Pot-related development is primed to take off in Illinois. So where are the investors?

Marijuana-related industrial market is primed to take off in Illinois, if only capital investors and lenders would get on board.

After expanding the state’s medical marijuana pilot program last year, Illinois lawmakers are now weighing a measure to legalize recreational marijuana. The marijuana business, which requires industrial space for cultivation and commercial space for sales, is growing. Industrial developers are working to meet this need, but access to capital is a severe hindrance in the market, experts said at a National Association of Industrial and Office Properties forum Thursday morning in Rosemont.

“There’s almost no access to traditional debt, and access to traditional capital sources is non-existent,” Wendy Berger, president and CEO of WBS Equities, said at the forum on alternative industrial uses. “There are still no institutional players.”

Marijuana real estate is already big business in states like Colorado and California, where recreational uses are legal. A similar boom could happen in Illinois, but developers will need to face a number of logistical and legal hurdles before cashing in.

The biggest hurdle to marijuana development is financing, said Berger, whose WBS owns five marijuana facilities. That is likely to change, with marijuana-focused REITS stepping in to fill a void. But until then, developers are still left turning to “friends and family” for funding, Berger said.

“We’re working a lot harder to raise equity,” she said. “Most of the deals you have to plan to go in with 100 percent equity, but [expect] outsized returns.”

Access to capital isn’t only a problem with marijuana-related development. Other specialty industrial uses, including data centers and cold storage, are costly to develop. Often, such projects need alternative funding sources if they are to be successful.

Brennan Investment Group is working on a $1 billion technology park in Elk Grove Village, a project that will likely include data centers. Those centers can be costly to build, but the project is being boosted by tax increment financing and so called “Class 6b” property tax assessment reduction incentives for industrial development.

“We worked really closely with Elk Grove Village,” said Scott McKibben, chief investment office and managing principal at Brennan. “It took a lot of time, about two-three years in the making, to get to the point where we’re able to get a TIF, get a 6b. That’s another revenue stream that helping to make the pro forma work for us.”

Adaptive re-uses and brownfield site development are also costly, but Hilco Redevelopment Partners has found success where the two intersect. Hilco’s $100 million redevelopment of the Crawford Power Plant into a 1 million-square-foot spec warehouse is an involved and costly project. Getting partners to buy into such projects can be hard, said Jeremy Grey, director of development for Hilco, but the effort is boosted by tax incentives, of which Hilco is receiving about $20 million for the power plant project.

“Trying to get the brokers and the tenants to understand the vision, when they’re seeing a coal-fired power plant with a 500-foot stack, can be a challenge from time to time,” Grey said.

With public subsidies often needed to make such projects work, developers now know they must partner with government agencies, and not merely seek approval from them. That’s especially true for a taboo, nascent industry like marijuana, Berger said.

“We all know by now you can’t walk into a municipality and say, ‘I’m this big fancy developer’ and steamroll their process,” said Berger. “We go to the municipality and say, ‘Here’s what we’d like to do.’ If they signal they are going to fight us, we go elsewhere. There’s just no time to fight it.”

The legal and financial hurdles to non-traditional industrial development can often be great, but the investment is usually worth it, the panelists said.

“You’re getting a commensurate rent for that,” McKibben said.