Marijuana Eats Up Denver Warehouse Space
DENVER ( MainStreet) If you're looking to get into Colorado's burgeoning marijuana business, good luck finding space to grow your weed in the Mile High City.
Vacancy rates for warehouses and light-industrial spaces are close to historic lows of 4% as pot growers take up every available nook they can find.
Mitchell Zatz, a senior vice president at Jones Lang LaSalle in Denver, has been brokering commercial real estate for more than 20 years and says he's never seen space this tight.
"It's really skewing our whole industrial market," he said.
Lease rates for run-down 10,000 or 20,000-square foot buildings are smashing records.
"A high lease rate used to be $12 a foot and now it's $15 to $17 a foot," Zatz said. "Some people are talking $20."
Even grower-suitable buildings outside of the metro area are commanding premiums, if they are available at all.
Llorn Kylo, the CEO of Scottsdale, Ariz.-based Cannabis-Rx (OTCQB: CANA), recently raised $30 million in financing to buy buildings and lease them out to pot growers in Colorado and Washington where recreational use is now legal . He's not finding any deals in Denver, though.
"I'm just not willing to do a deal that doesn't make good economic sense," he said. "I don't want to pay a premium just to get in the space and then be sitting on a building that we paid too much for."
Kylo is a long-time real estate developer who changed the name of his company from Longview Real Estate Inc. in January. He's taking an even longer view with Cannabis-Rx, positioning his company in an industry that is expected to keep right on exploding.
"There seems to be such a massive shortage of space for these growers," he said.
Weed entrepreneurs also have difficulty raising capital , and even just banking. Kylo's plan is to buy buildings, which he'll lease to growers at a premium. He'll also provide them with capital and consulting services. He'll do just about everything but water the plants himself.
"Were not growing it -- we're not distributing it," he said. "I truly see it as a real estate play in the marijuana industry."
He gets several calls a day from growers looking to lease space from Cannabis-Rx. The trouble is, he hasn't found anything in Colorado to buy.
"It's gotten incredibly tight, said Brady Welsh, owner of Sherpa Commercial Real Estate in Denver.
Welsh said he did a lease deal on a tired old warehouse about three years ago. Then the market rate was about $2 a foot, but he leased it to pot growers for $4.50.