Economic Woes, War Dry Up Brew Pub Plans

The savings-and-loan crisis and the Persian Gulf War are more than newspaper headlines for Mission Brewery Plaza developer Michael Foote. They have combined to put Foote’s much-publicized brew pub development in a historic Washington Street building in trouble.

Foote bought the old American Agar & Chemical building in early 1989 and announced plans to radically renovate the building. His plan was to turn it into offices and a 272-seat brew pub, one of a growing class of restaurant-microbreweries where customers can sample the beers brewed on site.

Brewing was in the property’s history. From 1913 to 1918, the building was operated as the Mission Brewery and Foote planned to restore the property to its old ambience. He even planned eventually to offer some of the types of beers brewed on the premises 75 years ago.

The project, especially the office component, was risky from the outset. But Foote, a 43-year-old ex-professional football player and Lemon Grove native, had a string of successful real estate development projects behind him, including The Landing in Coronado and housing projects totaling 1,200 units.

Foote’s track record, added to the fact that brew pubs were a hot new kind of development sprouting up all over the country, persuaded Great American Bank to make a $9.5-million construction loan on the project situated near Lindbergh Field after Foote agreed to invest $4 million of his own money.

But Foote and his project now appear to be the victims of bad timing. The S&L; crisis and the resulting scarcity of real estate financing has left him $1.5 million short of enough money to outfit and open the brew pub-restaurant portion of Mission Brewery Plaza. As a result, the microbrewery is six months behind schedule, and there is little prospect of it opening any time soon.

Although Foote still has hopes of starting up the microbrewery portion of the project in coming months--several gleaming stainless steel brewing vats sit idle in the vacant restaurant--he admits that his shortage of cash will force him to find an outside investor to outfit and operate the restaurant portion of the project.

In an interview, Foote said he will regret losing control of the restaurant portion, in part because the operator would be free to sell whatever brands of beer he or she wants and not necessarily those made by Foote on site.

But Foote’s search for an outside restaurant investor has been going on for three months with no success, in part because the San Diego restaurant business is at its lowest point in a decade and thus in no shape to attract an outpouring of investor interest.

San Diego restaurants on average are reporting an 8% decline in business since the Persian Gulf War started in August, said Paul McIntyre, executive director of the San Diego Restaurant Assn. More than the war is to blame: The recession has hit home among San Diegans accustomed to dining out, McIntyre said. Moreover, San Diego has seen an explosion of restaurant openings in recent years, with supply outpacing demand.

Foote has signed some leases for the office part of his project but fewer than he had hoped for by now. As with other office buildings in San Diego, his project has been hurt by the glut of office space in San Diego and the resulting cutthroat competition among landlords for tenants.

Despite the problems, Foote says--and Great American Bank confirms--he is current on his $9.5-million construction loan.

Foote, a former Washington Redskins linebacker, said he had planned originally to come up with the $1.5 million he needs to open the brew pub by taking some of the equity out of his other developments by refinancing.

But the S&L; crisis has made banks and the surviving S&Ls; much more restrictive about giving refinancings and other kinds of loans to developers, said Jerry LaFlamme, managing partner at the San Diego office of Kenneth Leventhal & Co. accounting firm.

“There is a tremendous amount of pressure on lenders to make good loans, and so they have very conservative underwriting standards at present,” said LaFlamme, whose firm recently conducted a seminar outlining the tough new financing environment.

“You can see evidence of tougher lending standards in lower loan-to-value ratios and in that banks want personal guarantees on loans,” LaFlamme said. Moreover, “the banks are extremely reluctant to grant loan extensions, and, if they do, they want developers to pay down on the principal owed. And the process is very slow. There are more levels of review.