This story was reprinted with permission from Crain’s Detroit and written by Kirk Pinho.
There’s no second-floor bathroom although the floor, lighting, electrical, and plumbing are new throughout.
The roof appears to be in good shape. It’s two doors down from a mainstay downtown Pontiac watering hole and, sandwiched in between the two, you have an option to purchase another building for expansion if you want.
None of that, however, is truly driving the $3.75 million asking price for 81 N. Saginaw St. Clocking in at $1,563 per square foot, it’s among the highest known per-square-foot sale prices currently on the market for the property of any type in metro Detroit, according to a review of listings on CoStar Group Inc., a Washington, D.C-based real estate information service — and there’s a reason why.
The building just north of Huron Street in the heart of downtown is allowed to have one of the five medical cannabis licenses issued in the Oakland County seat’s central business district. The other four locations with downtown licenses are Common Citizen (17 S. Saginaw St.); Zenith Ventures LLC (22 N. Saginaw St.); and RTMC Enterprises Inc. (123 N. Saginaw St. and 10-12 W. Pike St.).
So while the two-story building, which is just 2,400 square feet, is just a shade over the median size of a new single-family home, you have to go beyond just its bricks and mortar to grasp its true value, said Harry Greenspan, one of the building’s owners and the licensee for The Flower Chop medical cannabis business.
“There was not an exact science to it,” Greenspan said of determining the asking price. “But I can tell you it was predicated on location, and that we would be first to open by at least three months, but probably closer to six.”
But Pontiac is well behind the times.
It took years of political infighting, lawsuits, and other battles just to get rules on the books and licenses issued for medical marijuana — nearly a decade and a half after Michigan voters green-lit its use and sale in the state in the first place.
And now, Greenspan says, it’s taking too long for Pontiac officials to draw up rules on recreational dispensaries, meaning that the city is still years behind other communities — and The Flower Chop is, for all intents and purposes, functionally obsolete when users can drive not too far away and secure recreational marijuana elsewhere.
“The problem is now is that the medical model, since 2019, is a broken business model,” Greenspan said.
Now at his wit’s end, Greenspan said he is fed up and is willing to cash out at the right price.
“I’m not pulling any punches anymore. I’m not being nice anymore,” he said.
A message was left seeking an interview with Pontiac’s mayor or deputy mayor.
With recreational licenses seemingly on the way — the timeframe, however, is anyone’s guess — Greenspan hopes that a smooth process for getting the business approved as recreational when the time comes is enough to draw some bites at the lure.
Southfield-based brokerage firm Signature Associates Inc. has the listing on the building, which includes the license for 3 Green LLC. Offers to purchase are due by Sept. 2.
Real estate investors have said in recent months that at one point, speculators had optioned as many as two dozen downtown buildings, creating a logjam in the market.
It’s not just in Pontiac where prices for properties zoned for cannabis use — those in so-called “green zones — have been eye-popping.
Detroit, which has also struggled to adopt its own rules on recreational cannabis, is another key example. (Among other things, the big real estate costs raise concerns about effectively pricing out people without as much capital, making it a business only those with deep pockets can enter.)
Marc Nassif, senior managing director in the Detroit office of appraisal company BBG, based in Dallas, said his firm has appraised 29 cannabis-related facilities in the region in the last year and a half.
BBG analyzed same-asset sales before and after approval of marijuana-related uses and those prices have gone up by multiples between 3 and 9, with industrial and growing facilities commanding higher multiples.
For example, one building sold for $8.75 per square foot in 2017 and $78.75 per square foot in 2021, with “the only material difference” being that local regulations allowed grow use there, Nassif said. In another example, a building that sold for $65 per square foot in 2017 fetched $210 per square foot 15 months later as an approved provisioning center.
“Pricing is heavily dependent upon local laws, the cannabis uses allowed and the number of locations allowed in that municipality,” Nassif said.
Real estate costs aside, the industry is also facing growing pains.
Crain’s reported earlier this month that, amid a glut of supply, prices for an ounce of recreational marijuana flower have plunged nearly three-quarters since just before the COVID-19 pandemic to $121.58, causing constricting profit margins.
David Nykanen, president of Troy-based Midwest Title LLC, whose company has insured more than $100 million in cannabis properties, said the Pontiac property fetching the asking price is likely far-fetched.
“It’s pretty well established that the recreational cannabis market is going through an adjustment period, where the supply vastly exceeds the demand, at least at the price that it was originally priced in,” Nykanen said.
“So that’s what makes that ($3.75 million) number seem more aspirational to me. I have not seen the volume of transactions in 2022 that we saw in 2021.”
Jason Kelmigian, a cannabis real estate specialist and commercial real estate broker from Signature Associates who has the listing, said the building’s turn-key condition and other factors played into the asking price.
“Another thing to consider is the owners of the property are licensed and are considering opening the store themselves,” Kelmigian said. “If they’re successful and if conservative projections for Pontiac are met, the store could be worth well over our current asking price, which if you were an operator, you may end up kicking yourself if you passed on it now.”
Nassif said, however, that price dips seen in the end-product — the marijuana — have not similarly been felt in real estate, at least not yet.
“Though end-product price points have decreased over the summer, this trend has not material shown in real estate sale prices yet.”