The cannabis industry is a hot topic in the Bay Area right now, particularly among Oakland business owners. Understandably, some small business owners are concerned about rising rents and increased competition for space. The best way to ensure that you will have affordable, accessible space for your company in the coming years is to buy your own property now, before you get priced out of your neighborhood.
Cannabis Is Here, And There’s More Where That Came From
Cannabis is a new economic force in Oakland and throughout the state. Most Californians have felt its impact in one way or another. Those that haven’t yet soon will, as retail sales of recreational cannabis and cannabis products become legal in California on January 1, 2018. These “adult sales” are different from the medical sales which have been legal in the state since 1996, and will result in a great influx of cannabis related businesses.
The City of Oakland has chosen a highly inclusive policy in regards to the cannabis industry, allowing the full cycle, from cultivating to retailing, to take place within the city limits. This has earned Oakland the title of “marijuana mecca” from Marijuana Business Magazine, as one of the seven cities of the state where the industry will be concentrated. The publication forecasts that retail sales of cannabis in California will reach $5.5-6.5 billion by 2020.
Probably the most noticeable way the cannabis industry has impacted Oakland so far is the low vacancy rates and high rents for warehouse space in Oakland’s designated “green zone” , the area where growing and processing cannabis is permitted. According to Colliers Q3 2017 report, the vacancy rate for Oakland warehouses is 1.5%. Oakland is not alone in this. The effect of cannabis on industrial real estate has been noted nationwide, and it has been felt on the Sacramento warehouse market and in Richmond as well (0.8% vacancy, according to Colliers).
Sacramento is another marijuana mecca, where “at least a handful of leases have achieved 3 to 5 times the market average where electrical power and permitting allow cannabis cultivation,” Colliers commented in its report on the Sacramento Q3 2017 warehouse market. “We expect cannabis leasing activity to extend the surge in pricing, with the spillover of demand pushing rates in neighboring submarkets.” Warehouse vacancies there fell from 6.3% to 5.3% in one year.
It is too early to say exactly how cannabis adult sales will affect Oakland’s real estate market for retail space, but other cities have seen the market become saturated quickly, and can be used as a guide. In Denver, for example, there were five times more cannabis dispensaries than Starbucks cafes by the time the city council put a cap on new operations in 2016. Retailers in Oakland are likely to have a bit of extra time to contemplate the coming of their new neighbors from the cannabis trade, since Oakland, like many California cities, looks as though it will not have a regulatory framework in place in time to allow cannabis adult sales to begin on January 1.
As of late September 2017, only 19 of California’s 58 counties and 112 of its 458 municipalities had adopted ordinances allowing adult sales of cannabis (as required by state law) and many of the cities and counties that passed ordinances, like Oakland, were still unprepared to begin sales. With hundreds of millions of dollars of tax revenue at stake, it probably won’t take long for the regulatory issues to be worked out, however.
Now Is the Time to Buy Commercial Property in Oakland
One thing is certain: cannabis retailing will increase competition on the San Francisco Bay Area’s real estate markets. If you are a business owner renting a property in Oakland, or a business owner thinking of expanding into Oakland, purchasing real estate makes more sense now than ever before. Mortgage payments can prove to be lower and more stable as the market continues to heat up.
The Small Business Administration 504 loan can help business owners seeking financing for real estate purchases. It can be used to:
- purchase commercial land or buildings
- construct buildings
- purchase equipment with a service life of ten years or more
- improve or renovate buildings
The 504 loan is administered by a Certified Development Company (CDC) such as TMC Financing, and loans are granted in conjunction with a conventional lender that provides 50% or more of the total. Your CDC facilitates the SBA loan for up to 40%, or $5 million ($5.5 million for manufacturing projects or if the project includes energy-efficiency measures), at a fixed, below-market rate. You provide 10% of the project cost as a down payment.
- 50% Conventional Lender
- 40% CDC
- 10% Borrower
It is also worth remembering, in light of the thriving real estate market, that you can lease out up to 49% of a building you buy with a 504 loan or 40% of a new construction.
This is a situation where timing matters. If you are thinking about buying commercial property in Oakland or other areas affected by the cannabis industry, it is in your best interest to act now since prices will undoubtedly be rising.
TMC Financing is an SBA Certified Premier Lender with over 35 years of experience in California and Nevada. One of our 504 loan experts would be happy to discuss your financing options using the 504 loan and to guide you through the application process. Talk to an expert at TMC Financing today.