View Mobile Site
 

Ask the Expert

Signal Photos

 

Special Report: Commercial Grow Houses Pay Above-Market Lease Rates

June 2016 SCVBJ

Posted: June 9, 2016 2:00 a.m.
Updated: June 9, 2016 2:00 a.m.
Professional grow houses are popping up all over in industrial warehouse spaces. iStock photo Professional grow houses are popping up all over in industrial warehouse spaces. iStock photo
Professional grow houses are popping up all over in industrial warehouse spaces. iStock photo
A trade association for marijuana growers, Emerald Growers Association, is supporting a measure by CA Assemblyman Jim Wood requiring medical pot growers to obtain permits and subject them to environmental inspections that will be heard before the Assembly Agriculture Committee. Above, Jamie Kerr, owner of the medical marijuana dispensary, "530 Collective" in Shasta City, and a member of the growers association on April 14. Associated Press Photo A trade association for marijuana growers, Emerald Growers Association, is supporting a measure by CA Assemblyman Jim Wood requiring medical pot growers to obtain permits and subject them to environmental inspections that will be heard before the Assembly Agriculture Committee. Above, Jamie Kerr, owner of the medical marijuana dispensary, "530 Collective" in Shasta City, and a member of the growers association on April 14. Associated Press Photo
A trade association for marijuana growers, Emerald Growers Association, is supporting a measure by CA Assemblyman Jim Wood requiring medical pot growers to obtain permits and subject them to environmental inspections that will be heard before the Assembly Agriculture Committee. Above, Jamie Kerr, owner of the medical marijuana dispensary, "530 Collective" in Shasta City, and a member of the growers association on April 14. Associated Press Photo
A A A

Marijuana crops are moving out of hidden forest recesses and private homes and into the open. As the state’s largest cash crop gains acceptance from voters, growers are opening commercial-size grow houses in industrial warehouse spaces. But, it will be awhile before all crop growers come out of the closet, so to speak.

Agriculturally speaking, cannabis isn’t even yet tracked by the state of California, which reports its agricultural exports amounted to $21.59 billion in value in 2014, accounting for 14.3 percent of the nation’s total agricultural exports. But, when new rules are implemented by the state’s new Bureau of Medical Marijuana, it will be.

Medical marijuana use in the state has been approved since 1996, and the result of that continues to generate plenty of calls to commercial real estate brokers for retail space.

“For the past five years there were a fair amount of calls for office buildings with retail space on the ground floor, with street exposure, from medicinal marijuana dispensaries,” said Kevin Fenenbock, senior vice president with Colliers International real estate firm.

Desert Hot Springs
But, it’s the demand for commercial warehouse space that’s now growing. And based on changes made by one Southern California city, Desert Hot Springs may be poised to become the “Silicon Valley of cultivation.”

Taking advantage of the growing movement to bring added tax dollars and jobs into their fold, Desert Hot Springs created a special medical marijuana cultivation ordinance which tacks on an annual use tax of $25 per square foot for the first 3,000 square feet of space, and then $10 per square foot for the remaining space.

As a result, Pineapple Express, a Los Angeles-based cannabis industry consulting and technology/branding company, purchased several acres in Desert Hot Springs to use warehouses for the cultivation of marijuana.

“The legal cannabis industry is a reality and the state’s new regulations finally initiate a framework for legal operations,” said Teresa Flynt, vice president of business development for Pineapple Express in a statement.

Likewise, CalCann Holdings, a Costa Mesa-based cannabis firm, plans to build the state’s first large-scale marijuana greenhouse in Desert Hot Springs, anticipating the creation of 40 fulltime jobs and delivering $400,000 in annual revenue for the city after opening in 2018. They hope to receive a mega license under the state’s new licensing policy.

“This project is the final piece in assembling the state’s first vertically integrated, seed-to-sale marijuana operation,” said Aaron Herzberg, a partner in the project, in a statement.

In addition, Manhattan Beach-based Ocean Grown Extracts is proposing to use an old, vacant 77,000 square foot prison in San Joaquin Valley for growing marijuana and producing cannabis oil.

Commercial grow houses
According to trade associations which attempt to track the product, California is said to produce the most marijuana in the nation, making commercial grow houses a natural next step.

On the flip side, however, municipalities such as the city of Santa Clarita have eschewed the industry. The city has a prohibition on the cultivation of marijuana and on marijuana grow facilities on all properties within the city limits. Ditto medical marijuana dispensaries.

Prohibition or not, many landlords don’t welcome commercial growers any way, according to commercial real estate brokers.

“Over the years we’ve had a lot of requests ever since medical marijuana became legal,” said John Erickson, senior vice president with Colliers International. “They’re (growers) problematic users; they create a lot of damage and have a lot of water lines that break.”

Demand, however, is only going to grow if voters legalize recreational use come November’s election. The California Growers Association thinks there are somewhere around 50,000 grow sites in the state, said its Executive Director, Hezekiah Allen. The group culls that data from three different sources, he said; it uses data from the state’s Natural Resources Agency, the state’s tax board – the Board of Equalization, and the U.S. Department of Justice.

But, that number is the trade association’s best guess estimate, Allen said.

The three agencies actually produce grow site numbers between 40,000 and 65,000. And each site employs on average 3.8 full time equivalents, in addition to two owner/operators, for a total of about 250,000 jobs – many of which are in otherwise impoverished communities, he added. If those numbers are anywhere accurate, commercial grow spaces might be in high demand but low in supply in urban areas.

Above market rates
“We get two to three calls a day; it’s been that way for a couple years now,” said Ron Berndt, senior vice president of Daum Commercial. “I’ve represented three deals in the past two years. But most landlords do not understand the legality of it and they won’t take them (the tenants).”

Of those who do, they’re renting for more than market rates – 25 percent higher, Berndt said. A pot shop will pay $1.25 per square foot when it should only go for 85 cents, he said. Berndt once represented a landlord in Santa Clarita; however, the city doesn’t allow them so he shopped in other markets from the city of Los Angeles to Sun Valley and Chatsworth. The smallest space he’s leased is 3,000 square feet; the largest 6,000 square feet.

Growers have to have air conditioning, which they pay for, but to fully air condition a warehouse requires at least 800 amps of power. Getting that kind of power takes the utility companies about six months to come in and install, he said. And even with higher rents, however, there is a downside to leasing space to a grower.

“When they vacate the buildings, they smell so bad. It’s a very distinct smell; an odor that’s so hard to abate,” Berndt said. “They have to replace all the drywall and beams."

Comments

Most Popular Articles

There are no articles at this time.
Commenting not available.
Commenting is not available.

 
 

Powered By
Morris Technology
Please wait ...