The strict regulations pertaining to marijuana growing operations along with the needs of the grower (for substantial power and water) have resulted in industrial areas becoming the preferred type of real estate for this up-and-coming industry. Thus, as business has boomed (first with medical marijuana operations and now with recreational ones), the demand for such properties has increased exponentially, causing both purchase prices and rents to skyrocket above actual market rates.

Many real estate investors are leaping at the chance to profit from this burgeoning industry, but it is important to keep in mind that the current above-market rents are not sustainable in the long term. Inevitably, as the industry gains more firm footing, it will operate similarly to the tobacco and alcohol industries and both lease rates and purchase prices will realign with the market rates. Savvy investors know that the question is not if this will occur, but when.

In the meantime, the flexibility, speed, and minimal red tape of hard money loans can help borrowers cash in on these deals before they’re gone.

•  Flexible. Hard money lenders are willing to work with their borrowers to arrange terms that suit each particular deal or set of circumstances. They are not restricted by the same Federal regulations that tie the hands of conventional lenders. While most hard money loans are short-term ones, many offer the possibility of renewal if the borrower needs more time to arrange exit strategy financing (which can be especially beneficial to owners of marijuana-tenanted properties who are waiting for the banking system to come around). Additionally, for borrowers who want to purchase a distressed industrial property and make improvements to it in order to attract marijuana tenants, hard money lenders are often willing to use “as completed” values in order to determine loan amounts, which gives the borrower more financing to put towards either the purchase price or the planned improvements.
• Speed. Hard money lenders are known for their ability to close loans quickly and efficiently. Most reputable lenders can process loans in as little as three weeks, from initial receipt of application information to the final closing. This is beneficial to those wanting to reap the financial rewards of the current rents for marijuana-tenant properties as they can be assured of getting their financing quickly enough to take advantage of a good deal. Check out our other blogs for more about how to speed up your hard money loan application.
• Minimal red tape. Compared to banks and other institutional lenders, most hard money lenders have little to no red tape. Borrowers are able to deal directly with the decision-maker rather than a middle-man who reports to a committee. Hard money lenders also require much less paperwork and financial documentation than conventional lenders. They focus solely on the property at hand without having to consider the borrower’s global financial picture or their debt-service coverage. Because they use an asset-based underwriting process, the property itself is the focus of their due diligence. The lack of red tape is beneficial to owners of marijuana-tenanted properties because it means that if the hard money lender is willing to lend on properties with marijuana tenants, there isn’t a behind-the-scenes committee that will come back later and reject the loan.

While no one can be sure how long the current marijuana-tenant bubble will last for industrial real estate in Colorado, borrowers can be sure that many hard money lenders are ready and willing to bridge the financing gap and help savvy investors and property owners take advantage of these ephemeral deals.

Please note: While Montegra offers financing for marijuana-tenanted properties, we are unable to finance loans to borrowers who are directly involved in the marijuana industry.