At the edge of an industrial park in this suburb south of Boston, past a used-car auction lot and a defunct cheese factory, is an unmarked warehouse bristling with security cameras and bustling with activity. Until recently, the cinder-block structure was home to a wholesale florist, a granite cutter and a screen printer. Today, it is home to just one tenant: a medical marijuana operation called Ermont.
Legalized marijuana has already upset societal norms, created a large legal grey area, and generated a lucrative source of tax revenue. Now it is upending the real estate market, too. There are numerous homeowners looking at various residential properties online so that they can move to a state where marijuana is legal, whether that’s because they like smoking pot or need it for medical reasons, there are a lot of people who would like to relocate. The commercial property industry is also booming with businesses looking to move in and nab a piece of this booming sector.
In the more than two dozen states that have moved to legalize pot, factories, warehouses and self-storage facilities are being repurposed for the cultivation and processing of potent marijuana plants and products. Suburban strip malls and Beaux-Arts buildings have been reimagined as storefronts selling pre-rolled joints and edibles.
And because the marijuana business comes with added baggage, landlords and property owners are charging a premium for new tenants working in the cannabis business. In Quincy, Ermont is paying above market rate for the previously dilapidated 36,000-square-foot building.
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“The landlord knew he was sitting on a gold mine,” said Zach Harvey, one of Ermont’s financial backers.
Commercial real estate developers say they have never seen a change so swift in so many places at once. From Monterey, Calif., to Portland, Me., the new industry is reshaping once-blighted neighborhoods and sending property values soaring. In some Denver neighborhoods, the average asking lease price for warehouse space jumped by more than 50 percent from 2010 to 2015, according to an industry report. In the city over all, there are five times as many retail pot stores as stand-alone Starbucks shops.
Wall Street is even cashing in. A few months ago, a real estate investment trust focused on leasing out warehouse space to growers started trading on the New York Stock Exchange.
The sharp rise in property prices follows the booming market for legal marijuana. Sales of legal cannabis reached $6.7 billion in the United States last year, and are expected to top $20 billion by 2021, according to Acrview Market Research.
“This is a new segment of the industrial real estate market that is being created in front of our eyes,” said George M. Stone, a longtime real estate executive now focused on the pot business. “It’s a huge industry and only getting bigger.”
Denver has emerged as America’s de facto pot capital. Since Colorado legalized marijuana for recreational use in 2012, hundreds of stores selling pot have opened, and enormous growing operations have set up shop. Legal cannabis sales topped $1 billion in the state last year.
The impact on the local real estate market has been equally big.
From 2009 to 2014, 36 percent of new industrial tenants were marijuana businesses, according to the report on the city from CBRE Research, a commercial real estate company. Nearly four million square feet of industrial space was being used for cultivation in 2015, according to the report, about 3 percent of the city’s warehouse space. Warehouse vacancy rates in Denver fell to just 3.7 percent in 2015, down from 7.5 percent in 2010.
The industry has taken especially deep root among the low-slung warehouses in north Denver. Buildings used for growing marijuana are easy to spot – many are distinguished by extra lights and security cameras. But “I wouldn’t have to point it out,” said Brian Vicente, a partner at Vicente Sederberg, a Denver law firm that specializes in marijuana issues. “You can smell it.”
Retail spaces are just as hot. By 2015, there were upward of 200 marijuana stores in Denver, occupying high-end storefronts and former gas stations.
The spike in demand has been good for landlords, who often charge two to three times market rates for spaces used for cultivation or sales.
“It’s a tax these guys are used to paying because it’s still federally illegal,” Mr. Vicente said.
Denver’s boom stands out, and marijuana has become such big business that an abundance of supply is starting to bring down retail prices, which could ultimately bring down real estate prices.
But Denver is certainly not alone. The growth has become widespread enough, and with generous enough profits, to attract some of the country’s most prominent real estate investors.
Alan Gold was chief executive of BioMed Realty Trust, which leased out space to life sciences companies, until it was sold to the private equity titan Blackstone for $8 billion in 2015. Now he is a co-founder of Innovative Industrial Properties, a real estate investment trust that buys buildings, renovates them and leases out space to medical marijuana growers.
The company went public on the New York Stock Exchange last year and is valued at roughly $60 million, down about 10 percent since it began trading. “We’re really the first cannabis-related I.P.O.,” Mr. Gold said.
The largest property in Mr. Gold’s portfolio is a 127,000-square-foot facility – a space more than twice as large as the White House – outside New York City. The building can handle both a large-scale growing operation and facilities to refine marijuana buds into edible products, and Mr. Gold is planning to open similar sites around the country.
credit: 420intel.com
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