Barrels of whiskey and bags of malt are stacked inside Van Brunt Stillhouse’s 5,500-square foot distilling room. Creating a narrow path to a cooper vat, the tight space is where the Red Hook brand makes their signature whiskey and rum.
Van Brunt Stillhouse produces 6,000 barrels of whiskey, rum, grappa and moonshine out of their facility. Daric Schlesselamn, co-owner of the distillery, is looking for a new location to grow his brand and to age the spirits, but the cost of rent is holding him back.
The distillery’s current space is leased for $17 a square foot, which is $8,200 a month. He calculated if Van Brunt Stillhouse moved to a bigger location, market rent in Brooklyn is around $35 a square foot. The higher cost would require him to increase the price per bottle by $12 to make the same profit.
“I can’t charge more for our bottles,” he said. “I already have a hard time selling them.”
Beverage producers struggle to operate in the city, especially in Brooklyn, the home to most of the startups. The small spaces and increasing rents are forcing breweries and distilleries to relocate to more distant boroughs or outside of the city. Brooklyn officials are trying to help but their efforts are reaching only a few of the businesses.
Kelly Taylor, owner of KelSo Beer Company, is moving to Mott Haven after losing his current $20,000 a month lease. For the past decade, the brewing company operated in Clinton Hill, but was pushed out of the borough after the landlord sold the air rights. The new 7,000-sqaure foot Mott Haven location will be able to brew 10,000 barrels and is around $10,000 a month. “The Bronx was the best decision for the company,” he said. “I was able to double the amount of production space and still save on rent.”
New York Distilling Company decided to stay in their original Williamsburg location, but opened a larger facility upstate. The 5,000-square foot Brooklyn space produces 5% of their gin and whiskey. Similar to Van Brunt Stillhouse, the distilling company needs a larger facility to produce and age more spirits. “Most of our production happens upstate,” Allen Katz, co-owner of New York Distilling Company, said. “It was closer to the farms, cheaper and practical to open there.”
Food manufacturers are facing the same issues with beverage producers. “These types of businesses are being pushed out by higher rents,” Joshua Levin, director of economic development for the Brooklyn borough president, said. “Some of them are at or near their maximum rental price before looking for another location.”
Sfoglini Pasta Shop makes homemade pasta for restaurants in the city and distributes their product along the East Coast, including to Whole Foods. Starting in 2012, Scott Ketchum and Steve Gonzalez operated in a 700-square foot facility before moving to their current 4,000 square foot space.
“Now even this space is too small,” Ketchum said. “We are moving upstate to a bigger facility at a cheaper rate.”
Grossing around $1 million annually, the co-founders found a 37,000 square foot facility in Hudson Valley leasing it around $6 a square foot. That is nearly 71% cheaper than their current space in Brooklyn. As they move the operations to outside of the city, Ketchum, Gonzalez and some of their 12 employees to Hudson County.
As startup businesses continue to move away from Brooklyn, officials are trying to find ways to encourage the producers to stay. “Folks want to start their businesses here and be around this creative energy,” Levin said. “But the reality is space and price make it hard.”
Even though overall commercial real estate rates have decreased since 2015, the average asking rate is high for beverage and food manufacturers. “These manufacturer companies would never be able to pay it,” he said. “Many of them are in popular areas and rents are going up because of redevelopment.” According to Colliers International, the current rental rate is $36.89 per square foot, which is an almost 5% decline from a steady two-year period.
The declining rents are a result of pervious prices not aligning with current demands. “It is adapting to larger challenges of the evolving business model,” Nicole LaRusso, director of research and analysis at Commercial Real Estate Services, said in a report. “Business owners are signing lease that align with their revenue potential.”
The Brooklyn Borough President is trying to build partnerships with the New York City Economic Development Corporation and industrial spaces, including the Brooklyn Navy Yard and Industry City. Levin wants to keep these areas of Brooklyn commercially zoned, so it could avoid the higher rates like nearby redeveloped neighborhoods. Working with these groups, the borough presidents wants to the city to create a point of contact to help with all manufacturing needs, including rents issues.
Levin knows the problem of adequate space is harder to solve, but hopes the proposed ideas would keep the producers here longer. “As you get bigger, New York does not have the industrial space,” he said. “We recognize businesses might choose to stay if the industrial fees and regulations are lowered.”
The state’s current law prohibits beverage producers from serving spirits in their tasting rooms made with ingredients not grown in New York. “The process has been eased, but it still needs to be simplified,” he said.
The owners of Van Brunt Stillhouse are familiar with this regulation. Their tasting room only offers whiskey. However, their rum cannot be served because it is made ingredients from outside of New York, so possible profits and sales are impacted. “Our tasting room accounts for 15% of our revenue,” Schlesselman said. “Serving rum would allow us to be open for a bigger clientele.”
For Schlesselman, the issue of space supersedes a change in regulations. “We are looking at three operations for the future of the distillery,” he said.
Among the choices, include moving to a new location within the city, rent another small space and keep the Red Hook facility or rent a large production space outside of the city and keep the current spot. “Whatever the decision is we want to stay remain in Brooklyn,” he said.