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News (Media Awareness Project) - US MI: Rise And Fall: Legal Muddle Of Marijuana Dispensaries
Title:US MI: Rise And Fall: Legal Muddle Of Marijuana Dispensaries
Published On:2012-02-03
Source:Lansing State Journal (MI)
Fetched On:2012-02-04 06:01:39
RISE AND FALL: LEGAL MUDDLE OF MARIJUANA DISPENSARIES WEAKENS
MARKET

Ryan Basore knows all about risk. For more than a year, he ran a
medical marijuana dispensary on East Michigan Avenue, occupying that
tenuous place between legality and lawlessness, a Wild West
entrepreneur.

Basore and his business partner found a vacant building near the
corner of Michigan and Magnolia Avenue, paid tens of thousands of
dollars of their own money to upgrade it and signed a multi-year lease
to open Capital City Caregivers on the ground floor.

And he abruptly shut it down one day last August, the day a Michigan
Court of Appeals panel ruled dispensaries violated state law.

Like Basore, many other dispensary owners heeded attorneys' advice and
closed their doors. Signs advertising vacant space again appeared in
windows along the avenue, a high-profile stretch of road that had
become the public face of the medical marijuana debate.

Their sudden rise and fall exacerbated an already-weakened commercial
real estate market, analysts say, by creating a glut of available
property that demand couldn't immediately fill - thus driving down
rent and leaving landlords without a reliable source of revenue.

Today, some of the former dispensaries' spaces remain empty even as
industry experts point to surging commercial interest in Lansing-area
property - hope, they say, that the sector is about to post some real
gains.

"Landlords were just drooling over (dispensaries') interest because
there was actually competition for like spaces, offers above asking
rates," said Jim Vlahakis, owner of NAI Mid-Michigan Vlahakis
Commercial, a local real estate firm. "For the same reason it impacted
the market when they came in, it's going to have the opposite effect
when they leave."

Among first to open

It's hard to say exactly how many dispensaries closed after the
ruling, which said patient-to-patient sales of marijuana were illegal
under Michigan's 2008 voter-approved medical marijuana law, because
it's hard to know how many were operating.

At least a dozen of the 48 dispensaries believed to have been
operating in Lansing listed addresses on Michigan Avenue. Capital City
Caregivers was one of the first. Basore said his team spent close to
$45,000 to upgrade the building at 2208 E. Michigan Ave., including
lighting and security. Rent, he said, ran close to $3,300 a month. He
signed a three-year lease.

At the time, income - Basore calls it donations - were enough to cover
rent and compensation for nine employees. When he closed, Basore said
he sold everything to pay his final bills. He broke his lease early.

"It was a bad investment," he said flatly. "It was a high-risk,
low-reward situation."

Legal tightrope

Vlahakis had advised property owners not to sign leases with
dispensaries, anticipating that the legal tightrope they walked
eventually would buckle.

Yet many did. When Basore approached her, Coleen Karakitsos said, she
was concerned about the effect his dispensary might have on her
ability to rent an upstairs unit. It eventually went to a related
business selling grow supplies.

But Basore had a plan. He was well-funded, she said, and he took care
of the building. Rent was never late.

"They were probably the most responsible tenants I've had in a long
time," Karakitsos said.

She hasn't filled the unit since Capital City Caregivers left in
August. Several prospective tenants have inquired - an undertaker, a
salon, a yoga studio - but they haven't signed a lease.

Karakitsos considers her building, once home to her husband's medical
practice, at the higher end of the market given recent upgrades. Plus,
it has parking.

That the dispensaries are gone "depresses the industry," said
Karakitsos, also a real estate agent for Okemos-based Vlahakis Cos.,
which is not affiliated with Jim Vlahakis.

"If you have few vacancies, then landlords can charge more and they
can make repairs and upgrade the property," she said. "If, however,
there are a ton of vacancies, landlords are forced to charge what the
market will bear, and frequently it isn't enough."

'A common problem'

Patrick Lindemann, Ingham County's drain commissioner, owns a building
on East Michigan Avenue. The previous tenant was Capitol City
Compassion Club, another now-closed dispensary.

As recently as last month, Lindemann owed more than $10,000 in back
taxes and fees on the property.

He since has paid the delinquent amount, but said the loss in revenue
meant he had to decide whether to pay taxes or fund necessary repairs
that could help him find a new tenant.

"This is a common problem when you have a depressed economy,"
Lindemann said. "One of the things we don't want to do to our inner
cities is have all these vacancies."

Some improvement

In October 2010, the most recent data available, Jim Vlahakis' company
estimated Lansing-area vacancy rates at 12 percent to 26 percent for
office space and 8 percent to 12 percent for retail centers.

Those figures have improved by as much as 5 percent today, Vlahakis
said, driven by an influx of interest from outside of the region since
the last quarter of 2011.

As supply is snatched up, demand and rent prices should rise, said
Jeff Burke, an associate broker with Keller-Williams Realty and
president of the Greater Lansing Association of Realtors.

"Since the first of the year, the phones have definitely been ringing
off the hook for commercial," Burke said. "Will that continue all year
long? Man, I hope."

[sidebar]

Vacancy rates

An October 2010 Lansing-area market report from NAI Mid-Michigan
Vlahakis Commercial showed vacancy rates for several different types
of commercial real estate. The figures are the most recent available.
Owner Jim Vlahakis said the figures below are 3 percent to 5 percent
better today:

- Downtown office space (property in a city's central business
district): 12 percent to 22 percent vacant

- Suburban office space (buildings and corporate parks not in city
limits): 12 percent to 26 percent vacant

- Industrial space: 14 percent vacant for high-tech and research and
development; 18 percent vacant for bulk warehouse and
manufacturing

- Retail: 8 percent vacant for downtown property and community power
centers, or shopping centers from 250,000 to 600,000 square feet; 12
percent vacant for regional malls and neighborhood service centers, or
shopping centers from 75,000 to 250,000 square feet

Source: NAI Mid-Michigan Vlahakis Commercial
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