Space to Grow Is Hard to Find

LEASES SCARCE FOR MEDICAL MARIJUANA

After David Greene came up with an idea for his manufacturing
company, he set up a 23,000-square-foot lease at a building on the
brink of foreclosure.

Was it a perfect real estate deal?

Not so much.

The term "manufacture" is loosely used to describe the business,
which grows medical marijuana. And after a 12-month effort,
culminating with a public hearing in Royal Oak, Greene's company,
Your Comfort Care LLC, was not approved to use the warehouse.

"This is the perfect use for a building that's one of thousands that
will never get leased unless we find an alternative use for it," said
Greene, who is also the director of brokerage services for
Southfield-based real estate company First Commercial Realty and
Development Co.

"I have a perfect business model. Michigan created a $1 billion
industry and it's missing out on $950 million of it when medical
marijuana is not grown here."

Greene is one of many in Michigan's new medical marijuana industry
running into roadblocks trying to find real estate for growing
operations and dispensaries where medical marijuana is distributed.

Landlords in some areas have shied away from taking on tenants in the
industry and local government regulations have added layers of complication.

So those landlords accepting marijuana-oriented tenants not only have
to be tolerant, they need to be flexible, said Samantha Moffett, a
recent law school graduate waiting to be sworn in as an attorney.

She works for the Walled Lake-based Ambrose Law Group, and has been
dedicating most of her time to medical marijuana businesses.

"Cities are requiring a lease as part of the application," she said.
"So we have to go to the landlord and negotiate the terms, but then
ask them to hold the space for a period of time while the application
is being considered."

She said the rules vary from one city to another - including outright
bans in Birmingham, Bloomfield Hills and Livonia. Ferndale, Roseville
and Walled Lake have been receptive, Moffett said.

David Price recently opened a retail space for his business, Cannabis
Connection, in Warren to distribute medical marijuana to people
certified to acquire it. He opened the business in Warren after being
turned down by roughly 70 landlords in Sterling Heights.

"I covered that city and talked to so many landlords, and nobody was
willing to work with a medical-marijuana business," he said. "They
wouldn't take that chance, even with most of the rent up-front.

"They said they were worried about the stigma, worried about giving
the other tenants a bad name."

For Dominic Comer, the challenge was finding his way through the
regulations in Walled Lake.

This week, he will open his dispensary, Bazonzoes, a
1,000-square-foot retail space in a strip center. Opening of
Bazonzoes marks the end of a four-month effort to get an application
approved by the City of Walled Lake under its newly approved ordinance.

The trick: Comer had to have a signed lease in place before the city
would consider his request.

"It was a gamble and it was stressful to be paying for rent on a
building but not knowing if there was going to be an approval," Comer said.

Even before getting to the point of a government application, Comer
had to find a location.

"There were people who wouldn't even call us back once they knew what
we were doing with the space," Comer said.

Michael Ziecik, a principal with Southfield-based real estate
brokerage Principal Associates-GVA, said landlords who are receptive
to medical marijuana uses tend to be those who have investments in
one or two buildings as opposed to the institutional landlords with
large portfolios and higher rent.

"If you're a well-financed institutional investor, you probably won't
be interested," he said. "The thought is, this will attract law
enforcement and criminals, so why do it?

"The more mom-and-pop owner, the smaller investors who are having a
hard time leasing their buildings in places where this is accepted,
like Hazel Park and Ferndale, they're more than happy to take the lease."

Ziecik found real estate for a dispensary in Ferndale and said he
knows of several landlords willing to do such deals.

The idea of leasing space to a marijuana grower is fine, so long as
it is legal and the local government has completely agreed to the
idea along with the local community, said Gary Roberts, CEO of the
Plymouth-based DeMattia Group, a real estate ownership company with
2.5 million square feet of space under ownership and management.

"But I'd put them in a single-tenant building, not a multi-tenant
building," Roberts said. "I wouldn't want to add a special tenancy
like that where it could be disruptive to other businesses in the
mix. A situation with picketers, for example, would be a disruption
other businesses shouldn't have to deal with."

In Greene's case, the landlord was more than happy to do the deal,
but the city wasn't.

He proposed to lease a 23,000-square-foot warehouse at 2521 Torquay
in Royal Oak, a property delinquent on its loan and at risk of foreclosure.

Greene planned to grow medical marijuana in the warehouse and then
create a series of sub-divided spaces in the warehouse to sublease
out to other growers.

Royal Oak was one of many local governments that filed a moratorium
on medical marijuana uses shortly after the measure passed in November 2008.

After a public hearing packed with residents Aug. 9, the city
commission Aug. 12 decided not to give Greene a variance from the
moratorium, opting to continue studying the issue.

Despite recent raids of dispensaries in Oakland County, Comer said
he's not afraid of any legal repercussions.

"I'm not nervous at all," he said. "I'm doing this the right way,
doing it by the rules, and it's going to pay off in the future."