Green Rush: Marijuana provisioning center lottery temporarily spiked commercial real estate prices
A lottery for 13 local marijuana dispensary/retail store licenses this past year sent commercial real estate prices in the area temporarily skyrocketing.
Since that lottery drawing six months ago, Traverse City’s first medical marijuana provisioning centers have begun to open their doors.
In the middle of the real estate shuffle was Realtor Tom Krause and his business, Krause Realty Solutions (KRS). KRS helped broker more than six real estate deals for prospective marijuana businesses.
Krause also sold his office on the corner of Munson Avenue and Eighth Street building to Tina Schuett – co-owner of Rare Bird – who was hoping to turn the premises into a provisioning facility.
Krause’s building wasn’t on the market at the time, but he says he also received an offer from an out-of-towner for $200,000 more than Schuett’s agreed-upon purchase price.
In the end, Schuett’s name was not drawn at the May 3 lottery at which the 13 retail medical marijuana licenses were distributed by the City of Traverse City.
Krause says this type of narrative was common in Traverse City throughout the first half of 2019. Commercial properties near the city’s center were selling above market value. Most of those were cash offers, since most local banks do not finance marijuana businesses.
It was a gamble for the buyers: There were 72 pre-qualified applications by lottery day, with only 13 permits up for grabs.
While Krause thinks that several unlucky applicants are likely holding on to the properties they bought in hopes that they can still get a license – the old KRS building, for instance, has not gone back on the market – the local commercial real estate market has largely cooled since the “green rush” that dominated the first five months of the year.
“It’s all back to normal,” Krause said of Traverse City’s commercial real estate. “Prices were artificially high for a short period of time. The ‘Green Tax,’ they called it. But I don’t see that issue lingering. Those huge price increases were just a blip and I don’t see any ramifications for it going forward.”
Krause says one issue for Realtors is to not use those medical marijuana properties as real estate comps in the future, since their sales prices were inflated. He says there was no impact on local residential real estate, even though there was some worry among Traverse City residents that a saturation of medical marijuana establishments in certain parts of town might depress property values in nearby neighborhoods. Locals were particularly worried about property values near Munson Avenue, which had five addresses drawn in the initial lottery, all within about a mile of one another.
“I think the city did a really good job of protecting the residential areas,” Krause said. “And ultimately, these marijuana stores are just like cigarette stores or alcohol/party stores. People aren’t going to be smoking there; they’re just going to buy it and take it home. So, I think once people realize that, they’ll see that maybe a lot of that concern was for nothing.”
While real estate prices have largely reverted back to normal since the May 3 lottery, that date was only the start for the businesses that received permits. With strict guidelines from the state for floor plan design and building features, most permit holders in the area had to renovate and get their buildings ready for a final city inspection deadline of Nov. 6.
For the majority of permit holders, that inspection deadline proved too ambitious to hit. According to City Clerk Benjamin Marentette, 12 of the 13 businesses were granted either a partial or a six-month extension to May 6, 2020. For each business, the extension is a one-time waiver of the initial deadline, which required that all May 3 lottery winners either pass all inspections and receive final permits by Nov. 6 or apply for the extension with the city clerk’s office.
Speaking with the Traverse City Business News one day after the Nov. 6 deadline, Nemer Haddad of WL Green Ventures said his Traverse City store was “fully, fully approved” and had received “both our state and our city approvals.”
“We’re the only ones that are able to open as of now,” Haddad said.
WL Green Ventures, drawn first in the May lottery, will open a store called The Cured Leaf at 707 South Garfield Avenue. The store, which used to be a chiropractic office, required floor plan changes and renovations to meet state guidelines. However, Haddad’s background is in construction and real estate development.
“We typically carry a $15-$20 million portfolio of real estate,” Haddad said, referencing WL Green Ventures’ parent company Management 10 LLC and its development arm Hager 1. “Because we come from a background of construction and development, we were able to block off some time with our own in-house guys to get everything up and ready (in Traverse City). We’re very diligent about our deadlines with cities. We’re currently awarded nine licenses, so we have a lot to build.”
Haddad says renovations at the 707 South Garfield location included new electrical and plumbing work, replacement doors and windows, new custom cabinetry, and the installation of a state-of-the-art security system that will be monitored around the clock. The state’s requirements for dispensaries, he notes, are mostly focused on security features.
For instance, no dispensary in Michigan can have an exterior door that opens directly into the showroom (or the “bud room,” as it is called in the marijuana industry). Instead, these facilities must have some sort of lobby or waiting room that customers enter before proceeding into the bud room. Picking a commercial property that has as many of these floor plan and design features in place as possible is part of the strategy that companies like WL Green Ventures aim for, Haddad says.
“Sometimes, your property could fit most of the state regulations as it is,” Haddad said. “Other times, you might have to scratch the entire floor plan and start fresh. So, it helps us that we have that in-house construction experience.”
While The Cured Leaf will likely be the very first medical marijuana dispensary to open its doors in Traverse City, Marentette said that several other businesses were hot on its heels. Those include Joint Ventures (set to open a store called Highly Cannaco at 752 Munson Avenue, in the former home of Life Story Funeral Home) and Green Peak Innovations (setting up shop in the old Signature Salon building at 822 East Front Street).
“We are presently going through the inspection process and should be open by the end of November,” said Eric Ryant, the owner of Joint Ventures. Ryant added that renovation work of the space – undertaken by REI Construction in Traverse City – was finished in time for his initial target opening date of Oct. 15.
Coordinating inspections – particularly with the state – has “taken longer than expected,” he said.