By Nellie Day
FAIRFIELD, CALIF. — The City of Fairfield’s industrial supply has been feeling a little crushed lately as wine-related companies snatch up space at a record pace, thanks to its close proximity to Napa Valley’s wine region. More than 2.5 million square feet of this 37.6 square-mile town is occupied by wine-related businesses, 1 million of which was absorbed during the past year alone.
“Fairfield's real estate prices are significantly less expensive and its building fees are one of the lowest in the San Francisco Bay Area,” explains Charles Ching, the city’s economic development specialist. “The city has excellent transportation access to ports, rail and airports. It is bisected by Interstates 80, 680, and Highway 12, making it a good trucking zone and allowing companies to daily move their products on north-south and east-west corridors.”
The city’s infrastructure, location and reasonably priced rents have given many wine-related companies reason to celebrate. Fairfield has become so attractive to this industry, in fact, that many companies have chosen to relocate from nearby cities.
Encore Glass, a wine bottle supplier, moved its operations from Benicia, 20 miles south of Fairfield, to a 318,000-square-foot building that was just opened by Buzz Oates Development this past December. The city sold the 43-acre site, located at 2925 Cordelia Road, to Buzz Oates two years ago for $4.5 million.
“We relocated to Fairfield because it offers the perfect centralized location to best serve our customers and accommodate our growth,” says Bradley J. Tucker, Encore’s president and CEO.
Wine bottle supplier Encore Glass moved its operations from Benicia, 20 miles south of Fairfield, to a 318,000-square-foot building that opened in December 2013.
The Greater Central Valley development company didn’t stop there. It’s also developing the 52-acre, 1 million-square-foot Solano Logistics Center at Cordelia and Hale Ranch roads, a project that is sorely needed, thanks to Fairfield’s shrinking industrial supply.
“Our industrial vacancy rate is less than 5 percent,” says Ching. “One of the challenges associated with opening a wine-related business is the amount of space required. That may become an issue the city is going to face since it is quickly running out of both industrial space and vacant land to build on.”
Saxco International, which provides rigid packaging solutions to the wine, beer, liquor and food industries, has already leased two buildings totaling 650,000 square feet for its warehouse and distribution center that will be built at the Solano Logistics Center. Saxco will consolidate several of its Bay Area operations once the facility opens later this year. The new space will also allow the company to expand its capacity by 25 percent.
“The building will be our flagship warehouse for bottles and packaging for all our customer segments throughout the West,” says Matthew Malenfant, Saxco’s CEO.
The Solano Business Park is already home to wine-related companies Guala Closures, Encore Glass, Saxco International and Bruni Glass, in addition to Jelly Belly Candy Company, Calbee America, Engelhart Fine Foods, Pacific Bell Data Center, Abbott Labs/Ross Division, ABCO Laboratories, Professional Hospital Supply, Amcor PET Packaging and TenCate.
Buzz Oates purchased this land from the city as well, in addition to an adjacent plot that was acquired from a private individual. Phil Garrett of Colliers International executed the land sale, in addition to the Encore and Saxco lease negotiations.
“We chose to invest in Fairfield, building almost 1 million square feet, because the city’s industrial market has the appropriate balance of supply and demand in a desirable geographic location,” says Kevin F. Ramos, chief investment officer of the Buzz Oates Group of Cos.
Encore and Saxco join many more wine-related businesses in the city, including Guala Closures, the largest producer of safety screw caps for spirit and wine bottles, which recently leased 11,000 square feet for a production plant at 2300 South Watney Way.
Prior to its March move-in, the Guala Closures North America subsidiary’s sole operations included an 1,800-square-foot administration and sales office in downtown Napa and a third-party warehouse in American Canyon, 10 miles south of Napa.
Michael Moffett and Christopher Yeakey of Coldwell Banker represented Guala. Jeff Fritch of Cornish & Carey Commercial Newmark Knight Frank represented the landlord, Hofmann Holdings.
Some of the other wine-related companies comprising the 2.5 million square feet of industrial space include wine closures manufacturer C & E Capsules, wine bottle distributor Bruni Glass, cork manufacturer and distributor ACI Cork, glass container manufacturer Verallia and glass bottle manufacturer Owens-Illinois Glass Container Inc.
Unfortunately, the delivery of 1 million square feet of new industrial product is not enough for Fairfield, many believe.
“Developers are beginning to talk about spec development,” says Ching. “Spec development will come soon, as long as it is not quickly snatched up and we do not run out of real estate to build on.”
Ching predicts that most development is likely to occur in Solano Business Park. The 220-acre community development site is located between Chadbourne Road and Beck Avenue. In addition to Guala Closures, Encore Glass, Saxco International and Bruni Glass, the park is occupied by Jelly Belly Candy Co., Calbee America, Engelhart Fine Foods, Pacific Bell Data Center, Abbott Labs/Ross Division, ABCO Laboratories, Professional Hospital Supply, Amcor PET Packaging and TenCate.
The city still has about 100 acres available at the park, according to Ching, with another 100 acres of developable land spread throughout the remainder of Fairfield.
Fortunately, the city does what it can to facilitate new projects and add even more wine-related businesses to its burgeoning industrial base.
“The city has made an effort to turn sites into shovel-ready sites that will allow a developer to go vertical in as little as eight weeks,” says Ching. “City officials are accessible and have a streamlined permitting process, allowing for reduced development review and processing times. This makes it as quick and easy as possible for companies that want to build a facility.”
Something's Brewing at Lee & Associates
While brokers near Napa take advantage of that region's wine-industry needs, a few California-based brokers at Lee & Associates see opportunity in brew.
With nearly three billion gallons of craft beer produced a year, California is the No. 1 craft beer producer in the United States. It also has the most craft breweries, a number that currently stands at 381. Just two years ago, that number sat at 270, according to the Brewers Association.
A handful of brokers at Lee & Associates aren’t waiting around to see where this industry goes next. Instead, they’ve jumped in head first, capitalizing on brewers’ current needs up and down the state — and having a little fun along the way.
“Above all else, craft brewers are entrepreneurial, experimental and fun to work with,” says Monique Medley, a senior associate in Lee’s North San Diego County office. “In San Diego, we seem to have this ‘build them and they will come’ explosion. Microbreweries, sometimes even in obscure locations, can be found with a vigorous crowd enjoying their craft beer experience.”
San Diego, particularly the North County cities between Oceanside and Julian that are serviced by Highway 78, has emerged as the mecca of craft brewing in California. There were 26 breweries along this route – also known as “Hops Highway,” as of this past May, with another four in the planning stages. In the first 10 months of 2013 alone, 20 breweries debuted countywide, bringing the grand total to 78.
Though many craft breweries are conceived as experimental creations from the entrepreneurial minded, Medley has worked with clients across the craft-brew gamut.
“The majority of start-ups have an appetite for industrial properties that most accommodate their authentic flare and repurposed products,” she notes. “A brewery seeking an urban infill area is more likely to choose an industrial/retail combination so they can offer a food component to their facilities.”
Once they achieve a certain level of success, however, many craft breweries are likely to experience a change in needs, Medley notes.
“Larger, more established brewers are also expanding and adding new locations,” she says. “The region’s first breweries were established mostly within suburban and rural industrial areas. Newer breweries are drawing closer to San Diego’s urban core.”
To date, Medley has helped fulfill the commercial real estate needs – which may include industrial, office and retail space, or a combination of the three – for On-the-Tracks-Brewing in Carlsbad; OffBeat Brewing in Escondido; Booze Brothers and Indian Joe in Vista; and Dos Desperados, Ebullition Brew Works and California Spirits Company in San Marcos.
Though brokering a beer deal may sound like all fun and games, Medley emphasizes that this industry has very specific needs and wants when it comes to both location and space.
“In most cases, natural gas to the facility is essential,” she says. “Finding a landlord that will accept the use is still a consideration. Depending on the size of a brew system, clear height can be a concern. Water access, drains, sinks, etc., are rarely found already intact in a facility, but any amenities of this nature already in place offer a big plus.”
Once again, just like Fairfield, the cities that are the most accepting and accommodating of this niche industry’s needs are usually the ones attracting the most business. And when you’re talking about craft beer in California, you’re talking about big business and even bigger bucks when you consider the tourism and economic impact.
California experienced a 21 percent increase in craft beer production in 2012, according to the California Craft Beer Association (CCBA). The 312 breweries in existence at the time of the CCBA study generated an economic impact of about $4.7 billion for the state. The industry also supported 45,000 jobs that year, and paid a total of $450 million in state taxes at a time when California couldn’t need it more.
Breweries like OffBeat Brewing in Escondido (above) have sophisticated equipment and specialized brew processes that require certain elements in an industrial facility, such as natural gas and access to water, drains and sinks, among other needs.
Still, craft breweries and their related businesses aren’t for everyone.
“Those cities that are the most brewery friendly, are attracting the most,” Medley says. “Cities that highly regulate and charge large fees for a brewery’s use are too cumbersome and time consuming to deal with. Only the large brew establishments are tackling cities where regulations such as sewer restrictions, code compliance and zoning restrictions are weighty.”
Rather than fight City Hall (literally), Medley recommends you work with cities and projects that already make sense.
“If you’re a broker looking to work with the craft beer industry, you should become familiar with the projects in your market that have brewery-friendly landlords, natural gas, access to any water or plumbing already in place and a good vibe that will attract customers.”
Joe McGlynn, an associate in Lee’s Oakland office, agrees. He’s also seen his craft brew market flourish, especially as rents continue to escalate in the Bay Area.
“With residential and commercial rents rising in San Francisco, Oakland has become a very popular alternative for residents and businesses,” he says. “In Oakland, there has been a major increase in new restaurants and bars opening that are offering beer from local breweries.”
While Oakland and San Diego may be miles apart in terms of distance and local culture, the commercial real estate needs of the craft beer industry remain the same.
“Most breweries are looking for industrial space for production because water, power and high ceiling height are needed,” he says. “The feedback we have received from breweries in the market is the most ideal space would be majority industrial with a small retail component for a tasting room. Costs can be high to convert the facilities to the breweries’ needs, and if they have a restaurant area, the costs increase even more.”
Like San Diego, the Oakland area is definitely awash in brewery deals. Among recent noteworthy transactions:
* 21st Amendment, a San Francisco-based brewery with a restaurant near AT&T Park, leased an 89,963-square-foot warehouse in San Leandro;
* Drake’s Brewing opened a beer garden at The Hive Oakland, a mixed-use development on 23rd and Broadway near downtown Oakland;
* Sierra Nevada opened the Torpedo Room, a tasting room in Berkeley;
* Linden Street Brewery opened The Dock restaurant and the Beer Shed tasting room next to its brewery near Jack London Square in Oakland.
McGlynn may have Oakland and Medley may have cornered San Diego, but Lee & Associates principal Frank Mejia is working on increasing the craft beer presence in Orange County, while Tom Davidson, a principal out of the firm’s Central Coast office, is tackling the area from Santa Barbara to Santa Maria.
Mejia recently represented Hoparazzi Brewing Company when it was looking for a start-up craft production brewery in Anaheim.
“The owners are looking to grow the business as brand recognition increases, hopefully expanding the brewing capacity and the number of ales in its brewing portfolio,” Mejia says.
Meanwhile, Davidson facilitated the acquisition of an industrial building in Buellton to Figueroa Mountain Brewing Company.
“They have grown incredibly in the past three years,” he says. “They now have more than 450 accounts on the West Coast and have opened two other tap room/tasting rooms and are looking to expand more.”
Davidson also helped Figueroa find space for a small brewing operation with tasting room and food service in Santa Barbara, along with two other units for refrigerated keg and bottle storage. He also recently assisted Santa Maria Brewing with a 5,000-square-foot industrial lease, and is working with another craft micro-brewing start-up that is looking to lease space in the Central Coast.
Before everyone jumps into their cars and heads to the Hops Highway, however, McGlynn has a few words to put the industry – and his business within the industry – into perspective.
“The craft beer industry is not something you can focus on purely as a broker,” he says. “It is too specialized of a market. But brokers who have the benefit of working a market like Oakland that attracts breweries can certainly add to their book of business.”
We’ll drink to that.