Archives for 2019

NAR Forum Asks if Marijuana Legalization Presents a Business Opportunity or Headache

November 13, 2019 by CARNM

Industry and legal experts weighed in on the expanding state-level legalization of marijuana and its impact on Realtors® and real estate markets this weekend in San Francisco, Calif. The forum, “Marijuana Legalization: Business Headache or Opportunity?” welcomed Megan Booth, director of federal housing and commercial policy for the National Association of Realtors®; Rick Payne, president & CEO of Cannabis Real Estate Consultants; and Neil Kalin, assistant general counsel for the California Association of Realtors®
“As of today, 14 states have approved adult use cannabis, while a total of 33 states and territories have some form of comprehensive public legal medical marijuana,” Booth said at the event held as part of the 2019 REALTORS® Conference & Expo. “So why do we care? Because marijuana has to be grown, processed, distributed and used on real property. Every property type that’s out there, marijuana laws are impacting.”
Booth opened the forum by noting that signals from the Trump administration indicate that the federal government will not prosecute state-legal marijuana entities.
“I think that provides some comfort, I don’t think it provides all the comfort. There is still a federal law called civil asset forfeiture that allows the federal government to seize any property associated with an illegal activity. That’s something you should know if you get involved with cannabis businesses,” Booth said. “It is not very often used by the federal government for state-legal activities and I don’t think it is a tool the federal government will use randomly.”
Booth noted that while NAR does not have official policy on marijuana legalization, it does have defined policy on cannabis banking. “Right now, businesses in a state that has legal marijuana – because they remain illegal under federal law – do not have access to FDIC-insured banks. This means they can’t accept credit cards and most of their businesses run in cash,” she continued.
Of particular importance to NAR members, Booth noted, is the added liability of operating with cash-only businesses that are exposed to added risks and security concerns not typically applicable to traditional entities.
As a result, NAR has lobbied on behalf of H.R. 1595, the Secure and Fair Enforcement Banking Act, which overwhelmingly passed the House of Representatives on September 25 of this year.
“It is apparent that the state-legal cannabis industry’s connection to other markets – including real estate – will continue to grow in the coming years,” then-NAR president John Smaby said following the House vote. “With current laws keeping the industry’s money out of America’s banking system, our nation is jeopardizing economic growth while forfeiting critical opportunities for oversight and transparency.”
Payne, who founded Cannabis Real Estate Consultants after recognizing a void in the industry for knowledgeable commercial real estate professionals, said his company has refocused its attention on local regulatory policy. The firm recently opened a compliance division which evaluates potentially impactful regulations on the state and local levels.
“The reality is that the federal government could at any point in time decide to enforce this issue,” said Payne, who has been in the cannabis industry since 2011. Today, his company offers guidance on the complexities associated with finding legally compliant locations and preparing them for the intended cannabis use.
In addition, Kalin offered guidance to Realtors® working with clients involved in the cannabis industry.
“On the federal side, there is no way to minimize risk. So you have to ask yourself, are you willing to live and work in a field where you are subject to federal prosecution?” Kalin asked the group of roughly 100 NAR members on Sunday afternoon.
Kalin also stressed the importance of ensuring clients understand and have a plan surrounding their management of what essentially amounts to an all-cash business. “What are you going to do with the money that you’re making – are you going to keep it in a drawer in a back room? Are you going to purchase a safe? Are you going to try and find some sort of entity to hold the money? Because you’re not likely to find an FDIC bank that is willing to do so,” he concluded. “If the client is unsophisticated, you’re going to have to research this area and figure it out.”
The National Association of Realtors® is America’s largest trade association, representing 1.4 million members involved in all aspects of the residential and commercial real estate industries.
By: NAR
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November 2019 CCIM Deal Making Session Properties

November 13, 2019 by CARNM

Thanks to all of the brokers, sponsors, and guests who attended the November 2019 CCIM NM Deal Making Session & Forum and to those who shared their properties.

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Click here to view the Thank Yous.

	Name	Property, City	Type	Price
1.	Matt Butkus Sal Perdomo Trevor Hatchell	Westpointe 40: I-40 and 98^th St Albuquerque	Land	See Agent
2.	Martha Carpenter Cheryl Bonner	8524 Indian School Rd NE Albuquerque	Industrial	$980,000
3.	Coralee Quintana	428 Los Lentes Rd SE Los Lunas	Office	$999,000
4.	Randy McMillan, CCIM, SIOR	2805 Roadrunner Pkwy Las Cruces	Office	$8,584,286
5.	Randy McMillan, CCIM, SIOR	2115 College St Las Cruces	Multifamily	$1,050,789

Low U.S. Interest Rates Are Fueling a Bubble in Commercial Real Estate

November 7, 2019 by CARNM

The question is not if, but when that bubble will pop.

At their October meeting, Federal Reserve officials once again cut interest rates. The central benchmark rate fell from 1.75 percent to 1.50 percent. The 180-degree interest rate turn continues. It seems like a lifetime, but only a year ago, the Fed indicated rates would steadily increase.

Now, central banks around the world are ramping up stimulus measures amid cooling global growth.

Interest rates are below zero in the Eurozone, Denmark, Japan, Sweden and Switzerland.
The odd change of course by the Fed is mysterious during one of the best economic environments in our lifetime.
Let’s be clear: interest rates are too low already. The U.S. economy is doing fine—it is growing, and unemployment is low. Why the Fed believes it needs a jolt of adrenaline in the form of cheap credit is unclear and eventually will have unintended consequences.

Hunt for yield

Individuals who would typically put their money into certificates of deposit (CDs), money market funds, or Treasury bonds—the population of savers and investors whose ranks are growing as society ages and demands fixed-income investments—cannot get the returns to which they are accustomed via those vehicles. They are turning to more exotic investments in the hope for yield. Inadvertently or not, they are taking on more risk to generate the same returns.

As a result, a flood of money is flowing into “hard” assets, including commercial real estate and gold, driving up prices of the former to levels that now can be viewed as overvalued. The result is a “low interest rate asset bubble.”
If interest rates continue to fall, people will continue with this behavior and real estate values (and gold prices) will continue to rise. When, not if, interest rates revert to the mean, high real estate values will fall.
It is impossible to say when this will happen, or what the catalyst for higher interest rates will be. The triggering event will likely be unforeseeable and outside of our control—events overseas, inflation, corporate bond defaults, or the U.S. no longer being the world’s reserve currency.
It’s conceivable that interest rates may remain low for another five to 10 years (see Japan), in which case long-term investors will be fine, until they are not. But if you are a trader, fund, or merchant builder with a shorter investment horizon, you risk being caught in the wrong place at the wrong time.

Uncharted waters: proceed with extreme caution

U.S. interest rates will not stay low forever and investors must prepare for their eventual rise. We are in uncharted waters and must proceed with extreme caution. To protect themselves, investors would do well to stress-test each investment they consider using the 20-year average cap rate in their exit analysis vs. today’s low cap rates. This ensures that if rates do not rise, as in a worst-case scenario, they will do better than pro forma.
A conservative approach means saying “no” to many more opportunities than in years past. It means a lower “hit” ratio and working twice as hard to find investments that pencil out.
The approach we recommend is:

Stay in the real estate market with more conservative strategies, which do not include high leverage to mask the real equity return.
Avoid strategies that are dependent on leverage as there is a large hidden risk in using leverage to generate returns.
Be prepared to take advantage of the market opportunities when cracks begin to emerge.

By: Jay Rollins (NREI)
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Cannabis Industry Jargon Tangles Real Estate and Insurance Ops

November 4, 2019 by CARNM

Real estate operators and insurers are trying to keep pace with the evolving cannabis industry and corresponding jargon crucial to operating their businesses.

Real estate operators and insurers are trying to keep up with the quickly evolving cannabis industry as quickly as bills stack in congress for national legalization of cannabis, as well as changes to jargon crucial to operating their businesses compliantly, according to panelists on a Claims Magazine and GlobeSt.com webinar looking at the insurance and real estate implications of cannabis-touching companies, “Legalized Cannabis is Big Business.” (Click the hyperlink to listen)

Exposure to government risk is the biggest challenge for cannabis touching companies and as jargon changes to protect municipality interests companies have to adapt their operations to make sure they’re in compliance with local and federal law in underwriting real estate and insurance policy.
The evolving industry lingo is a challenge for the entrepreneurial groups entering the arena who strive to stay abreast of regulatory requirements, according to Kieran O’Rourke, vice president and director of underwriting at Cannasure Insurance Services. “The jargon of this industry and space can sometimes lead to some confusion and miscommunication,” he said. “We follow the market we can’t control it, it controls us.”
Policy changes month-to-month mean new entrants need insurance brokers and real estate deal makers who can keep up with rapid change, especially because coverage is difficult to come by, which is daunting to a new entrant, according to Steven Sherman, J.D., vice president of the cannabis risk group at PSA Insurance and Financial Services. “It’s frustrating you cannot get coverage on market properties that you would typically get in the marketplace,” he said.
Cannabis companies and real estate operators face an added set of challenges when securing financing, extending beyond industry lingo important to underwriting a loan. Simply paying for real estate through a bank account could pose a challenge, according to Stanley Jutkowitz, senior counsel at Seyfarth Shaw. “Most cannabis companies think they cannot bank a cannabis permissible business,” he said. “I’ve had to negotiate a provision in a lease that the tenant pays through a bank account, which can become a major issue in some cases.”
A majority of banks don’t want to lend on cannabis businesses, so it leaves the door open for private lenders, family offices and private equity firms to do so, and at a premium because of the risks involved, which adds another layer of legalese to sift through. However, added rules are no cause to run, as long as the borrower is consistently compliant to defined the guidelines, according to Jutkowitz. “If you follow the rules, in my view these risks are more academic than real,” he said.
As the cannabis industry matures overtime, the challenges associated with legal ambiguity and operations will change. The rough tides are expected because the industry is still in its early stages, according to Taite McDonald, a partner at Holland Knight. “Marijuana and the new development of a commodity crop is the biggest thing to happen to the USDA and agriculture community since corn, she said.
News headlines and a changing congressional outlook about federal marijuana legalization has led to market sensitivity and volatility. And while all of this change is taking place, cannabis operators need the ancillary aspects of federal and local law ironed out on pace with the industry, McDonald said. “This is going to be an evolving industry that needs to be tracked legally, and on a diligent basis,” she said.
By: Mariah Brown (GlobeSt)
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