Here at the Commercial Academy, we are celebrating. Why are we celebrating? Because today is February 22nd – National Margarita Day. You might be wondering why as commercial real estate investors, mentors, and educators we would be interested in this social media holiday, but we have good reason: The possibility of signing a tequilería as a tenant.
What is a tequilería? It is just the term for a distillery which produces tequila, the spirit distilled from the agave plant which the American public recently fell back in love with as of 2015. These independent distillers are small operations generating single batch products in local markets.
As a tenant, a tequilería, or any other micro-distillery, has requirements that make it unique. They need square footage normally found only in industrial/warehouse properties while also requiring features normally reserved for retail tenants.
This demand for micro-distilleries is not new and is not following the trend of micro-breweries, which started to gain traction in the early 1990’s. In this time, the microbrew industry has seen an incredible growth of 800% going from 529 independent locations in 1995 to 4,269 in 2015. This incredible growth allows microbreweries increase their share of alcohol industry sales to 10%, or $21.952 billion in annual gross sales. One could even say that micro-breweries are on the crest of a bubble.
Enter micro (and not to mention niche) distilleries. Though it took a bit of time for micro-distilleries to receive the same popularity as micro-breweries, the spirits industry seems to be catching up. In 2003 there were 60 craft distilleries operating in the United States. As of 2016, that number has risen to 760 per the American Distilling Institute (ADI) with an additional 200 expected to open in 2017 or an increase of 26.31%.
For commercial real estate investors, these distilleries have emerged as a way to re-develop spaces previously left vacant by the loss of industrial tenants. The general aesthetic of these distilleries requires that the space is left with an industrial feel requiring little to no allowance for cosmetic improvements. The lease terms are longer with tenants signing 15-20 year leases from the beginning. Their equipment does not allow them to change spaces without heavy expense, so they are going to commit. The requirements for production of products merits the need for a triple or absolute net lease agreements. And, the location generates a stream of revenue for other properties in the area as a local destination.
As outdated prohibition era laws are removed from both state and federal regulations, we will continue to see these small distilleries emerge offering the fresh, handmade products which are currently extremely on trend.
A healthy craft market means recognition from national and international audiences contributing to solid revenue streams for both commercial real estate assets and the market at large.
Understanding these types of market trends is crucial when evaluating the value of your commercial assets. What may seem like an empty industrial space can be an ideal location for a variety of different tenants, such as a tequilería. So the next time you have a space you aren’t sure how to fill, consider a tequilería or other micro-distillery as a tenant. Bottoms up!
If you would like to learn techniques to increase the value of your current or future real estate assets, please join us March 16-19 in sunny Orlando, Florida for J. Scott Scheel’s Commercial Property Academy Live. Time is running out though so book now.