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Posted: July 01, 2010

Who owns Colorado: nipped in the bud

Changes in state and local regulations have cooled the marijuana dispensary rush, but pot purveyors are still keeping plenty of commercial real estate occupied

David Lewis

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On the Denver side of the border with Aurora lies Kennedy Plaza, a little strip mall. This is a bad pun because the little strip mall's anchor tenant is PT's All Nude, a topless-bottomless place that years back was a Black-eyed Pea restaurant.

Across a few yards of parking lot from PT's lies a strip of stores. Aside from the anchor tenant the little retail center has been half empty for years. An optometrist made his office there until he took on a partner with an M.D. and moved on. The sign at the space farthest from the street still says, "Palm Tree Spa," although years ago the Palm Tree Spa was put out of business by the Denver vice squad.

Love Nails and the Puppy Love Suds & Snacks pet washing shop held the fort for a long while. Then one by one, shops began to return.

Spots were filled by Acute Angle Hair Design, T&J Style, the M18 Music Studio, Satica Natural Herbal Remedies, a medical marijuana dispensary, and the Hydroponics Grow House, which specializes in indoor growing apparatus, more or less in that order.

Ironically, the offices of the Rocky Mountain High Intensity Drug Trafficking Areas, the regional coordinating narcotics law enforcement agency, lie less than a block away. Officials there said they were not aware of the nearby strip mall.

Now only the old Palm Tree Spa space, with its poor visibility from Hampden, remains to be leased.

"We've been fortunate enough ... we've had quite a few vacancies in there, but we're down to one vacancy at this point," says Robert Hudgins, broker associate with Denver-based Fuller Real Estate.

The fortunes of a lot of area commercial brokers and landlords were helped along by the absorption by dispensaries and related retail outlets of vacant space as well as land, warehouse space and more. Last year and earlier this year, you will recall, dispensaries shone hereabouts amid the wreckage of the retail real estate markets.

Denver medical marijuana dispensaries have been licensed by the city since last March. Denver charged dispensaries $5,000 in application and licensing fees, a sum said to have been based on the application and licensing fee paid Denver by adult cabarets, also $5,000.

Likewise, the state as of July 1 began requiring dispensaries (henceforth, the new state law says, to be called "Medical Marijuana Centers") to ante up a $5,000 bond preparatory to numerous additional fees and costs to come.

The bond requirement and the overall costly and confusing new state law led many observers to predict that the dispensary bubble soon would burst, leaving lots of area landlords back where they started.

As of mid-year it seemed the bubble hadn't popped but had stopped swelling. Last October, Paul Tamburello, broker associate with Denver-based Distinctive Properties, told the Denver Post he was watching a "new gold rush. ... A lot of these guys are seeing dollar signs."

Now, Tamburello says, the gold rush for commercial space has petered out.

"Part of it is how strict the legislation, the new rules, are. But most people frankly are over the hype of it, the gold rush. Get-rich-quick schemes are fleeting at best. As far as its impact on real estate, it has run its course. Dispensaries were starting to drive retail prices up; now they have slowed down enough to where I think the impact was short-lived," he says.

Tamburello also points out that he himself has never done a deal with a dispensary. "I had space available and (dispensary applicants) were calling, calling, calling, but we deliberately never did anything with them."

Some say a shakeout also could be triggered by the requirement that by Sept. 1 dispensaries must certifiably produce 70 percent of their own product. A couple of months earlier this had led to a scramble among some dispensaries to merge their retail operation with a grow-farm big enough to supply them, a business model that the Colorado Legislature apparently invented last session.

"The vertical integration concept has required shotgun weddings between dispensaries and grow operations, the result of (new law) HB 1284. We're in the throes of this like many others," says Nicholas King, co-owner of Cherry Creek-based Alpine Herbal Wellness.

King's Medical Marijuana Center is beautifully appointed and offers a variety of health products and services. King became involved when his late wife used it for her ALS. King's partner, Sue Harank, is a cancer survivor.

Apart from Harank and King, pending a shakeout, Medical Marijuana Center owners and managers and their landlords were even more close-mouthed than usual.

Indeed, your intrepid real estate reporter visited numerous dispensaries in Denver's downtown, southeast and Cherry Creek areas in search of the pulse of this vital new industry.

One dispensary manager said he had discovered his Denver offices were zoned office-residential, and the landlord was still deciding what to do. Another said he had sold his retail business and would move on to a more lucrative opportunity in medical marijuana farming elsewhere in the state.

Another said he had too many headaches serving customers and getting in front of that Sept. 1 deadline to answer any questions. Another said, "You want to know about my landlord? He's a @!#%$*."

Three landlords said, basically, the dispensaries were not their problem; vacancies were their problem.

One tenant would speak about how great her landlord was, but the landlord would not go on the record. Off the record he said his tenants were great and he was smart for picking them from scores of hopefuls for his space.

One exception is developer Jon Cook, who owns retail properties up and down South Broadway.

"These (dispensary) guys I see are good operators," Cook says. "I don't think one person has paid us one day late. I thought Starbucks paid good until I started doing business with these pot guys."
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David Lewis is a freelance writer based in Denver.

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