You’ll think you’ve inhaled a cloud of second-hand ganja smoke when you see the skyrocketing prices for some of Denver’s most forlorn-looking industrial buildings since Colorado voters OK’d the sale of marijuana for recreational use in 2012.
Prices nearly have tripled for even the most odd-shaped and obsolete commercial structures. These relics are snapped up by seasoned real estate investors capitalizing on the surging demand for marijuana cultivation and distribution space for a state-sanctioned industry that last year posted $996 million in regulated and taxable sales.
“There is no doubt that legal marijuana activates are having an impact on commercial real estate,” says Jeffrey Rinkov, Lee & Associates’ Chief Executive Officer. “Such alternative industrial and retail uses are putting downward pressure on already historically low vacancy rates and as well as helping accelerate rent growth.”
Nationwide, industrial brokers routinely field inquiries from real estate investors in the cannabis niche as 25 states already have loosed pot laws. Perceived by banks as too risky for loans, buyers pay cash for buildings and often have tenants in tow who are sophisticated growing and distribution operators.
Would-be marijuana landlords are especially active in nine states where voters will decide in November whether to follow Colorado’s example – a happy prospect for current owners of hard-to-lease Class B and C buildings. Legalization measures are set in Arizona, California, Florida, Maine, Massachusetts, Montana, Nevada and North Dakota.
“You wouldn’t believe some of the numbers here in Denver,” says Jeff Hallberg, a principal broker in Lee & Associates’ Denver office.
“A building that would have leased for $4 or $5 a foot to a machine shop now gets $15 a foot for marijuana cultivation,” he said.
In Denver, Hallberg estimates that 3.7 million square feet of space is leased for cultivation and distribution – equaling more than a third of all net industrial absorption from 2009 to 2014.
“What we initially saw were a lot of potheads who wanted to get into the business,” said Hallberg. “It didn’t take long for those folks to give way to people who should be in the business.”
Here’s a handful of typical pot-related property deals in Denver.
This 66,000-square-foot building on South Acoma Street sold for $2 million in 2009 and was used as a warehouse by a pillow distributor. An investor acquired the building in 2014 for $5,750,000 and leased it to a cultivation operator who spent $3 million on sprinklers, electrical, HVAC and flooring.
In 2004 this 17,000-square-foot building on East 40th Avenue sold for $858,000. The building sold in 2015 for $1,525,000 and is now used for cultivation and retail pot sales.
Just off Interstate 25 on East Evans Avenue is a 4,519-square-foot ranch-style house that sold in 2005 for $500,000. It was sold in 2014 for $800,000 and leased as a dispensary.
On East Mississippi Avenue is retail space previously marketed at $20 a square foot that was leased in 2014 at $35 per square foot as a dispensary.
A 17,500-square-foot industrial building on West 45th Avenue that sold in 2009 for $600,000 is now used for cultivation since its latest sale in 2014 for $1.2 million.