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E-Malt.com News article: USA, VA: Deschutes Brewery to delay and likely scale down planned brewery in Roanoke
Brewery news

Deschutes Brewery will delay and likely scale down its planned brewery in Roanoke, the Roanoke Times reported on April 16.

But the Bend, Oregon-based craft beer brewer will buy the land where it intends to build as a show of good faith that they are still headed to Roanoke eventually.

The brewer announced in 2016 after months of courting that it would build its East Coast expansion in the Roanoke Centre for Industry and Technology — a $95 million project that would ultimately employ 108 people in its first phase, according to the company. But the privately held company didn’t plan to break ground until June 2019.

Now, city and Deschutes officials say market conditions have caused the brewery to pause and re-evaluate the timing and scale of its expansion. The decision came just about three weeks before Deschutes was to have closed on the purchase of 49 acres of land where the plant is planned.

The news likely will make skeptics who raised eyebrows at the brewery’s slow-moving construction plans feel vindicated, and deal a blow to Roanoke boosters who were lifted by the high profile economic win of landing the Deschutes deal.

The craft beer industry is still growing, but last year saw only a modest bump in production compared to recent years. And some bigger West Coast brewers who expanded east have cut back or even closed operations.

Deschutes, however, says it remains committed to building in Roanoke, and the company's putting cash on the table to prove it.

Dechchutes’ cost for the land for the plant was to be forgiven over five years in 20 percent increments as Deschutes fulfilled promises of investment and job creation. Under its contract with the city, Deschutes was required to invest $55 million and employ at least 70 full-time workers — far fewer than what the company said it would do. It was required to be making and selling beer by June 1, 2021. The company said a second phase would lift employment to 154.

Without the incentives, the brewery will instead pay $3.2 million in cash to buy the land outright next month — “to demonstrate our commitment to the project and to the city of Roanoke” and “to ensure we can build and sustain a viable, healthy business long term in our new East Coast home,” the company said in a statement.

City Manager Bob Cowell acknowledged the frustration and disappointment of the development, especially coming after a long quiet period was about to end with the deal moving forward in a matter of days. The race seemed to be coming into the final stretch.

“What we’ve just heard is, there’s another four laps to the race,” Cowell said.

The deal to bring Deschutes involved millions of dollars in incentives, all of which would have been paid as Deschutes met performance measures by certain dates. City officials stressed that none of the incentives has been paid to Deschutes to date.

Besides forgiving the cost of the land, the incentives also included $3 million from the Virginia’s Commonwealth’s Opportunity Fund, $1.5 million in rebates for machine and tools taxes from the city and a $225,000 grant from the Roanoke Economic Development Authority for job creation.

A planned acceleration of the timeline for constructing the Tinker Creek greenway near the Deschutes site will continue with state and federal funding footing the bill, but a planned spur to connect the greenway to the Deschutes site probably won’t be built.

When Deschutes comes back to the city with its revised plans, officials can discuss then whether and how much of the incentives can be reinstated, City Manager Bob Cowell said.

Asked about his level of confidence in Deschutes following through and building here, Cowell described as, “Right now, high.”

“I really believe that at this moment in time they’re trying to position themselves to ensure that happens,” he said. “It’s the kind of corporate partner they’re doing to be.”

“We want to open our East Coast doors knowing we’ll be a strong, lasting asset to the regional economy in the same way have in Bend, [Oregon], for the past 30 years,” the company said in a statement.

The deal seemed to be progressing on schedule until recent weeks, Cowell and Assistant City Manager Brian Townsend said.

But as they began sending documents related to the planned May 1 closing of the sale on the land to the company, they noticed a change in tone.

Last week, the company acknowledged it had seen concerning results in recent sales data and became concerned over whether the craft beer market has hit a plateau or could be retracting, Townsend said. Based on that, Deschutes wanted to “slow down the decision making process” and re-evaluate whether their Roanoke plant needed to be as big as planned, and waiting to figure that out seemed prudent.

Craft beer is still growing, but its buzz is wearing off. In 2017, craft beer grew 5 percent in production, according to the Brewers Association, a national nonprofit trade group representing the industry. But that pales in comparison to numbers in the past decade when growth held in the double digits some years.

Deschutes was the 10th largest craft brewer in the country in 2017, according to the Brewers Association.

Closing on the land on May 1 as planned would have triggered all of the performance goals for investment, construction and hiring for Deschutes. Uncomfortable that they couldn’t meet those goals if they decided to scale back the size of the Roanoke brewery, Townsend said, Deschutes asked to apply the brakes.

The result is that the real estate part of the deal will be “de-coupled” from the rest of it.

The Roanoke City Council on April 16 approved delaying the closing date to May 31. On May 21, they’ll take further action to unwind the incentive package and reduce the deal to a simple land purchase by Deschutes.

He and Townsend said Deschutes is not like its competitor Ballast Point, which is owned by the international company Constellation Brands. Ballast Point can tolerate the risk associated with its quick turnaround in building its East Coast expansion in Botetourt County, which was announced after Deschutes and opened last year in a repurposed building.

Deschutes is still owned by its founders and has a significant degree of employee ownership, Townsend said, so they’re going to be more conservative about exposing the company to risk as they grow.

That’s consistent with the long and detailed consideration that went into selecting Roanoke as its second home, city official said. Brewery officials not only considered financial aspects of the move, but sent workers here to evaluate Roanoke as a place to live and a good fit for their company.

Along the way, Deschutes has tried to establish itself as a good corporate citizen here while waiting to start building. Company leaders participated in volunteer river clean ups and the company has twice brought its mobile “street pub” to the city, raising tens of thousands of dollars for local charities.

Last year, Deschutes opened a brew pub on the Roanoke City Market to give itself a visible presence here.

“I would much prefer the company conduct itself the way it has all along where it’s prudent and make the right investment to proceed,” Cowell said. “The position of the city has always been, what we can do to help Deschutes make the best investment they can in the city, and that hasn’t changed.”

16 April, 2018

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