Craft beer makers realise that to keep with the times they need a brewery of their own

Chris Lohring surveyed America’s beer scene in 2010 and decided to play the contrarian. Rather than mimic the popular and potent stouts and India pale ales, he would specialise in low-alcohol, high-taste “session beers,” as he called them.

To lenders, though, the business plan held as much appeal as flat beer. So Lohring kept costs low by using established breweries in Maine, Massachusetts and Connecticut to produce and package crisp pilsners and rustic farmhouse ales under his Notch Brewing label.

Contract brewing, as it is known, was perfect for a startup like his, requiring no expensive infrastructure. “There’s nothing riskier than building a plant before the brand and the beers have been proven,” said Lohring, who in 1993 helped found Tremont Brewery in Boston.

Craft brewing’s decade long global surge has been partly fuelled by contract, or “gypsy,” brewers, rootless beer makers whose recipes are realised on other breweries’ equipment. Early trendsetters like Evil Twin Brewing and Mikkeller of Copenhagen, Denmark, and Stillwater Artisanal of Baltimore built themselves into international brands through sales in bars, supermarkets and beer stores.

Chris Lohring, owner of Notch Brewing, at the brewery in Salem. The company opened the physical location after six years of “contract brewing” at other breweries. Photo: Gretchen Ertl/The New York TimesChris Lohring, owner of Notch Brewing, at the brewery in Salem. The company opened the physical location after six years of “contract brewing” at other breweries. Photo: Gretchen Ertl/The New York Times

But now, consumers are increasingly seeking beer at the source: Since 2010, sales at breweries and brew pubs have risen more than 500 per cent, according to the US Alcohol and Tobacco Tax and Trade Bureau. Beer lovers routinely troop to breweries for releases of cans and bottles, and a sense of belonging to a particular place has become as important as the beer itself.

That places contract brewers in a pickle. “If you don’t have a brewery, you’re kind of homeless,” said Mikkel Borg Bjergso, Mikkeller’s founder and chief executive. “You don’t have anything to show people.”

As a result, many itinerant beer makers are dropping anchor, opening breweries with tasting rooms for thirsty patrons.

Evil Twin, in Queens, and Grimm Artisanal Ales, in Brooklyn, are building breweries and taprooms. Stillwater aims to start its own beer production plant next spring in Brooklyn. In June, Almanac Beer Co. revealed plans to construct a brewery and taproom in Alameda, California, near Oakland.

And this month, Bjergso announced that he would create a brewery at Citi Field, home of the New York Mets. Scheduled to open this year, Mikkeller Brewing NYC will brew and can beers like its Say Hey Sally pilsner, served alongside food from Fuku and Pat LaFrieda. “Next year at Citi Field, people will be drinking beer made at the ballpark,” said Jim Raras Jr., Mikkeller NYC’s executive vice president.

Notch Brewing’s session beers eventually found their niche, and last summer, Lohring converted a riverside warehouse in Salem, Massachusetts, into a brewery, taproom and beer garden. In the afternoons, customers clink glass steins of corn-laced lagers and smoked beers that are produced on the premises.

Customers at Notch Brewing serve as contact focus groups, where the brewer can test new brews and get immediate feedback in the taproom and beer garden. Photo: Gretchen Ertl/The New York TimesCustomers at Notch Brewing serve as focus groups, where the brewer can test new brews and get immediate feedback in the taproom and beer garden. Photo: Gretchen Ertl/The New York Times

“Say you’re sitting there as a contract brewer, and you’ve got a million bucks,” Lohring said. “Do you spend the old-fashioned way with advertising and marketing, or do you spend a million bucks on a facility where you serve beer to consumers? It’s a pretty easy decision.”

Taprooms also serve as consumer focus groups. Lohring uses his to test richly flavored Old World lagers and pale ales featuring new hop varieties. “We get immediate feedback from customers and sales,” he said, “and that informs us on our next steps.”

Even more traditional brewers are planting roots. In February, the 127-year-old Narragansett Brewing Co., which once produced New England’s top-selling beer (and one of its catchiest slogans: “Hi, neighbour! Have a ‘Gansett”), resumed brewing in Rhode Island for the first time in decades.

The beer was discontinued in 1983, but Mark Hellendrung, a former president of Nantucket Nectars, bought the brand rights in 2005 and soon began contract-brewing its landmark lager in Rochester, New York. Last year, he moved the company into the cooperative Isle Brewers Guild in Pawtucket, Rhode Island, and, in February, started making smaller batch beers like It’s About Time IPA.

Beer cans at Notch Brewi­ng in Salem­. Photo: Gretchen Ertl/The New York TimesBeer cans at Notch Brewi­ng in Salem­. Photo: Gretchen Ertl/The New York Times

Previously, fans passing through Rhode Island could visit only the brand’s headquarters, then in Providence. Now Hellendrung can meet fans at the brewery, as he did recently with a North Carolina couple who stopped by while driving to Maine. “We were able to sit down and have a beer,” he said. “It was just awesome to have a great conversation.”

All the same, many of these beer companies still outsource much of their brewing.

Narragansett makes most of its beer, including its lager, in Rochester, at North American Breweries, which also produces Genesee beer. That brewery’s mix of lager-making expertise, speed and economies of scale is hard to beat, Hellendrung said, noting that the Rochester brewery can make 1200 to 1400 cans a minute, compared with 240 in Pawtucket.

Bjergso’s Mikkeller beers are mostly contract-made in Europe, where he operates the Warpigs Brewpub in Copenhagen in tandem with 3 Floyds Brewing Co. of Munster, Indiana.

But that can exact a cost, in dollars and freshness, when you factor in tariffs, shipping costs and delivery times. So last year, Bjergso took over an existing brewery and taproom in California to create Mikkeller Brewing San Diego.

“It’s great to produce an IPA and serve it to customers within a week or two weeks instead of two months,” Bjergso said. He can better adapt to fickle consumer tastes by making and selling popular IPAs directly from the brewery. “You’re able to give the customers a better experience if you’re behind everything, instead of going to a supermarket or some random bar,” Bjergso said.



More small investors using SMSFs to buy commercial property

Small investors are becoming increasingly aware of the benefits of using their self-managed super funds (SMSF) and trusts to buy commercial property, encouraged by the higher income yields and lower level of risk than some other asset classes.

Commercial property can offer a net investment yield, after fees, of between 6 and 6.5 per cent – as against less than 2 per cent for residential property – in most CBD markets, says leading Australian property group Charter Hall.

“Our investment philosophy is to invest in high-quality, institutional-grade commercial property in strategic locations, leased to high-quality tenant covenants on long-term leases,” said Steven Bennett, head of direct at Charter Hall. “This approach to investment allows us to manage our portfolio through the cycles providing investors lower volatility than other investment classes.

“Commercial property is now firmly on the radar of investors who want to use their SMSFs and trusts for investment. A lot of retirees and people transitioning to retirement are chasing secure income yields and, with term deposits and bank rates so low, commercial property is very appealing.”

Australian Tax Office figures show that SMSF investment in commercial property has grown nearly 47 per cent in just under five years to March 2017, from $53.2 billion in 2012 to $78.2 billion. As a percentage of total SMSF assets, however, it’s slipped from 12.9 per cent in June 2012 to 11.6 per cent at March 2017.

The SMSF Association has been watching these trends closely. “Direct investment in commercial property by SMSF trustees has been a significant feature of the SMSF sector,” said head of policy Jordan George.

“It’s especially been a core investment for SMSF trustees who have a small or professional business where they own the business premises through their SMSF.”

Often the premises are the most significant asset in a business and owning it via an SMSF meant it could be held in a concessional tax environment and used to fund retirement later in life.

“But SMSF trustees looking at this strategy should always seek specialist advice to ensure that the commercial property investment meets the required definition of being ‘business real property’ and other technical aspects of the superannuation law,” said Mr George.

The issue of how commercial property can be an important investment for SMSFs and trust funds will be one of the themes at the upcoming Symposium17 hosted by Commercial Real Estate on August 30, at which Mr Bennett and Peter Hogan, from the SMSF Association, will be speaking.

The keynote speaker at the symposium will be former prime minister The Honourable John Howard, OM, AC, who among other things will be talking about foreign investment, Asian markets and the impact on the commercial property industry.

Mr George said that commercial property could offer a stable income for SMSFs, with lower capital risk than other asset classes, and also promise attractive capital gains at about 3 to 4 per cent. That could take annual total returns above 10 per cent which, in the pension phase, could come tax-free.

“However, like any asset class, individual commercial property investments should be evaluated on their merits and not assumed to perform the same as the asset class in general,” he said.

In addition, he said SMSF trustees were increasingly investing in unlisted commercial property syndicates and unitised office property funds.

“It’s part of an overall trend that is seeing them diversify their portfolios away from blue-chip, fully franked Australian shares and cash and term deposits, and one we would expect them continue pursuing,” he said. “We always encourage trustees to seek specialist advice when re-evaluating their portfolio mix.”

Mr Bennett recommended investors should also look at how returns were delivered to them. “For example, we focus on long-term leases, anywhere between five to 15 years and in some cases up to 20 years. This provides a certainty of income throughout the fund’s life and allows us to manage re-leasing risk.

“However, a tenant on a three-year, shorter-term lease will give you a different income curve to a tenant on a 10-year lease, but we think it is higher risk because it exposes the asset to market pressures and potentially not producing income every three years.”

The Charter Hall Group, with a total managed property portfolio of more than $19 billion, owns and manages 314 commercial properties around Australia, including office buildings, supermarket-anchored retail centres, and industrial assets.

“We have high-quality tenants on long-term leases who are leaders in their sector,” Mr Bennett said. “Across our entire group portfolio, 70 per cent of our tenants are ASX 200 companies and 20 per cent are government tenants. The weighted average lease expiry (WALE) is around 10 years so we know we have high-quality tenants on long-term leases which provides secure long-term incomes to our investors.”

Accordingly, one of the most important things for SMSF investors to check was who would actually be managing their investments. Mr Bennett said it was important to make sure they were in the hands of a credible manager with a good track record.

Mr Jordan said that happily trustees were increasingly seeking specialist advice on commercial property investment, appreciating they needed to be aware of issues such as the management’s track record, as well as the quality of asset, whether CBD or suburban, the WALE, and the expected yield.

He said that the commercial property sector had also been largely unaffected by the introduction of the $1.6 million assets cap on SMSFs in the pension phase that took effect on July 1.

“This new rule means funds in the pension phase must transfer back assets exceeding $1.6 million to an accumulation fund and pay a 15 per cent tax on all earnings,” he said. “However, funds are not required to sell assets as they can be apportioned between the taxable and tax-free part of the SMSF.

“Also, funds affected by the $1.6 million transfer balance cap can access transitional CGT [capital gains tax] relief which allows them to reset the property or unit’s cost base to its market value on 30 June 2017, washing out any accumulated capital gains. For trustees in a listed or unlisted property vehicle it’s just a case of transferring units from a pension to accumulation fund.”


Box Hill, a mini CBD in the suburbs

With an enviable blend of outer suburb comforts, plenty of educational facilities, easy access to Melbourne’s centre and an abundance of restaurants and shops, Box Hill is fast becoming Melbourne’s second CBD.

Travel along the popular 109-tram route or Belgrave and Lilydale train line and, unbeknown to many, lives a gold mine of eastern suburbs. In recent years, these areas have flourished to become desirable places for families, young couples and singles to take up residence. One such area that has proven opportunistic to suburbans, city-dwellers and developers is Box Hill.

With housing supply in the CBD and inner-city suburbs becoming increasingly scarce, a large population increase in some of Melbourne’s outer suburbs such as Deepdene, Hawthorn and Kew has occurred. This trend will inevitably lead to an increase in jobs and local amenities which means exciting growth for many outer suburbs.

Box Hill truly is the gem of the eastern suburbs and its steady population growth and opportunities have not gone unnoticed. Astute developers are fast creating livable communities to greet the suburb’s growing demands. Box Hill’s centre is identified as a metropolitan activity zone in the Victorian Government’s Plan Melbourne strategy and substantial growth is forecasted for the suburb’s employment, housing, business, services and public investment. Its population is predicted to grow by 26% in the next five years following a growth of 35% in the last 13 years.

To accommodate and service the influx of residents, recent major investments in Box Hill include the $447.5 million redevelopment of Box Hill Hospital, the construction of the $120 million Australian Tax Office building and the $30 million-plus redevelopment of Aqualink to create one of Australia’s most modern and innovative aquatic and leisure centres.

One developer lending particular focus to Box Hill’s considerable growth potential and wealth of residential benefits is Golden Age Group. They have two major projects underway already in the heart of Box Hill – Sky One at the peak of Box Hill’s central hilltop at 545 Station Street and Sky One’s sister project which is two minutes’ walk away on the corner of Station Street and Cambridge Road. The 36-storey, 438 apartment project is ideally positioned with Box Hill Central shopping centre on its doorstep and the hugely popular Asian fresh food market just next door.

Box Hill is an outstanding example of growth outside of the CBD and inner city. It is the most significant activity centre in Melbourne’s eastern region and already provides residents with CBD-like facilities including shopping, dining, transport, education, hospitals, entertainment and recreation, all within a short walk.

This mini-CBD is already a major destination that attracts thousands of shoppers and diners with a diversity of cuisines and restaurants that rival Melbourne’s Chinatown. A flourishing Chinese community has called Box Hill home since the 1980s and many families who travel to Box Hill from around Melbourne to eat and shop have now relocated to its centre or aspire to. Its central activity area is now home to around 4,000 residents with a high level of cultural diversity.

Box Hill is also home to approximately 16,000 jobs across a wide range of sectors including retail, hospitality, professional, public service, medical and education. Box Hill Hospital treats approximately 48,000 patients a year and employs 4,500 staff, along with the Australian Tax Office having approximately 1250 employees.

There are around 60,000 students in Box Hill with 40,000 of them at the Box Hill Institute and the remaining attend various primary and secondary schools including Our Lady of Sion College, Box Hill Senior Secondary College, St Francis Xavier Primary School and Box Hill High School which ranked in the top 10 of Victoria’s best state schools.

Box Hill residents benefit from exceptional access to amenities throughout Melbourne via the train, bus and tram networks and the Eastern Freeway and Eastlink. Belgrave and Lilydale train lines stop at Box Hill railway station and commuters have a quick 20-minute trip to Melbourne Central.

At 517 Station Street, Sky One’s sister project will incorporate luxury apartments, premium retail, a boutique hotel, entertainment, a 104-place childcare facility and large, open public spaces including a rooftop terrace garden. The Box Hill community will also benefit from a new health and well-being centre and the possibility of a cinema complex.

Golden Age Group managing director Jeff Xu says the Sky One project and Sky One’s sister project provide a rare and valuable opportunity to contribute to and participate in the growth of one of Melbourne’s most dynamic areas. He commented, “With Sky One and its sister project, we will provide a significant amount of open public space, retail and entertainment for the community and we are also building a large childcare centre which will accommodate three times the number of children in the existing facility on site.”

Construction of Sky One started earlier this year and is on schedule for completion in mid-2019. Following Sky One’s resounding success, Golden Age Group have revealed plans for another ground-breaking site in Box Hill.



Stockland snaps up Hope Island site from administrators

Australia’s largest residential developer, Stockland, is planning an $80 million medium-density development on Gold Coast’s Hope Island after snapping up a key waterfront site there from administrators of the failed company Fish Developments for $13.5 million.

The 3.3-hectare site at 2-44 Marina Quays Boulevard is Stockland’s first standalone medium-density acquisition in Queensland and will add to its growing pipeline of more than 2500 ”townhomes” within its residential communities across Australia.

Stockland’s general manager of medium density, Ben Cantwell, said the company was in the early stages of planning for up to 100 new homes that would be pitched to investors as well as the first-homeowner market.

“This acquisition aligns with our strategy to diversify and broaden the reach of our residential business through medium-density development,” Mr Cantwell said.

“We have noticed the price points of what people are able and can afford to buy and that gives us confidence,” Mr Cantwell said. “The supply in the broader region is also being absorbed.”

The number of loans to owner occupiers constructing or buying new homes increased in several states over the year to May 2017. Queensland showed the strongest growth – up 10.8 per cent – according to the Australian Bureau of Statistics.

Stockland plans to develop a diverse range of townhomes that will appeal to those looking to upgrade or downsize, as well as first-home buyers. About half the townhomes in the new community will have water frontage and all residents will have access to a shared pool and cabana.

Over the past 12 months, Stockland has begun construction on more than 600 townhomes in Brisbane, Sydney, Melbourne and Perth.

It said it had identified a future pipeline of standalone sites such as the one at Hope Island.