Garage

This is quickly becoming the ideal location, at least for getting started. Of course this location requires my landlord’s approval (I don’t own my house.. oops), so pending that, this option might get crossed off. Until then though… Low overhead, light commute, decent size, decent (not ideal, but not bad) location. Some problems include the fact that it’s a residence. Waste is sort of an issue for a brewery of any size, and our neighbors may not be too pleased with commercial beer production in their backyard.

Pros

• Cheap. My rent is cheap right now as it is
• No commute
• Close to potential accounts

Cons

• Small – no room for growth
• Waste issues
• Residential neighborhood issues
• Delivery issues – trucks can’t drop pallets off in a back alley

The first option, the big ol’ warehouse downtown, is the goal. Eventually, I want the brewery to succeed, and to show enough growth and growth potential to afford such a location. But I don’t think that’s this year, or next. I do see some growth happening in the first few years, and moving is never cheap, so the first location, even if we’re there for 5 years, needs to be affordable above all else. If my landlord and the law say that my garage is ok, I think we’ll go with Option #1. A small warehouse somewhere on South Santa Fe or something would be the next best option. After that? Well, we’ll have to see what happens.

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Big Day

Today was a big day. Left for Fort Collins at 1:45, just got home (11:30pm). Granted, we watched the NCAA championship game. But still a big day.

Over the weekend I started to think it might be a good idea to go a little smaller than we’ve been talking about. A 30bbl system (that’s 910 gallons of beer, or 60 kegs, per batch) would be fantastic, but the equipment alone would cost around $500,000. Add real estate, payroll, supplies, etc., and we’re talking $800,000+ to start. And that would probably be cutting it close with operations costs. A nameless brewery entering the market with 60 kegs a batch… Well, I’m thinking it’s probably a good idea to start smaller. Build brand recognition. Get those recipes down. Create demand. Develop accounts. Limit risk. Brew in my garage. Etc.

New Belgium Brewery - Bigger than my garage

With all of these thoughts fresh, Dave and I drove up to Fort Collins to meet with Brian Callahan, the Director of Fun at New Belgium Brewery. As the receptionist informed me he would be, Brian was fantastic. Brian joined the NBB team 7 months after they sold their first beer, back in 1992. He said a more operational title might be “Ambassador”, as he knows his way inside and out of the brewing industry, and how NBB fits.

We sat down over some beers (I had the Abbey Grand Cru, Dave the Bierre de Mars, and Brian a nice, refreshing Mothership Wit) and talked shop. Most of my questions related to how things worked for the first 5 years. All of this while the sun glistened off their 100bbl tanks. Those are the smaller ones.

Brian was great. He answered all our questions, and offered advice on many, many, many topics. To summarize the hour long conversation, we pretty much gathered a history of the brewery from an operations, production, sales, and marketing perspective. New Belgium struck gold with Fat Tire. Obviously they work their butts off to sell every beer they make, but Fat Tire brought them from the garage to the beautiful property on which they currently produce their delicious beer.

Jeff and Kim, the founders, started similarly to the way we’re planning on. Start small, make damn good beer, get people to pay for it. A few advantages: Kim continued to work to ensure some revenue in the early months; Jeff has an engineering background, allowing for creation of equipment internally; they owned a house, which was great for refinancing to get money with which to do stuff; and it was the early 90s, when the economy was a little better and things were a little cheaper.

Like many other people I’ve spoken with, Brian emphasized that you have to love what you do to be successful at it. Creating a new recipe can be fun, but bottling the same beer over and over and over and over and over again can be draining. Being able to step back, look at what you’re doing, and truly love it, is a requirement to make it all work, and to make it all worth it. Making good beer helps too.

Brian also showed us the system Jeff and Kim started using. It was a 5 hectoliter (132 gallons, or a little more than 4bbl) system which Jeff designed and someone in Denver fabricated. It was beautiful. I need to find an engineer who will draw up some plans for something similar. This engineer must also be willing to work for futures. Beer futures. Anyone?

It was a great conversation overall, and I was really excited to see how helpful and outgoing someone in the industry could be. So if you’re reading this Brian, thank you again for all your advice.

720 Media - still bigger than my garage

A little later, I had a call with Taa Dixon. Taa graduated from Colorado College, and currently owns and operates 720 Media, a fantastic small business in Colorado Springs that specializes in designing, building, marketing, and maintaining websites and email marketing newsletters. They do great work there. Check ’em out.

720 Media is entering their 10th year in operation, so Taa is a little be farther ahead than those small business owners still struggling to make that 2-5 year “I think we’re going to make it” mark. She had some great ideas and advice for me, and was really excited to see more CC grads going the small business route.

We had a great chat for almost and hour, and I got some great ideas and next steps. Taa definitely advised networking, and lots of it. Who knows who else is out there with similar passions and either the desire to be a work horse, or heaps of cash waiting to be invested? She even offered to set me up with an audience of Colorado Springs business owners, so I could share my ideas, get some feedback, and brainstorm a bit. This is an offer I will definitely be accepting.

Overall, today was a very informative day. I’ll have more on next steps and and all that soon. I just wanted to get my thoughts down before starting my 4×10 week.

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