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Hope wanes for brewery

Legacy: Disappointments have ruled for past six years GROWTH: Olympia, Lacey, Tumwater want brewery’s water rights for new homes

CHRISTIAN HILL; The Olympian | • Published June 28, 2009

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TUMWATER – Six years after the closure of the former Olympia Brewery, this once-vibrant economic engine has long since petered out and now has begun to decay.

The brewery has slowly been stripped of its parts. Olympia, Lacey and Tumwater have condemned its most valuable commodity – the water that gave the community some national recognition – and are a step closer to using it to serve their growing populations. What equipment the previous owner didn’t salvage to raise some quick cash has slowly been hauled away from the property for the same reason.

Some of the property has sold, but the primary holdings, including the historic brewhouse, sit idle. Security guards chase off anyone who lacks permission to visit the property.

“It’s just been really sad to see it go like it is,” said Gary Knittle, a longtime brewery employee who might as well have been talking about a dying family member.

He was one of about 400 employees who lost their jobs when the plant closed June 27, 2003. Since then, every time hope is raised for new life for the brewery, it has been dashed.

It’s a story etched in misfortune. A big corporation shuts down the century-old brewery, saying it’s no longer profitable. A start-up company, All American Bottled Water Corp., led by a chief executive with big dreams and virtually no business acumen, picks up the property for a song. That executive, L. Eric Whetstone, runs the business into the ground, leaving creditors on the hook for millions in unpaid bills after refinancing falls through and his criminal past as a scam artist is exposed in this newspaper. Creditors force the company and property into bankruptcy. A year of litigation and one unsuccessful offer for the property follow; then the lenders seize control of the property. They foreclose on it and put up a “For sale” sign.

And there it sits.

The property’s chief broker said that interest from prospective buyers has “picked up substantially,” and he noted recent conversations with three investors whom he declined to identify. He said a California-based investment group expressed interest in buying the entire property for mixed-use redevelopment. Another group of investors inquired about buying some of the property. And a local investor has renewed interest in the property.

But others have expressed interest before, and it didn’t lead to a formal offer and sale.

‘REMARKABLE CHALLENGE’

There’s no doubt the economy has dampened those prospects, stanching both the flow of capital and investors’ enthusiasm about launching a new business venture.

However, the property was up for sale at the tail end of the boom years. Ask some of the players in this continuing saga about challenges inherent to the property and they offer different answers. Some point fingers.

Troy Dana, the broker, noted the uniqueness of the property.

“When you have a building that has kind of been built and operated for one very specific use (brewing beer), it is a remarkable challenge to go out and find out cost-effective uses and utilities,” said Dana, senior vice president and managing director of the Olympia office of Colliers International.

Bankruptcy trustee Michael Hitt tried to sell the property for a year to repay creditors before losing it to foreclosure. He came the closest to succeeding, securing an offer from the family-owned Benaroya Co. of Seattle to buy the property for $45 million two years ago before the deal collapsed.

Challenges he cited in an e-mail were floodplain issues and the “local governments’ meddlesome restrictions on development.”

Specifically, he noted that officials would not allow a new owner to develop the property in accordance with existing zoning laws and “essentially dictating what uses they would find acceptable.”

Tumwater Mayor Ralph Osgood said at the time that a debate over the size of distribution centers was roiling the community. A month after the Benaroya deal fell through, he revealed that the company wanted to raze the old brewery buildings and build a distribution center of up to 750,000 square feet. He said he worried about the number of tractor-trailers that would clog roads not designed for heavy traffic.

“While we’re all anxious to get it redeveloped, it really needs to be redeveloped in a way that is conducive to the area,” Osgood said.

The city since has adopted an ordinance to regulate the size of distribution centers. Osgood said he would be open to a similar proposal for the property that complied with that ordinance.

Asked if he had similar concerns about city regulations, Dana replied, “They sent a very clear message to me, and that is they intend to be as cooperative and helpful and expeditious in the permitting process as they can be.”

FINDING THE RIGHT PRICE

Both Hitt and Osgood said the price sought by the property owner is hampering the sale. The old brewery property is divided into nine parcels, but the total asking price is unclear. The lenders who financed the sale of the brewery more than five years ago lent more than $30 million. Dana has pegged the total value at about $40 million. Miller Brewing Co. sold the property to All American Bottled Water Corp. for $14 million on April 1, 2004.

“To me, the price is grossly inflated, attempting to recoup the loss of the investors and not priced at the actual value of the property,” the mayor said.

Hitt said that the property owner, led by Barney Ng, should have worked with him before the downturn. When Hitt controlled the property, Ng was the chief representative of the lenders attempting to recoup their investment. The trustee has litigation pending against Ng and the lenders related to the purchase of the brewery.

“He may have not realized his full inflated debt amount, but he certainly would not be in the fix he is now,” he said.

Dana declined to comment specifically about the asking price or its justification.

“In Ng, I do not sense a mandate that there is a number out there and unless we get there, there’s nothing to discuss. I have not gotten that impression. I think there’s flexibility with him, yes,” he said.

Osgood said Tumwater officials have discussed condemning the property, possibly on the basis that it’s a blight. But he said the city simply could not afford the litigation and, if it succeeded, the compensation required to pay the property owner.

WHAT WAS, WHAT WILL BE

And so residents who live near or drive by the property are left to remember what was and ponder what will be.

One of them is Knittle, who worked more than three decades at the brewery as a mechanic, making $23 an hour. After the closure, he retired and lives pretty comfortably on the two pensions he earned there.

“It was the best place to work in Thurston County,” he said.

He recalled working with good people and on nice grounds. Workers used to tie ropes to the mowers to ensure that the grassy banks were maintained. The grass eventually was replaced with ivy that has grown over some of the property as time has passed, he said.

Knittle is convinced that, had the Miller Brewing Co. not prohibited brewing beer on the property when it sold the plant, brewing would have contin- ued. And he’s still at a loss to explain why executives closed the plant.

“Maybe we didn’t make as much money as some breweries, but we were making money,” he said. “That was one of the things that was so hard when it was closed up.”

Six years later, it still leaves a bad taste in the mouths of the former employees once responsible for the taste enjoyed by so many others.

“I don’t buy Miller products,” Knittle said. “I don’t drink Miller products.”

Christian Hill: 360-754-5427

chill@theolympian.com

Thurston County’s three largest cities would divide one-third of the total volume of water allotted to the former Olympia Brewery based on a tentative determination that a volunteer board is expected to endorse.

That’s enough water to serve nearly 7,000 new homes. However, officials from the cities, who paid millions for the water and some land, expressed disappointment with the amount of the proposed transfer.

The Thurston County Water Conservancy Board is scheduled July 20 to endorse, pending final approval by the state Department of Ecology, applications so the cities can use the water they condemned from the property to serve their growing communities. Based on the figure before the volunteer board, that would amount to 775 acre-feet – or 325,851 gallons – of water for each city.

Each city paid $1.76 million to compensate the current property owner, Well B Ng LLC, for the water rights and 18 acres of land for a wellfield. They will split the water equally. The price of the water rights and property weren’t separated in the settlement agreement, so it’s not clear exactly how much the cities would pay for the water now that an amount to be transferred has been established.

‘ROLL OF THE DICE’

“It seems high,” Tumwater Mayor Ralph Osgood said of the cost. “However, it was a roll of the dice that the cities entertained in attempting to get the water rights from the brewery.”

Lacey City Manager Greg Cuoio acknowledged that water rights are “extraordinarily hard to come by” but said the cities had hoped they’d get twice what they appear likely to receive.

“This is an acquisition we need to make,” he said. “While we’re not receiving as much as we’d like to receive, this is a good decision that will benefit the public.”

Olympia Mayor Doug Mah shared similar views.

Mike Rhubright, the board’s chairman, said he was confident its work is a “true accounting” of what water is left based on the research and compliance with state law.

“If we could find more water that we could justify or document … we would have been happy to,” he said. “We looked at it as much as we could, and we couldn’t find any more for them.”

Not included in the price paid by the cities is the cost of improvements to get the water to utility customers. The planning hasn’t begun, so that cost is unknown at this point.

“For example, the cities will need to evaluate the condition of the many wells, the level of water quality treatment (if necessary), options for conveyance and delivery, and projected costs before making any policy or budgetary decisions,” according to a copy of a report of examination the board is scheduled to approve next month.

Ecology staff members have seen an early draft of the board’s report, but until it’s finalized, it’s premature to comment on it, agency spokeswoman Kim Schmanke wrote in an e-mail. Ecology can approve, approve with modifications or reverse the board’s finding.

If the finding is approved, the cities could appeal the decision to the state Pollution Control Hearings Board. Cuoio and Osgood said no discussion about that option has occurred.

Water that the state grants to an individual or group for a specific use reverts to the public if it’s not used for at least five years, in a process known as relinquishment.

The brewery held water rights dating to 1936 that totalled 6,990 acre-feet, according to a copy of the report of examination the board will approve next month.

LESS ACTIVITY, LESS WATER USE

The brewery shut down six years ago Saturday, so the opportunity to secure the water would have been lost. However, the cities cited a state law that extends that period to 15 years if water is claimed for “a determined future development,” or in this case, the eventual municipal use of the water.

However, the brewery relinquished some water rights as it scaled back operations. The board based its tentative determination on the highest 12 months of water use within the lowest five-year consecutive period of use. The lowest years of use were June 1998 to June 2003, when the brewery was shut down. The brewery used 2,327.43 acre-feet from September 1999 to August 2000, the highest 12-month period of use. The board has determined to transfer that amount to the cities and relinquish the rest to the state.

The cities filed 11 applications – one since has been rescinded – to change the purpose of water rights from industrial and irrigation to municipal, as well as add points of withdrawal. They submitted the requests to Ecology on April 29, 2008, before requesting that the board take the case to speed up the process.

A new home typically uses one-third of an acre-foot – or more than 108,000 gallons – a year for indoor use and watering individual lawns and common areas, Lacey water resources manager Peter Brook said.

All three cities need more water to serve growth – most notably Lacey, which halted development in its urban growth area four years ago and is buying water from Olympia to keep under its authorized water right.

The Legislature created water conservancy boards in 1997 to help Ecology reduce its backlog of water rights applications. The boards can process requests to transfer or change existing water rights, but not applications for new rights.

The cities’ use of the groundwater will not materially affect the amount of water being pumped by wells on nearby properties or diverted from the Deschutes River for authorized uses because the existing and new wells will remain in close proximity and water use will not exceed historical levels, the report said.

Christian Hill: 360-754-5427

chill@theolympian.com