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Crafting a brewing business: Upstream looks to 504 deal to improve cash flow

It’s a two-story sandstone brick and glass stylish hotspot off the busy 168th and West Center location in a burgeoning Omaha neighborhood of cutting-edge restaurants and popular boutiques.  There’s even a new apartment development going up across the street.  During the summer the place is buzzing with parties outside; in the winter there’s an auburn glow inside. The heady scent of yeasty fresh beer brewed fresh in-house fills the huge dining room surrounded by brick and inviting wooden touches.

Brian Magee at Upstream Brewing Company

Brian Magee inside Upstream Brewing Company's West O location.

But without the help of the SBA’s 504 loan program, it might not be a stretch that Upstream Brewing Company’s west Omaha location would have vanished from the scene.

Bringing the Upstream experience to Omaha

Years ago, Brian Magee served as the food and beverage director at a distinguished landmark hotel in Lincoln, serving fine fare to the capitol city’s decision-makers and visiting aristocracy.  He’d dreamed of someday opening his own restaurant, and in the late 1980s, made repeated trips with his brother to Denver to visit the first brewpub established in Colorado. 

“Loved it,” Magee said.  “They had fresh-brewed beer made on site paired with an interesting pub-style menu.”

So Magee bit, working to start a brewpub in partnership with the Wynkoop Brewing Company in Colorado as it attempted to branch out nationally; his business partner was John Hickenlooper, one of the founders of the Wynkoop and later became mayor of Denver and present governor of the state. 

Magee and Hickenlooper bought a re-purposed old downtown fire station at 11th and Jackson Streets, which the previous owners had been using as a dinner theater.  

In 1996, Magee, as president of the company, reopened the doors of the completed remodeled firehouse and introduced Upstream Brewing Company to Omaha’s Old Market district. 

"I thought we could do something that would be different and unique and have maybe a little more upscale feel," Magee said.

Over the years, Upstream has been a staple of the city’s premier arts and entertainment district, basing the business success on its great food, quality craft beers and service, and giving a hat tip to the location’s origin with its Firehouse Red Lager brand. You can look for other tributes to old Omaha landmarks up and down the menu of Upstream’s stouts and ales.

Magee, continuing the nod to local history, took the business moniker from the translation of the Omaha Indian tribe’s word from which the city is named, sometimes as “the upstream people” or “above all others on a stream.” It fits, after all, Magee added, because it does take water to make beer and it also has an uplifting feeling. 

Six years later, Magee and his operating partners bought out Wynkoop’s interest in the Old Market location and began scouting for a second location in the fast-growing western edge of the city.

Expanding operations to West O

In January 2004, Upstream was approved for a SBA-guaranteed 7(a) loan from Security National Bank for $750,000 to pay for a new brewhouse, kitchen equipment and furnishings for its new West Omaha location.  When they opened the two-story place with a lower level, a build-to-suit with a lease agreement, Magee said, they created 130 full- and part-time jobs.  But Magee wasn’t the only pioneer in the then-untapped marketplace.  At the time, there were few eateries available; two years later, more than 65 popped up in an eight square mile area surrounding Upstream’s location.  The rapid expansion of new restaurants was great for area residents but Magee said it was tough for everyone in the business.  Several years passed by with modest sales growth.  Many restaurants closed and were replaced by other restaurants.

But Upstream never skimped on the quality that made them popular. They were tabbed "One of Omaha’s Top Ten Restaurants" by the Omaha World-Herald, and are annual winners of several “Best of Omaha” Awards.

And their signature brews began to chalk up the awards.  At the World Beer Cup in San Diego, Upstream took home a gold medal for its Upstream Grand Cru, a silver for its Dundee Scotch Ale and a bronze for its unique Phat Flemish Red Ale.  They also earned a Top 25 Beer of the Year two years in a row from DRAFT Magazine for their Dortmunder Lager.

With the nationwide recession in late 2008, Upstream began feeling the pinch at their West Omaha location.  They knew that their lease was coming to an end, and their monthly payments would go way up if they renewed.  So Magee and his partner sought to buy the property outright.

“With those increased payments, we looked at a possibility of not to retaining this site or moving somewhere else,” Magee said.  “We liked to stay for the long haul, and continue to establish our position here in the neighborhood.”

Putting the deal together with the 504 program

Magee reached out to Centennial Bank, the SBA’s Small Lender of the Year for Nebraska in 2010, and Community Development Resources (CDR) in Lincoln, to finance the project under the SBA’s 504 program

The 504 Loan Program provides approved small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization.  These loans are made available through Certified Development Companies (CDC), such as CDR, SBA's community-based partners for providing 504 loans.  This program calls for the participating lender to provide half the financing, with the SBA offering 40 percent of the costs financed through the CDC.

By June 2012, Upstream was approved for a $1.4 million 504 loan to purchase the location.  It’s safe to say the access to capital not only improved the look of the balance sheet, but was crucial in preserving up to 130 jobs at the brewpub.

“Without the SBA, no way we could have gotten this done,” he said.  “We now have room to breathe. We’ve reduced our occupancy expense by 25 percent, a significant amount.  Plus, we won’t see our rent increasing every five years.”

Magee said the cash saved with the purchase and steady monthly payments will allow Upstream to perform some needed maintenance, upgrade equipment and he has plans for a beer garden or covered private party space out on the location’s former back patio.

With steady loan payments long into the future, Magee has positioned Upstream’s location to leverage the continued westerly growth of the city.  While the recession slowed building activity in the area, Magee said demand for unique restaurant services is expected to rise. 

“There are 5,000 to 6,000 residential lots in the area, and a lot of the empty ones are going to start filling in,” Magee said.  “Then you think about the 450 to 500 people who will move into the new apartment development across the street.  The city has mandated new sidewalks to go with them.  All of a sudden this area becomes a pedestrian community, and that’s great for us and the other restaurants in the Legacy Development, since we’re right here for people who want to relax after work or on the weekends.”