Pretend you're the landlord...I've got a question for you.

I want you to put on your landlord shoes for a minute.  Imagine you own a retail shopping center with maybe 5-10 tenants of various categories.  Your center is almost always fully leased but recently you've had a 1,500 square foot space come vacant.  You've been marketing your vacancy for about three months with lukewarm interest from the market.  A broker brings an offer to you from a tenant you've never heard of but they're willing to sign a personal guarantee and have plenty of cash in the bank.  The offer is for your asking rate, your asking terms, and your ideal length of lease.  In essence, it is the perfect offer.  The broker gives you the following description of who the mystery tenant is:

• They offer your asking rate, ask for no concessions, agree to your terms, and even agree to higher than market rent increases after the initial term.
• This type of tenant is new to the market with various different versions of the same business model popping up everywhere.  Think of something like the burger trend that has been sweeping the nation lately, with seemingly endless brand names opening up in just about every market.  
• The industry they are in is booming.  The expansion possibilities and overall market cap for this type of tenant is through the roof and far from realized.
• There are over 100 of this type of store in the Seattle area alone.
• They average about 50-250 customers a day from all different socioeconomic backgrounds with each customer spending about ten minutes in the store, leaving your parking lot available for other tenants throughout the day.
• They operate during regular business hours.
• Everything they sell is 100% legal.  
• This tenant is located in numerous states, but since they sell some products that are only allowed by certain states, they are not in every state yet.  Just in case the state your shopping center is in decides not to allow this product to be sold at some point in the future, this prospective tenant is willing to agree to a clause in the lease that says they will vacate immediately and leave the space in the condition it was previously in if that were to happen.  
• This new tenant does not violate any of the exclusivity rights of your existing tenants within the shopping center.

How does that sound?  Would you agree to the deal?

Now what if I told you they were a medical marijuana dispensary?  Did a lot of you just put your hand down?  You're not alone.  Across the country, and even in the supposed liberal world of Seattle and Northwest Washington, landlords are not just turning their back, but literally running away from medical marijuana tenants despite an overwhelming case for them.

I recently had an experience where an all cash buyer that I was representing put an offer in on a small, stand-alone building in a city a little south of Seattle.  The offer had a really short due diligence period to allow for the money to be wired and the buyers to take a quick peak inside.  They already had the tenant lined up and verbally agreed to a new 5 year lease at market rents, now they just had to close on the building.  A couple of days passed and the Seller's broker calls to inform me that they will not accept the offer because they "don't want their father's legacy tainted."  Their father had originally purchased the building and when he passed, it was given to his children.  Obviously, the transaction ended immediately and I'm still out looking for a similar property for my buyer clients.

This is a rather extreme case, but all over the nation right now, landlords are turning down fantastic offers from these dispensaries.  Most often, the reason is that they fear other tenants will vacate or it will make the center look bad, or the smell will be overwhelming.  The most common excuse I hear is something to the effect of, "why would I want a tenant that could not be allowed to operate their business today, tomorrow, in a year, or ten years from now?"  I usually respond by reminding them that I didn't say the tenant was a bank.  They look confused and say something like, "well that is different."

The question to all of you is, why? If we were all robots that only made decisions based on financial outcomes, risk vs. reward, and whatever our trusty computer said to do when it printed out instructions from our chest like on the Jetsons, we would take these offers all day long.  Sure there are risks, but what  retail category doesn't carry risk right now? Furthermore, these risks can almost always be addressed by a capable attorney and a little preparation.

Think it will scare off your existing tenants?  Try asking them.  My experience has been that almost all of them could care less.  In fact, dispensaries tend to bring in a wider socioeconomic demographic than many other uses, so most tenants recognize that they will have a chance to market their goods to more different types of customers.  

Scared it will smell up your whole center?  Why don't you go visit a handful of centers that already have dispensaries.  Smell anything?  Moreover, do you notice customers going to other stores turning around and running back to their car because the smell was overwhelming?  Yes, most of the dispensaries smell when you go inside them, but have you ever been in a candle store, your local tavern, or the perfume section in department stores?  

One more thing you've probably all noticed.  Someone tells you that a dispensary has opened in your town or neighborhood.  Then somone else tells you, and then someone else.  It is weird because everyone is telling you about these new dispensaries but you haven't seen them anywhere, right?  That is because they are discrete.  They don't have to be, but a lot of the dispensaries that have opened recently are so discrete with their loction, branding, advertising, etc. that they go unnoticed.  A few months back I put a tenant into a downtown location that had a dispensary two doors down.  I visited my clients a couple months later and asked if there were any drawbacks to having a dispensary as a neighboring tenant.  Their answer was, "where?"

For more information on the debate, visit Medical Marijuana Pro Con or for a searchable map of existing dispensary locations, visit Weedmaps.com.

Neal Swanson is the managing broker and owner of Fairhaven Commercial, Inc., a commercial real estate brokerage in Seattle focused on retail leasing and investment sales.  For more information on site selection, leasing, or investment sales, please contact Neal Swanson at (206) 718-4963 or swanson@faircommercial.com.  Tosearch retail or office properties for sale or lease, please visit Fairhaven Commercial's website 24/7 here.