Pubdate: Fri, 03 Feb 2012 Source: Lansing State Journal (MI) Copyright: 2012 Lansing State Journal Contact: http://mapinc.org/url/qbTWpGoq Website: http://www.lansingstatejournal.com/ Details: http://www.mapinc.org/media/232 Author: Lindsay VanHulle RISE AND FALL: LEGAL MUDDLE OF MARIJUANA DISPENSARIES WEAKENS MARKET Ryan Basore knows all about risk. For more than a year, he ran a medical marijuana dispensary on East Michigan Avenue, occupying that tenuous place between legality and lawlessness, a Wild West entrepreneur. Basore and his business partner found a vacant building near the corner of Michigan and Magnolia Avenue, paid tens of thousands of dollars of their own money to upgrade it and signed a multi-year lease to open Capital City Caregivers on the ground floor. And he abruptly shut it down one day last August, the day a Michigan Court of Appeals panel ruled dispensaries violated state law. Like Basore, many other dispensary owners heeded attorneys' advice and closed their doors. Signs advertising vacant space again appeared in windows along the avenue, a high-profile stretch of road that had become the public face of the medical marijuana debate. Their sudden rise and fall exacerbated an already-weakened commercial real estate market, analysts say, by creating a glut of available property that demand couldn't immediately fill - thus driving down rent and leaving landlords without a reliable source of revenue. Today, some of the former dispensaries' spaces remain empty even as industry experts point to surging commercial interest in Lansing-area property - hope, they say, that the sector is about to post some real gains. "Landlords were just drooling over (dispensaries') interest because there was actually competition for like spaces, offers above asking rates," said Jim Vlahakis, owner of NAI Mid-Michigan Vlahakis Commercial, a local real estate firm. "For the same reason it impacted the market when they came in, it's going to have the opposite effect when they leave." Among first to open It's hard to say exactly how many dispensaries closed after the ruling, which said patient-to-patient sales of marijuana were illegal under Michigan's 2008 voter-approved medical marijuana law, because it's hard to know how many were operating. At least a dozen of the 48 dispensaries believed to have been operating in Lansing listed addresses on Michigan Avenue. Capital City Caregivers was one of the first. Basore said his team spent close to $45,000 to upgrade the building at 2208 E. Michigan Ave., including lighting and security. Rent, he said, ran close to $3,300 a month. He signed a three-year lease. At the time, income - Basore calls it donations - were enough to cover rent and compensation for nine employees. When he closed, Basore said he sold everything to pay his final bills. He broke his lease early. "It was a bad investment," he said flatly. "It was a high-risk, low-reward situation." Legal tightrope Vlahakis had advised property owners not to sign leases with dispensaries, anticipating that the legal tightrope they walked eventually would buckle. Yet many did. When Basore approached her, Coleen Karakitsos said, she was concerned about the effect his dispensary might have on her ability to rent an upstairs unit. It eventually went to a related business selling grow supplies. But Basore had a plan. He was well-funded, she said, and he took care of the building. Rent was never late. "They were probably the most responsible tenants I've had in a long time," Karakitsos said. She hasn't filled the unit since Capital City Caregivers left in August. Several prospective tenants have inquired - an undertaker, a salon, a yoga studio - but they haven't signed a lease. Karakitsos considers her building, once home to her husband's medical practice, at the higher end of the market given recent upgrades. Plus, it has parking. That the dispensaries are gone "depresses the industry," said Karakitsos, also a real estate agent for Okemos-based Vlahakis Cos., which is not affiliated with Jim Vlahakis. "If you have few vacancies, then landlords can charge more and they can make repairs and upgrade the property," she said. "If, however, there are a ton of vacancies, landlords are forced to charge what the market will bear, and frequently it isn't enough." 'A common problem' Patrick Lindemann, Ingham County's drain commissioner, owns a building on East Michigan Avenue. The previous tenant was Capitol City Compassion Club, another now-closed dispensary. As recently as last month, Lindemann owed more than $10,000 in back taxes and fees on the property. He since has paid the delinquent amount, but said the loss in revenue meant he had to decide whether to pay taxes or fund necessary repairs that could help him find a new tenant. "This is a common problem when you have a depressed economy," Lindemann said. "One of the things we don't want to do to our inner cities is have all these vacancies." Some improvement In October 2010, the most recent data available, Jim Vlahakis' company estimated Lansing-area vacancy rates at 12 percent to 26 percent for office space and 8 percent to 12 percent for retail centers. Those figures have improved by as much as 5 percent today, Vlahakis said, driven by an influx of interest from outside of the region since the last quarter of 2011. As supply is snatched up, demand and rent prices should rise, said Jeff Burke, an associate broker with Keller-Williams Realty and president of the Greater Lansing Association of Realtors. "Since the first of the year, the phones have definitely been ringing off the hook for commercial," Burke said. "Will that continue all year long? Man, I hope." - ---------------------------- [sidebar] Vacancy rates An October 2010 Lansing-area market report from NAI Mid-Michigan Vlahakis Commercial showed vacancy rates for several different types of commercial real estate. The figures are the most recent available. Owner Jim Vlahakis said the figures below are 3 percent to 5 percent better today: - Downtown office space (property in a city's central business district): 12 percent to 22 percent vacant - Suburban office space (buildings and corporate parks not in city limits): 12 percent to 26 percent vacant - Industrial space: 14 percent vacant for high-tech and research and development; 18 percent vacant for bulk warehouse and manufacturing - Retail: 8 percent vacant for downtown property and community power centers, or shopping centers from 250,000 to 600,000 square feet; 12 percent vacant for regional malls and neighborhood service centers, or shopping centers from 75,000 to 250,000 square feet Source: NAI Mid-Michigan Vlahakis Commercial - --- MAP posted-by: Richard R Smith Jr.