The Sinreich Group

Attorneys at Law

(212) 317-1131

The Sinreich Group is a New York City based real estate law firm that represents public and private sector clients in connection with the acquisition, development, leasing, financing, repositioning and disposition of real estate throughout the country.

Filtering by Category: Fun Stuff

In the Weed(s)

As we continue to focus on the 2020 lease (see Envisioning the 2020 Lease), we have realized that there is a whole new category of uses that some commercial landlords and tenants are engaging in, but that no commercial lease we have ever seen contemplates or permits.  

Those uses are the growth, distribution and retail sale of marijuana.  

An Emerging Opportunity

Thus, apropos of our focus on crafting leases that withstand the test of time and meet the evolving needs of commercial landlords and tenants, we began to consider what a commercial lease for a marijuana-related use should look like.      
 
Our research quickly brought us to the threshold question of whether it is “legal” to lease commercial property for one or more marijuana-related purposes. Here's what we learned.

Federal vs State Law

Although a number of states have legalized marijuana for medical and in some cases recreational purposes, federal law still classifies such activities as a criminal offense. In addition to prohibitions on the cultivation, sale and possession of marijuana, federal law forbids a wide range of related activities including knowingly leasing, renting, maintaining, managing or controlling a place where marijuana is manufactured or sold, and facilitating financial transactions involving funds derived from manufacturing or selling marijuana.

The Department of Justice has acknowledged that enforcement of these federal laws is not a high priority when marijuana-related activities comply with state laws if those state laws guard against threats to public safety, such as the sale of marijuana to minors. However, the Department of Justice has made it clear that there is no assurance against enforcement.  

In addition, civil suits for damages, injunctions and other remedies based on federal law are beginning to make their way through the courts, including a Colorado case charging a multitude of defendants with violation of federal racketeering laws for leasing, renovating and financing a commercial marijuana dispensary. 

Caution Advised

Once we got into the weeds (pun intended) on the legality of marijuana-related property uses, it became clear to us that if you are leasing, renovating or financing property for the cultivation, distribution or use of marijuana you are violating federal law and could be subject to criminal enforcement and civil damages, notwithstanding compliance with state law. And this doesn't just apply to the landlord and tenant; it applies to the attorneys, accountants, contractors, brokers and lenders as well.

Thus, until there is a clear-cut resolution to the dichotomy between increasingly common state laws permitting marijuana cultivation, distribution and use and well-established federal law prohibiting these activities, we will be advising our clients to proceed with extreme caution before they pursue the potential value creation opportunities of this market trend.

So much for being flexible, at least in this case. 

Basketball & Buildings

Not only did the San Antonio Spurs win the 2014 NBA Championship, but Texas is hitting 3-pointers when it comes to economic growth.

The real estate industry is no exception, with our Texas clients reporting tremendous demand in all sectors. Developers ranging from global institutions to local entrepreneurs are participating in a building boom where speculative projects are fully leased before construction is complete.

Big Tex, mascot of the annual State Fair of Texas

Big Tex, mascot of the annual State Fair of Texas

In addition to the anecdotal evidence we've been collecting, here are some facts on the Texas boom, many of which were reported in a recent article in Urban Land, the magazine of the Urban Land Institute (ULI):

Population: Big cities and small towns throughout Texas are outpacing most other areas of the country in terms of population growth. Houston's head count increased more than any other U.S. city between 2012 and 2013, with an addition of 137,692 people, while Austin won the top spot on Forbes' annual list of America's Fastest Growing Cities for the past three years with a population growth rate of 3% in 2013. The 2013 addition of over 100,000 people to the Dallas-Fort Worth population made that metro area the fourth largest in the nation. Small cities in Texas are also growing rapidly, with Odessa and Midland in West Texas enjoying the second and third largest percentage of population growth of all cities in the U.S. with under 200,000 people.

Employment: Population growth typically follows employment opportunities and this holds true for Texas. 1.2 million jobs were added in Texas over the past four years, bringing its unemployment rate in April to 5.2% as compared to the national rate of 6.3%. Job creation has not been limited to the energy sector, where it's been especially strong. There have been significant gains in construction, insurance, finance, technology and service sector jobs as well.

Housing: If you've got people and jobs, housing can't be far behind. Houston led the nation with 28,339 housing starts in 2013, followed by Dallas in second place. Austin and San Antonio were not far behind, also placing in the top ten.  

Office Construction: Houston, with a vacancy rate hovering around 1% for Class A office space, has 30 office buildings under construction in addition to ExxonMobil's three million square foot corporate campus project. Once again, not far behind is Dallas, where State Farm is building a 1.5 million square foot office campus in the suburb of Richardson.
 
Infrastructure: The explosive growth in people, jobs and housing means that Texas infrastructure will also have to grow. We are happy to report that Texas also takes the lead when it comes to renewable energy transmission. 3,600 miles of high-power transmission lines were recently completed, with the capacity to connect up to 18,000 megawatts of wind power generated in the windy west Texas Panhandle to the high-density areas of Houston, Dallas-Fort Worth and Austin.  

Go Texas go!      

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