There are very specific reasons why a special-purpose Real Estate Investment Trust or REIT makes the most sense for the medical marijuana grower community.
WHAT IS A REAL ESTATE INVESTMENT TRUST (“REIT”)
A REIT describes special purpose companies that take care of the hassles of owning property in a vertical market and whose shares can be bought or sold on the public markets.
All these companies offer ways to invest in property without having to field calls from tenants with overflowing toilets. The highest-yielding stocks in the real estate universe are property-owning REITs, which are in business to collect rent and pass the money along to shareholders. (If they are careful in distributing their taxable income, they pay no corporate income tax.) There are 113 listed in the U.S. Some specialize in apartment buildings. Others own collections of shopping malls, office buildings, self-storage facilities, warehouses, mobile home lots or anything else that attracts rent-paying tenants.
All REITs have the same basic objective: buy property and put it to “higher and better use.” That means fitting in tenants with a common challenge or common need. In our case, understanding the unique construction challenges, including the interior tenant improvements, of the grower community allows us to be experts in the special-purpose requirements of grower and to create comprehensive financing options that cover all the real estate costs into one blended lease rate, including the majority of the tenant improvements.
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THE VALUE OF A REIT TO INVESTORS
REITs own dozens of properties. This heft gives them an edge in purchasing supplies and offering tenants choices. They can usually ride out with relative ease the bankruptcy of a big tenant or economic troubles in certain cities.
Since REITs retain so little of their earnings, they are constantly scrounging for new capital and must treat shareholders, analysts, and lenders well.
In our case, have a diversified portfolio across 25 states where medical marijuana is legal allows us to achieve economy of scale and singular focus on the unique construction and tenant improvement needs of this rapidly emerging market.
THE VALUE OF A REIT TO TENANTS
The primary value to tenants is the lower cost of capital and being able to free up equity from real estate and tenant improvements. The cost of equity on a venture capital or partnership fundraising is likely going to be north of 30% return on investment in terms of expected yield. Equipment leasing companies can be north of 20%, particular in a high-risk industry.
In our case, the ability to access the public markets and to create a blended lease rate that includes both the core real estate and most of the tenant improvements allows us to offer competitive lease rates well below the other high cost options.
THE VALUE OF THE GROWERS REIT TO THE MEDICAL MARIJUANA INDUSTRY
Beyond the value of the impact to your financial operations, there’s also the intangible value of how the REIT is going to help move the medical marijuana grower community out of the shadows and into the light and scrutiny of the public eye.
As part of an emerging industry, the reality is that being part of the tenant group of growers in a special-purpose REIT will give you visibility and access to the bankers who are following and shareholders who are buying the stock of the REIT. There is the ‘halo’ affect of becoming part of the publicly traded REIT stock, so it is likely to give your organization a much-needed public awareness boost which could translate into new investment banker relationship and new investor relationships.