HOPPORTUNITY KNOCKS: Overcoming the Bitterness of Brownfield Redevelopment with Breweries

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1 HOPPORTUNITY KNOCKS: Overcoming the Bitterness of Brownfield Redevelopment with Breweries Before Now What is Industrial? Industrial uses are more than just rail yards, manufacturing or warehousing. It is Medical Technology Clean Rooms Data Center Flex space Creative Production Distribution Center Fulfillment Center Even the occasional Charter School. Where Has Industry Gone? Industrial land is only 3% of the region but 37% of the industrial land is in urban area and 54% of the land in the suburban areas [Source: Generalized Land Use, Metro Stats August 2011, Metropolitan Council]

2 Falling Demand for Old Industrial Buildings But older obsolete industrial buildings remain in the urban center. Old industrial buildings are often candidates for demolition by neglect. These sites are often brownfields. Site Characteristics The site of the Surly Brewery was used by the Northern Star a potato processing company. Low Clear Height Small Entry Limited Parking & Turn Access Few, short small truck bays Small Turn Radius Few, closely spaced truck bays Varying clear height Limited, but convenient parking Understated Entrance SoHo 718 Washington. Site Characteristics Live-Work Lofts Offices Neighborhood Commercial Ground Level Commercial Large Window Openings High Ceilings Continuous Floor Plates Market Pressure for Conversion: Some areas are still good for industry, others are not. Multi-story, industrial buildings are no longer sought after for manufacturing or warehousing. But the same older buildings have many characteristics that make them good candidates for a mix of business and housing. Example of conversion from industrial to creative office and live-work spaces. The commercial and retail spaces are condominiums.

3 Protecting Industrial Areas Industry makes up 3% of the regional land area and a significant portion of the regional jobs. How do you keep valued industrial areas from being converted to housing or entertainment districts? You need clarity about expectations. For example, Minneapolis identified Industrial Living areas the city expects to transition from industrial to residential and other uses. Minneapolis also added Industrial Employment Districts into the city s long-range land use plans to protect areas intended for industrial growth. Yes No Industry Types Looking for Urban Locations Medical production Light Assembly Data center Flex Creative Production Industry Types Looking for Exurban Locations Distribution Centers Fulfillment Centers

4 Welcoming Industry Why return to urban areas? Benefits of agglomeration Reduced costs for new technology to speed up new product development (e.g., laser cutters, 3D printers) Consumer trends Interest in local sourcing Maker movement Innovation Districts An example of how to make industry fit in with housing or commercial corridors is the use of an Innovation Districts that makes it easier for individual developments to choose sustainable practices such as Area storm water management District energy [Source: ULIMN, Green 4th Study] Challenges for Urban Industrial Sites The most difficult aspect of developing industrial land in a developed urban area is finding available sites with the right size. Sites must fulfill enough of the fundamental needs for Parking Truck access Truck courts Dock doors But having a variety of high quality residential and service, entertainment options near urban industrial districts helps attract and keep highly-skilled industrial workers.

5 Schmidt Brewery Redevelopment History: Well-known brands like Schmidt, Old Style and Blatz were brewed on the St Paul site. After the brewing stopped, the site was temporarily revived as the first urban ethanol producer. Nervous the neighborhood landmark would be torn down, residents pushed the city for a historic designation. Looking for Brownfields? Dominium who later became the main developer was looking for a great location to build affordable housing. Area vacancy was low. Many housing units were being built. In 2008, the developer wasn t shopping for historic breweries but early on they liked idea of converting the long Bottle House into affordable housing together with another developer that would renovate the larger Brew House into condominiums. The prior year the site had been rezoned from Industrial to Traditional Neighborhood. Stepping Up By 2009, the market for condominiums disappeared. After studying the opportunity, Dominium decided to take on the challenge of the taller iconic Brew House too.

6 + - Good for conversion -- High Ceilings, Large Windows, Areas for Studio Space Re-zoned from industrial to residential & commercial mixed use Historic status financing opportunities High visibility in improving apartment market Good access to Mall of America / Airport Variety small commercial sites nearby Recent new housing in neighborhood Good bus transit Bad for conversion Difficult to remove large steel tanks, Missing floor plates, Crumbling windows, Mothballed grain elevator Historic Review limits on new window openings and two single-story buildings Many unique floor plans (Brew House) resulting in higher soft & construction costs. High per unit development cost limit some common funding options Need to find buyer for commercial space Environmental costs Buy or Don t Buy Opting to buy the site was not an easy choice. There were many things to like about the area and the buildings. But the redevelopment would be challenging and costly. Cleanup Schmidt had just about the whole gamut of brownfield problems that cost $3.7M to solve regulated waste, soil cleanup, soil gas, lead-based paint, asbestos, large storage tanks that needed to be pumped out before being removed and retro-fitting sub-slab vapor control systems. Schmidt Artist Lofts - Notable Funding Sources $21,900,000 1st Mortgage $23,781,394 $2,950,000 TIF Mortgage $2,500,000 Seller Note LIHTC & Federal HTC Equity $21,035,230 State Regional & County Environmental Grants LCDA Acquisition Grant Saint Paul CDBG $54,981,220 GP Loan (MN HTC) $1,500,000 $1,250,000 Other Funding Profile Schmidt Artist Lofts received many sources of public financial support. Multiple project participants cited the creation of a state historic tax credit as the turning point for the long-awaited redevelopment. $2,716,006 Schmidt Artist Lofts - Historic Tax Credits Total Sources: $132.6M $23,202,329 $23,202,329 Minnesota Historic Tax Credits Federal Historic Tax Credits

7 Surly Brewery Redevelopment History: From micro-brewery to destination brewery. A change in local law in 2011 dubbed the Surly Bill created an opportunity for micro-breweries across the state. Location, Location, Location Surly wanted to build a destination brewery. The owner had a loosely defined urban vision. A place that could be used for industrial production, a tap room and a beer garden with room to spare. Maybe transit too. The search started looking for acre sites on the water-front. A public announcement and hiring of a tenant real estate broker started a regional competition that included 80 potential sites. Few industrial areas met all of the initial criteria. Some of the sites considered in Minneapolis were largely controlled by railroads.

8 + - Industrial zoning Central location Close to Light-rail transit, bike route Close to University of MN One seller Well water Jordan aquifer Recent new housing in neighborhood Good bus transit Truck access a concern Unstable soils Limited market visibility of public space Environmental Buy or Don t Buy A site within the Southeast Minneapolis Industrial Area (SEMI) was the most promising. The central location was close to the edge of an industrial district that allows for both the production space and tap room to be successful. Customers coming to the tap room or restaurant from University of Minnesota or downtown could easily walk from a nearby light rail transit stop or bike along a dedicated path. The entire site was owned by one willing seller. But tight turns onto a single dead-end street would make truck access a concern. The site was smaller than what was hoped for (only 8.3 acres). It also had unstable soils with lots of varied fill material and peat and an expensive projected cleanup cost. Cleanup The contaminated fill soil was deep. The most cost-effective cleanup plan removed petroleum and non-petroleum impacted soils from an accessible zone on the surface and two hot spot areas, covered the site with clean soil and re-used as much of the former foundations as possible. A soil vapor mitigation system was added below the entire brewery building. The total cleanup cost was approximately $3M.

9 EXPORT 22,000 TONS Cleanup Contaminated Soil Debris IMPORT 44,000 TONS Clean Soil New Aggregate ON-SITE RE-USE 20,900 TONS Aggregate Crushed On-site Contaminated Soil Clean Soil Surly Brewery - Public Funding Sources $2,035,300 $500,000 $500,000 State, Regional & County Environmental Grants County Environmental Loan (EPA RLF) Funding Profile Public support for the Surly Destination Brewery focused on environmental cleanup and investments that support the use of light rail transit. $29,964,700 County Transit-Oriented Development Loan Private Financing & Equity Total Sources: $33M

10 Getting to the Starting Line Redevelopment often requires opening previously closed doors. How do you get the type of champion and coordination you need? For Schmidt Artist Lofts, the city council member was instrumental in keeping the public approval process for zoning and financing on track. For Surly, the brewery owner s advocacy for changing a Minnesota law on taprooms and a vision of a destination brewery were essential. Flexibility in architectural design and early identification of amenities of interest to the community helped sustain the initial momentum. Getting to the Finish Line How can you influence the fate of vacant industrial sites? Stick to a vision. Start with a concept that is compatible with the community vision and marketable. Keep it industrial or change it to housing. One of these will work. Chase opportunity. Prospect Park residents reached out directly to the Surly owner. The neighborhood formed a non-profit to fund market studies, transportation studies, land use studies Be flexible at the site level. At Schmidt, no two apartments have the same layout. Key buildings were renovated first (Bottle House followed by the complicated Brew House) and commercial investment will follow.

11 Economic Development Outcomes Surly: Jobs: over 150 Change in Net Tax Capacity: $101,400 Surly is truly a destination brewery. It has added well-paying jobs, an innovative restaurant, a popular tap room and a beer garden making an established neighborhood even more well-known than it was before. Next? There is a hope that the benefits of a new district-approach to development near the light rail will increase interest in developing a vacant industrial area into a bio-science corridor. There is also hope that the destination brewery concept will expand to incorporate future tourism. (There are already two adjacent sites being explored for hotels.) Schmidt 260 affordable apartments 27,000 new commercial SF on site is projected Brewing has created neighborhoods. But when industry left town, artist housing helped bring the neighborhood back together. A historical landmark was preserved that goes back to the founding years of the City and neighborhood. There are 260 occupied-apartments with a waiting list of over 500. Next? The site has already attracted the interest of an aquaponics company that is expanding coincidentally from another brewery (Hamm s) and proposals for a public-style market on the site. There is hope that development interest will continue along the West 7th corridor filling in space between new developments closer to downtown (Gateway, 7 Corners) and to the SE (Victoria Park).