This Sector Is Producing Huge Yields

LOS ANGELES—While cap rates are bottoming out in nearly all product types, cannabis-related real estate is generating 11% to 15% cap rates. MJ Real Estate Investors is a new investment firm that is focusing on the emerging cannabis real estate market, which it anticipates will become its own asset class after legalization. The firm has already generated double-digit cap rates in their first transactions.

“This space offers opportunities to generate double-digit cap rates. In a cap-rate starved world where we are seeing 4% and 5% cap rates on a lot of things, this is something that will be of interest to a lot of people,” Mark Paul, co-founder and CEO, tells GlobeSt.com. “We have done several deals now at double-digit cap rates, producing yields in the 11% to 15% range without investors having to invest at the company level. We are not growers; we are not cultivators; we are not dispensary owners. We are purely commercial real estate owners and landlords.”

These cap rates won't remain high for long, however. As we approach legalization, which is expected to happen this November in California and in the next few years at the federal level, cap rates are heading down. “Legalization is going to drive cap rates down, so we are buying at 11% to 15% now,” Jeff McGuire, co-founder and president, tells GlobeSt.com. “As we move more toward legalization, we expect cap rates will go down as demand increases. We see an opportunity now to buy while we can still obtain these double-digit cap rates.”

Still after legalization, there will be a period of time before a regulatory board is in place that will allow the firm to build a portfolio and these 11% to 15% cap rates. McGuire says that they believe the next two years will be the best time for acquisitions. “We believe the best opportunities are in the next 12 to 24 months,” he adds. “Our investors are private investors, so we don't have an expiration on when their interest will close. We want to find the right properties.”

Finding the right property follows the same analysis that an investor uses to determine if an industrial or retail asset is a good investment. “Like all asset classes, you look at the dynamics of the market and how your tenant fits in the marketplace,” says McGuire. “In the cannabis space, we look at the location of the property and make sure that the tenant has a market dominant position in the market. We are starting to see that some of the growers that did not have market dominant positions sold their businesses or formed joint ventures with larger companies that are in more market dominant positions. We try to do extensive due diligence.”

LOS ANGELES—While cap rates are bottoming out in nearly all product types, cannabis-related real estate is generating 11% to 15% cap rates. MJ Real Estate Investors is a new investment firm that is focusing on the emerging cannabis real estate market, which it anticipates will become its own asset class after legalization. The firm has already generated double-digit cap rates in their first transactions.

“This space offers opportunities to generate double-digit cap rates. In a cap-rate starved world where we are seeing 4% and 5% cap rates on a lot of things, this is something that will be of interest to a lot of people,” Mark Paul, co-founder and CEO, tells GlobeSt.com. “We have done several deals now at double-digit cap rates, producing yields in the 11% to 15% range without investors having to invest at the company level. We are not growers; we are not cultivators; we are not dispensary owners. We are purely commercial real estate owners and landlords.”

These cap rates won't remain high for long, however. As we approach legalization, which is expected to happen this November in California and in the next few years at the federal level, cap rates are heading down. “Legalization is going to drive cap rates down, so we are buying at 11% to 15% now,” Jeff McGuire, co-founder and president, tells GlobeSt.com. “As we move more toward legalization, we expect cap rates will go down as demand increases. We see an opportunity now to buy while we can still obtain these double-digit cap rates.”

Still after legalization, there will be a period of time before a regulatory board is in place that will allow the firm to build a portfolio and these 11% to 15% cap rates. McGuire says that they believe the next two years will be the best time for acquisitions. “We believe the best opportunities are in the next 12 to 24 months,” he adds. “Our investors are private investors, so we don't have an expiration on when their interest will close. We want to find the right properties.”

Finding the right property follows the same analysis that an investor uses to determine if an industrial or retail asset is a good investment. “Like all asset classes, you look at the dynamics of the market and how your tenant fits in the marketplace,” says McGuire. “In the cannabis space, we look at the location of the property and make sure that the tenant has a market dominant position in the market. We are starting to see that some of the growers that did not have market dominant positions sold their businesses or formed joint ventures with larger companies that are in more market dominant positions. We try to do extensive due diligence.”