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Small Building Buildout Worth It?


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Hello, so I've come to quite a large decision point. I am currently renting out a small 1000sf light industrial space in the inner city that is in an "up and coming" area. My business plan consists of opening up a small production area DSP where tours are offered and a small tasting room. After talking with the city and having two architects come and check things out, it seems like the buildout out would be much more complicated than expected for a DSP with "public access." This is mainly because the building is built right to the sidewalk with a step-up so it is not considered handicapped accessible and I would have to increase the bathroom to 3x its current size. Ramps are out of the question because it is built right to the side walk. The space is zoned correctly with the right power, but is currently offices and would need a full renovation with fire suppression, drains, plumbing, etc. Doing a full renovation on the area was expected but being that it is a building that I do not own and has little room for expansion and no public access has me thinking the benefits of the location are obsolete besides being close to home. At this time, another building has opened up. It is an even better location and 5000sf so a cocktail room is possible and it is close to a small university. Being a 3 tier state the possibility of a cocktail room is a wonderful thing. However, that of course changes the business plan and financing completely. The current building I can quite easily pay rent during the buildout and while waiting for the permits to go through. The 5000sf location I would require borrowed money during that period, but the buildout cost would likely be about equal to the 1000SF space. Depending on buildout and permitting I could easily be in over $50k for rent alone. I would like some opinions of people that have been in a similar situation with an urban distillery. A goal of the DSP was for my two brothers and I to start a small family run distillery without investors. I will try to simplify the decisions at hand:

Equipment: Have everything to start production. Already have fermenters, mash tuns, hot liquor tank and still in storage and it is close to being paid off. Just need ventilation and plumbing which is included in build out costs below.

Building 1

Currently in contact

1000sf at $1000 month

Production area only

Up and Coming Neighborhood

Build out cost $25000

No extra financing needed after build out

Building 2

5000sf at $5000 month

Production Area

Cocktail Room Area

Up and Coming Neighborhood close to small university

Buildout cost $25000

Extra financing between 50000-100000 needed until production starts

Thank you for your input!

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1000sqft may work for your first year or two but I would anticipate you running out of room very quickly, especially if you intend to do any aged spirits.

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What you want, is foot traffic in a space you can show off "some " of your craft. If I could choose between all else equal, I would pay 2-3 times more per sq ft, for ft vs cars. If you have a god foot traffic location in mind, you can always rent junk storage somewhere to grind and strip.

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I agree capnKB, there is room for expansion in the terms of a rickhouse and probably another 1000sf that I could convince the property owner to rent to me for barrel storage. With the layout, however, it would be pricey to turn that extra 1000sf into production space.

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A couple thoughts as I'm getting very close to finishing my build out. You mentioned there is a lot of work to do in the 1000sf building but have a budget of $25k for the work. My buildout is fairly significant; extensive demolition, ADA bathrooms, framing, electrical, plumbing, new gas service line etc and I'm way over your budgeted amount. Unless you will be doing a lot of the work yourself (and you very well may be), my gut tells me you're underestimating the build out cost.

1000sf will be tight. Being able to handle the lease payments without financing while building out, getting permits, etc is huge. In the end, I'll have made lease payments on an almost 6000sf building for a year before we open our doors, luckily I'm getting a really good lease rate. Plan on everything to take longer than you expect.

I like the larger building, the ability to have a tasting room and the proximity to the college BUT $5k is a steep. You don't mention the size of your equipment so it's hard to say whether your production capacity will allow you to have a viable business at that rent level.

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If you do some research you will quickly find that for most restaurants/bars the recommendation is that your rent should take up about 5-10% of gross sales. So if you are paying $5,000 a month in rent you should be expecting/hoping/planning for $50,000 - $100,000 in sales each month. Personally I think those standard numbers are optimistic and its still do-able at a higher percentage. Here at my distillery rent/lease over the last few months has been running at almost exactly 15% of tasting room sales. Add in off-site sales (direct to restaurants and to distributors) are we are probably getting close to the 10% mark.

If I was considering a $5,000/mo rent I would be looking to be doing at least $35,000+ a month in sales. If your doing about half your sales in $10 cocktails and half in $40 bottles then you will need to be serving about 1,750 cocktails and selling about 437 bottles a month. Thats 60 cocktails and 15 bottles ever day of the month of the month.

I think the point I am trying to make is that if you go with a $5,000 a month rent in a prominent location you should probably be thinking about your project as opening a bar that has the *disadvantage* of having to make all the alcohol it serves from scratch.

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A couple thoughts as I'm getting very close to finishing my build out. You mentioned there is a lot of work to do in the 1000sf building but have a budget of $25k for the work. My buildout is fairly significant; extensive demolition, ADA bathrooms, framing, electrical, plumbing, new gas service line etc and I'm way over your budgeted amount. Unless you will be doing a lot of the work yourself (and you very well may be), my gut tells me you're underestimating the build out cost.

1000sf will be tight. Being able to handle the lease payments without financing while building out, getting permits, etc is huge. In the end, I'll have made lease payments on an almost 6000sf building for a year before we open our doors, luckily I'm getting a really good lease rate. Plan on everything to take longer than you expect.

I like the larger building, the ability to have a tasting room and the proximity to the college BUT $5k is a steep. You don't mention the size of your equipment so it's hard to say whether your production capacity will allow you to have a viable business at that rent level.

Hi Huffy, yes my two brothers and I will be doing most of the work ourselves on the renovation. Largely the cost will of course come from the licensed work needed. The 1000sf portion i am currently renting from is from a 6000sf building owned by a contractor that mainly does roofing. But there is a lot of machinery (forklifts, etc) that they would let me use and the space already has 3 phase power. Being my set up is all electric, that cuts out quite a bit of cost there. The renovation would consist of drawings, demolition, fire suppression, firewalls, plumbing in and out and of course the little things that add up like lights (already have explosion proof for around still) concrete sealers and paints. If we want to make it open for tours and tastings, the amount of work needed changes drastically.

Our equipment is small but I am a pretty efficient brewer and we plan to run the still daily. The still is 55 gallon hybrid, a 200 gallon fermenter/mashtun, 300 gallon fermenter/mashtun, 160 gallon HLT, 400 gallon cooling pond (recycling water). In a month right now we would be looking at 140-160 gallons of spirits produced a month. Of course, based on demand, we could get a 2nd still in 55 gallons or 130 gallons.

Thank you so much for your input Huffy!

If you do some research you will quickly find that for most restaurants/bars the recommendation is that your rent should take up about 5-10% of gross sales. So if you are paying $5,000 a month in rent you should be expecting/hoping/planning for $50,000 - $100,000 in sales each month. Personally I think those standard numbers are optimistic and its still do-able at a higher percentage. Here at my distillery rent/lease over the last few months has been running at almost exactly 15% of tasting room sales. Add in off-site sales (direct to restaurants and to distributors) are we are probably getting close to the 10% mark.

If I was considering a $5,000/mo rent I would be looking to be doing at least $35,000+ a month in sales. If your doing about half your sales in $10 cocktails and half in $40 bottles then you will need to be serving about 1,750 cocktails and selling about 437 bottles a month. Thats 60 cocktails and 15 bottles ever day of the month of the month.

I think the point I am trying to make is that if you go with a $5,000 a month rent in a prominent location you should probably be thinking about your project as opening a bar that has the *disadvantage* of having to make all the alcohol it serves from scratch.

This is exactly why I am so hesitant Hedgebird, I crunched similar numbers with the standard number of 6% rent to revenue. And honestly, thats is when I decided to ask here because those numbers scare me. I know some businesses do clear that much a month, but it is just mind boggling how a small distillery could come on top with those numbers. The 5000sf asking price would be $11.28/sf gross, which is a pretty normal asking price around these parts for a decent location, I really don't know how small stores survive at nice locations! I guess the big draw of the 5000sf is it is across the street from a university (its a law school with 5000 students), its down the street from the MN state fair which is a huge attraction (2nd biggest in the country) and they have multiple events through out the summer, we would be the 2nd distillery in a fairly large city, and a new major league soccer stadium is approved to be built and they are trying to put in on the same road 6 blocks down.

That being said, I do appreciate you telling me the percent of rent you pay to your revenue. That helps me get a more realistic number than the typical standard of 6%. Because the 1000sf location doesn't allow public access without larger investments, I am thinking a warehouse space is just as good and won't require a large buildout. Thank you so much for your input Hedge!

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