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

Access to capital is still the No. 1 hurdle in marijauana industrial development, NAIOP panelists say

TRD CHICAGO /
May.May 23, 2019 01:00 PM
Wendy Berger

Wendy Berger

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.


Related Articles

arrow_forward_ios
Cars.com CEO Alex Vetter and the building (Credit: Google Maps)

Cars.com wants to shrink its space at West Loop HQ

Cars.com wants to shrink its space at West Loop HQ
Thor Equities’ Joseph Sitt and Palmer House Hilton at 17 East Monroe Street (Google Maps)

Thor’s Palmer House hit with $300M+ foreclosure suit

Thor’s Palmer House hit with $300M+ foreclosure suit
Mark Zuckerberg and Facebook's proposed data center in Dekalb (Mandel Ngan/AFP/Getty)

Facebook is set to build an $800M server farm outside Chicago

Facebook is set to build an $800M server farm outside Chicago
Cook County Assessor Fritz Kaegi and downtown Evanston

Cook County landlords get bad news about 2020 taxes

Cook County landlords get bad news about 2020 taxes
Joe Sitt and 905 W. Fulton Market (Credit: Thor Equities)

Thor Equities’ big bet on Fulton Market is paying off

Thor Equities’ big bet on Fulton Market is paying off
Ald. Walter Burnett (27th)

Alderman Burnett to lift ban on resi development in Fulton Market

Alderman Burnett to lift ban on resi development in Fulton Market
Amazon CEO Jeff Bezos with 4306 120th Ave. in Kenosha and 23700 W. Bluff Road in Channahon (Credit: Getty Images; Google Maps)

Amazon is at it again in Chicago

Amazon is at it again in Chicago
 Clockwise from left: 315 S. Hicks Road in Palatine; 4000 S. Racine Ave. in Chicago; 1600 North Boudreau Road in Manento (Credit: Google Maps)

Vacancy rate dips for Chicago’s bulletproof industrial market in Q1

Vacancy rate dips for Chicago’s bulletproof industrial market in Q1
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...