The love/hate relationship that seems to be forming between the Commercial Real Estate industry and Marijuana may or may not be on your radar, but it is reality.
Fully legal in nine states, one inhabited territory, three native-American reservations, not to mention Washington D.C., it’s impact has been felt across multiple industries. Some cheer, others protest, but regardless, we in the commercial real estate industry need to be educated on the basic legalities as it has become commonplace for medical use and in some areas, recreationally acceptable as well. The federal law mandates that it be grown and manufactured in the state in which it is sold/consumed.
The demand and, in turn, the value for warehouse and industrial properties has significantly increased in affected regions. Climate controlled warehouses and distressed properties including former storage, data, and manufacturing are all being acquistioned and repurposed. Even the limping retail sector has been affected as in those states where retail sales have been sanctioned, as marijuana retail shops have breathed life into some of those long-time vacancies.
Here’s a run down of the basics for our region:
Pennsylvania: Medical Marijuana approved by Governor Wolf in April of 2016
Maryland: Decriminalized and Medical Use/Manufacturing/Distribution approved
Delaware: Decriminalized and Medical Use/Manufacturing/Distribution approved
New Jersey: Governor Jon Corzine signed Medical Marijuana law in January of 2010
There are concerns that this may be another real estate bubble that eventually pops. Even though concerns remain, this industry has sparked new property interest and investment pursuits that we in the industry cannot deny. Both Brokers and Property Owners alike seem to be riding the wave while they can. Time will tell as always.
The Delaware County 58 acre property known as the Granite Run Mall is experiencing some drastic changes as of late. The 39 year old JCPenney store announced its closing plans in January. This was one of 40 closings scheduled across the US. Under-performance is said to be the root cause of this array of retail cessations. This “old school” mall is not finished yet. BET Investments, the current owner based in Horsham, PA has big plans for a re-do. It is said that there is a heavily funded plan to convert the antiquated building into an opulent mixed-use town center. (This does seem to be trending, doesn’t it?) This lifestyle center concept is encountering extensive popularity. This adaptation by the retail development industry is a conspicuous sign that the way consumer mentality and preference is drastically changing. Formerly a convenience to be savored by mainly 55+ active adult communities, the mixed use lifestyle centers are drawing in the young professionals and families alike. Boutique-type shopping in lieu of the big box and mega-department stores, open courtyards rather that jam-packed push and shove hallways and let’s not forget open air walkability to give that Fit Bit a workout. This projects a new lifestyle that we American consumers have embraced, one that incorporates all the luxuries of residential living spaces with shopping, entertainment, outdoor activities, fitness and multiple dining options, all within a walking distance. Many of these lifestyle centers also solve a ever-present, pressing problem that many cities and urban areas experience. The parking issue is being resolved by parking garages strategically placed within the lifestyle centers, creating added value and convenience. The face of retail is ever-changing they say. However, the popularity of this particular development concept may provide sustainability for this new look of retail.
When analyzing the current economy and market conditions, often times Commercial Real Estate and Residential Real Estate are assimilated in the reports. Although similar, they are often found dancing to different “tunes” on the same dance floor. What I mean by this is that although they are operating simultaneously in a wavering economy, they are distinct, which has allowed for the Commercial Real Estate industry to “creatively” overcome and seek sustenance in other ways that the housing market does not provide. Some examples of those new dance steps are:
REIT Running Man:
REIT’s are pushing for rent increases on multi-units, due to apartment and housing turnover trends at record lows due to inability to acquire mortgages. Public REIT’s are said to be paying yields in the 3.5% range. If you shift to the private sector, you can expect somewhere in the 8’s. Commercial Real Estate can also be considered an inflation hedge.
Buy or Build Butterfly:
Large Developers are focusing on new construction retail projects while some remain conservative favoring property acquisitions. When considering an acquisition, take a careful look beyond the cash flow. What will the rent income be when the current leases terminate? Novice investors miss this all of the time. Commercial Real Estate as a whole is driven by jobs, particularly the office and industrial sector. Consumer spending drives retail. Although the multi-unit industry has made remarkable improvement, we see a need to shrink the chasm between new construction costs and trending rental rates.
Buying land in the current market can be sketchy at best. Land with approvals, availability of utilities and located within the “right market”…it’s like trying to find a customized car with all of your wish list features off the lot of the used car dealer. Before jumping in with both feet, most investors are considering several items of interest when performing their due diligence:
Demand – What is the demand for the project?
Dinero – What will my ROI be and how far out can I expect my rate of return?
Domination – What bureaucratic hullabaloo will I have to endure to gain the “blessing” to execute this project and how long will it take to come to fruition? Also, will you be able to sell the property when you are ready to? What will it take?
The Lean,..oh I mean GREEN wit it, Rock wit it:
As an owner/investor, green solutions can potentially provide tenant attraction and maximize your property value. Applying Green initiatives to your current property can influence negotiations, improve operations and sustainability, boost tenancy and rent rates, improve the property to optimize sales price and attract “green” buyers.