G2 EZ EE THEWASHINGTONPOST.SUNDAY,FEBRUARY 20 , 2022
a$36,000-a-monthleaseona
14,000-square-foot emptyware-
house with an old loading dock
suitablefor outdoorseating. Im-
probably,the building also hous-
esone of D.C.’smanycharter
schools,which are popular withEditor:SuzanneGoldenberg•ArtDirector:CecePascual•PhotoEditor:HaleyHamblin•E-mail:[email protected]•Telephone: 20 2-334-9800•Mail:TheWashingtonPost,SundayBusiness, 1301 KSt. NW,
Washington,D.C. 20071 • Advertising:NoelleWainwright,202-334-7610,[email protected]BUSINESSDilbert ScottAdamsraising money—byyear-end
2018, he wasup to $500,000—
andkept searching for space. In
mid-2019,while he wasin Bel-
giumonatrip he wonfor selling
lotsofbeer in his dayjob, his real
estate agent calledtosay he hadNidaofCityFirst Bank, afederal-
ly certified Community Develop-
ment Financial Institution
whose mission is to invest in
socially valuableprojectsinthe
city. At theend of 2020,CityFirst
madehim a$621,000loan,guar-
anteedbythe U.S. Small Busi-
nessAdministration.
“Thatsaved ourlife,”Warner
says. At thatpoint, he oweda
contractor $400,000andhadto
comeup with$34,000 in addi-
tional securitydepositsto his
landlordafter he pledgedbeer-
makingequipment as collateral
for the loan. “Mylandlordactual-
ly saidto me at onepoint, ‘James,
it’s not my job to make this easy
for you.’ ”
Thelandlord did, however,
agree in November 2020to rene-
gotiate thetermsofthe lease
whenthe brewery’sopeningdate
kept slippinginpartbecauseit
tookseven months to getcity
buildingpermits.
Despitethe rejectionfromOp-
portunityZone funds, the option
wasso tantalizing thatWarner
decidedtotry to formhis own
fund. Locallawyerssaid that
would cost$30,000 to $40,000,
though, andthatdid notseem
worth it.But aMichigan lawfirm
offeredtodothe paperworkfor
$15,000. He hired them and
organizedhisown fund.
Oneof thelargestsinglein-
vestments—$95,000—came
fromJacob Chaney, whoownsa
company andwebsite thatlinks
D.C.-arealandlordswith college-
studentinterns. Chaneyspotted
City-State on aD.C.government
website listingpotential OZ proj-
ects. He wasprimarily drawnby
the tax break —the OZ law
allowedhim to defer andreduce
capital gainstaxesonthe profits
fromthe sale of some stock,and
he will escape capitalgainstaxes
altogetheronhis breweryinvest-
mentifheholds on for 10 years—
but he has since becomeabig fan
of the beerandthe brewery and
has hosted receptions for his
college-studenttenants there.
In all,Warnerraised$281,250
in OZ money duringthe firsthalf
of 2021.TheOZinvestors collec-
tively ownabout 8.7percent of
thebrewery. Includingthe OZ
investors,Warner has raised
$1.13 million in equityfrom
66individuals, including two
members of hisfamily. He has
borrowedatotal of $686,500, not
counting equipmentleases, and
has$850,000 in landlord-fi-
nanced improvements to the
property.
Warnermade beerfor the first
timeinhis gleamingstainless-
steelvatsinMay 2021.That same
month he landed a$145,000
Locally Made Manufacturing
Grantfromthe citythatheused
to install acanninglinefor his
beerandothercraftbreweries.
(For now, the beer is canned
on-siteperiodicallyby acontrac-
tor whobringsin abeer-canning
machine on wheels.)
City-State finallyopenedon
June 4, 2021.Itcurrently has 15
of its ownbeersontap,employs
ninelocalresidentsand hosts a
steady stream of events —a
weekly comedy show, an occa-
sionallive music nightandbook
readings aimedatchildrenwho
are welcomed in thetaproom
withtoys.
Thebusiness is stilllosing
money,though,and the omicron
surge did not help.Warnerhopes
City-State willbe profitable by
2025 or 2026.David Wessel,aformerWall Street
Journalreporter,isdirectorofthe
HutchinsCenterat theBrookings
Institutionandtheauthorof “Only
theRichCanPlay: HowWashington
Worksin theNewGildedAge,”the
storyofOpportunityZones.propertyownersbecause the city
pays rentin advance.
Warner took possession in
September 2019,giving theland-
lord$173,000in securitydepos-
its and puttingdown$143,000in
depositson beer-brewingequip-
ment. In January2020,hequit
his jobtopursue thebrewery
full-timeand gotmarried(for the
secondtime) at CityHall so he
could go on hiswife’shealth
insurance. (Theyplanned an
Aprilceremonythatwas delayed
by covid until August, by which
timehis wifewas fourmonths
pregnant.)
By February2020,Warnerhad
raised another$100,000,but he
needed more to put thebusiness
on asolidfootingatthe scale he
envisioned. Raisingmoneywhen
no oneknewwhatcovid would
bringwasnearlyimpossible. The
ensuing months,Warner says,
weresomeof the “darkestofmy
life.”
As he wascasting aroundfor
ideas, Warnerheard from a
neighborhood activist thathis
brewerywas in acensustract
designated as an Opportunity
Zone —one of 8,764suchzones
created by Congress thatoffer
lucrative capital-gainsbreaks to
people whoinvest in realestate
andbusinesses located in them.
Warner wrote to “dozens and
dozens”ofOZfundmanagers. “I
wastoldthe samething by them
all:Wedon’t investinoperating
businesses, onlyrealestate.”
Hisattemptsto getabank
loanwere stymied, too.At first,
lenderswereoverwhelmed by
applicationsfor pandemic-era
PaycheckProtectionProgram
loans, for which he did not
qualify.WhenPPP ended,hesays
he wastold: “You’reinfoodand
beverage.And so we’renot lend-
ing.”
One bigbank told himit
wouldnot lendto abusinessthat
already hadsigned alease, put a
depositon equipment andhired
acontractor becauseit wanted to
be ableto approve thosethings
in advance. In all, he says, he was
rejected by 25 banks.
But whilescanning aD.C.
governmentwebsite, Warnerno-
ticedlinksto afew advisersto
small businesses.One wasTomandworkedbriefly as awaiter at
aD.C.craft beerbar,ChurchKey.
“I knewasmuchormoreabout
beeras anyonethere, butIwas
not averygoodwaiter.And so I
wasfired.”
Aroundthis time,hecleared
$200,000 on the saleof ahouse,
puthalf toward anotherhouse
andsetasidetheother halffor
the businesshe wasthinking of
starting—aD.C.-themedcraft
breweryand taproom.
He figuredit would takeabout
$700,000to start. “I wasoff by a
factor of three and ahalf,” he says
today.
In April2015, to learn the
tradeandearnsomemoney,he
tookajob as abeer salesman for
adistributor, calling on bars,
restaurantsand retailers in sub-
urban Montgomery County, Md.
Warner gottrademarks on
several namesfor hisbeers, hired
alabelartist andhosted small
beer-tasting partiesathis house
withalocal chef, bothtoperfect
his technique andto lure inves-
tors.He madealot of coldcalls.
“Thingsyou do in politicsare
good for that,” he says.
Oneconnection ledtoanother.
Through friends, he metGlenn
Davidson, aDeloitte consultant
whohas invested in several other
small businesses.Davidsonput
in more than$50,000 of his own
money,but, moreimportantly,
invitedwell-offfriends to his
Virginia hometotaste the beer
andhearWarner’s pitch. About
halfinvested.
By year-end 2016, Warnerhad
raised about $250,000 (includ-
ing his initial $100,000). By the
end of 2017,hewas up to
$435, 000 —and he wasgetting
divorced.
In January 2018,inaburstof
excessive optimism, he told a
neighborhood blogthatthe
brewerywould openbythe end
of thatyear.During2018 and
early 2019, abig D.C. developer
dangled several potential sites,
andWarnersignedalease for
one.But thedeveloperreneged,
setting Warner backnearly
18 months.Meanwhile,his
housemate, a36-year-oldwom-
an,wasdiagnosed with meta-
static melanoma. (After ayear of
immunotherapy,she recovered.)
Whilestill workingfull-time
as abeer salesman,Warnerkept“This is surprising,especially
given historicalexperience and
expectationsearlyinthe pan-
demic,”saysJohnHaltiwanger,a
University of Marylandecono-
mistwho studies businessdy-
namics.“Andit wasn’tjustwhen
people had toomuchtimeon
their handsand everyone wasat
home.It continuedwhen there
werelotsofjob openings.”
More newbusinesses were
formedin 2020and2021than
anyyear since2004, the firstfor
which comparable data are avail-
able.It is too soonto tell if the
trend willcontinue,butso far,
there is no signthe pace of
businessformation is reverting
to pre-pandemiclevels.
Why?
Thepandemiccreated de-
mand forall sorts of newbusi-
nesses,Haltiwangerspeculates.
Andunlike during some other
recessions,financingwas rela-
tively easy,hesays.
Butas Warnerlearned,start-
ing abusiness requiresextraor-
dinarypersistence, moreso dur-
ing apandemic. “I’malways
looking to see if someone has the
stomach for this,”saysNick
Freshman, alocalrestaurateur
andearlyinvestor in andadviser
to City-State. “A lot of people
thinktheydo. Most don’t.”
Warnerwasrejected by doz-
ens of banksand investment
funds,wasted 18 months negoti-
ating withone landlord who
reneged on adeal,tussled with
citybuildinginspectors andhad
to givehis current landlordtens
of thousandsof dollarsinaddi-
tional security deposits. Andhe
wasnoteligiblefor anyofthe
billions Congressoffered busi-
nesses hurtbythe pandemic.
Buthe raised over$1 million
in equity, muchofitin$10,000
or $20,000dollops, even creat-
inghisown OpportunityZone
fund—taking advantageofa
controversialtax breakcreated
by Congress in 2017 to encourage
investmentinlow-incomeneigh-
borhoods.
“The deckis stacked in numer-
ous ways againstsmall, first-time
entrepreneurs tryingtomake
somethingnewand interesting
in theworld,”Warner says.“I
comefrom privilege. I’mvery
well-versedindealingwithbu-
reaucracies. Idon’t have anylack
of confidencein talking to who-
ever Ineedtotalk to. It was never
going to be easy,but it was
harder thanit should have been.
Andif it wasthathardfor me,
whathopedoessomebody have
whodoesn’t come fromthe same
backgroundIhad?”
Warnergrewuponthe Upper
West Sideof Manhattan. When
he was8or9,his parents gave
him ataste of anonalcoholic
beercalledKaliber. “Itbecame
my softdrink,”hesays. “I gotin
trouble for bringing it to aschool
picnic.”WhenWarner and his
friendsfromDalton,aprivate
prepschool, foundapub that
was not fussyaboutIDs, his
friendswould orderBudweiser.
He wouldget aGuinness.Warner
wenttoVassarCollegefor ayear
but did not like it andfinished
college at theUniversity of St
Andrews in Scotland, wherehis
“beer education”began. Scot-
landistobeer,Warnersays, what
France is to wine.
In the early 2000s,Warnerdid
astint in thePeaceCorps in
Guatemala where,ashecan
explainatgreatlength, avibrant
beer-brewing industrybrought
by Germanimmigrantsin the
19th centuryhas beensnuffed
outby local(and,to histaste,
low-quality) monopolies.Hegot
amaster’s degree at JohnsHop-
kinsSchoolofAdvancedInterna-
tional Studiesand spentnearlya
decadeworkingonenergy and
climate changeissuesinWash-
ington—atathink tank, on
Capitol Hill, at the U.S. Depart-
mentofEnergyand at atrade
association.
Around2007, afriend offered
himhomebrewing gear she did
notwant.Another buddysug-
gested they save money on beer
by making it themselves.
“Which,”Warnersays, “is where
everyhomebrewer starts down
the wrongpath.”Helovedit. “I
madesomething thatisbetter
thanBudweiserinabucket on
my porch.”
In 2013, he begantoget seri-
ous,spending amonthbetween
jobsvolunteeringataMontana
brewerytosee whatthe business
wasreally like.Guests at his first
wedding in 2013 wereoffered six
brews (“madebythe groom,
drunk by all,”the menu said)
includingEqual Marriage(50
percentwheatand 50 percent
barley) andSelf Determinator (a
traditionalGerman lager).The
next year,heleftajob he didnot
like at theEnergyDepartment
BREWERYFROMG1
Starting D.C. brewery took persistence, connections, luck
SHURANHUANGFORTHEWASHINGTONPOST
City-StateBrewingownerJamesWarner,right,andtwoofhisteammembersdrinkwaterasthefirstcanningproductionstartsatthe
breweryinD.C.’sEdgewoodneighborhood.Thepandemicsawanunexpectedsurgeinbusinessstart-ups—butthatdoesn’tmeanit’s easy.
Below,Warner,sittingforaportraitinsidehisbrewery,hasfoundittakespersistence,connectionsandheapsoflucktostartapub.After initialdip,businessapplicationssurgeduringthe
pandemicMonthlyhigh-propensitybusinessapplications,seasonally
adjusted2006 2008 2010 2012 2014 2016 2018 2020 2022040K80K120K160K
July 2020
176KapplicationsHigh-propensitybusinessapplicationsareapplicationsdeterminedto havea
strongerlikelihoodof becomingabusiness.
Source:CensusBureau THEWASHINGTONPOST