Real Estate Panel Discusses Cannabis, Amazon Impacts; Region’s Future Opportunities
John Jordan | May 2018
HARRISON—It’s rare indeed that the effects of Cannabis get much attention at a business event, perhaps with the exception of programs geared to either the medical or in some states law enforcement communities. But, times are definitely changing.
On May 30, the Business Council of Westchester and Fordham University’s Real Estate Institute staged a roundtable program entitled: “Real Estate’s Next Revolution—From the Amazon Effect to Cannabis Legislation” at the Fordham University Westchester Campus at 400 Westchester Ave.
The program, moderated by Madison Realty Capital Managing Director Michael Stoler, featured some frank observations from the panel participants covering a host of futuristic topics including the Amazon effect, Cannabis legislation, building design, automated vehicles, etc. The panel featured: Adam Altman, managing member of KABR Group of Ridgefield Park, NJ; Michael C. McQueeny, associate and chair of the Cannabis Practice at Genova Burns, Attorney at Law of Newark, NJ and Seth Pinsky, executive vice president, fund manager, metro emerging markets and public affairs director with RXR Realty of Uniondale, NY.
The discussion on Cannabis centered mainly on the real estate opportunities this growing but still volatile industry could provide the region in the coming years. Madison Realty’s Stoler related that Cannabis is legal for medical use in 31 states and for commercial use in nine states. However, McQueeny related that legislation varies from state to state and that the federal government still considers it illegal. While he noted that for the most part Cannabis businesses are like any other business, it differs in one key area—tax law. He noted that all segments of the Cannabis industry are impacted by the fact that Cannabis is still considered illegal by the federal government.
The chief concern for many investors, he added, “is the concern that the feds are going to come knocking on the door.” While the industry has received a number of assurances from the U.S. Department of Justice and other federal government officials that the federal government will not target Cannabis businesses operating under state law for prosecution, those legal concerns still remain.
McQueeny also pointed to Internal Revenue Code 280 E, which has some onerous penalties on illegal enterprises that could cut deeply into profits. Specifically, the IRS Code provision bars normal tax deductions for enterprises operating an illegal business. He said this questionable legal environment could give investors and commercial property owners pause in funding or signing Cannabis manufacturing or distribution firms as tenants. He noted that these “illegal” businesses are paying upwards of 60% to 70% on their gross profits, as compared to legal businesses’ corporate tax rates that run normally in the 15%-30% range.
While developers and property owners Altman and Pinsky both said that today they would opt for signing a gymnasium rather than a medical marijuana dispensary at their properties, both believe that the Cannabis industry will provide opportunities for New York City and the surrounding suburbs in the future. Both KABR Group and RXR Realty have real estate holdings in Westchester County and elsewhere in the New York metro region.
“It feels like the beginning of the end of prohibition for this space,” Altman said. Altman related that the legal and other regulatory issues with Cannabis are being resolved in “slow motion” with some states passing significant legislation, while other states continue to place very high restrictions on the industry.
However, he believes change will be coming and perhaps at a faster rate. “It feels like five years from now, we will be in a very, very different space,” he said.
McQueeny warned that those venturing into the Cannabis industry, particularly real estate investors, need to also look at their local governments to see if they will welcome this type of use. He noted that in New Jersey, municipalities when considering proposals for recreational Cannabis users have a right to “opt out” and reject these type of ventures. He noted that investors and commercial property owners need to have their “boots on the ground” in understanding local politics.
Another major topic the panel discussed was the effect Amazon and other large e-commerce retailers will have on the market. Pinsky said that Amazon has had significant beneficial impacts in terms of job creation, economic impact, etc., but has also caused displacement of its brick and mortar retail competition as well as for the real estate industry.
Pinsky reported RXR has been working with New York City on its bid for Amazon’s second headquarters and had been working with the City of New Rochelle on its Amazon HQ2 bid until the Queen City was eliminated by the on-line retailer.
Another significant opportunity for the region is distribution facilities for e-commerce concerns like Amazon. Pinsky noted that RXR is partnering with LBA Realty of Los Angeles on a major distribution project. The two firms recently purchased a 350,000-square-foot industrial development site in Maspeth (Queens) and will either redevelop the existing product or build a new modern building in order to attract Amazon or another major e-commerce firm as a tenant.
Both Altman and Pinsky said that the industrial market in the region is robust and that at present there is insufficient land in New York City for large distribution facilities. Both men also agreed that there is available land in Westchester and New Jersey for these types of uses.
One avenue Westchester could take to tap into this sector is the conversion of antiquated office space to industrial/distribution space, they noted.
Looking into their crystal balls, the panelists were bullish on Westchester and the suburbs, especially if the New York City real estate market continues to be strong in coming years.
Altman said that both driverless cars and rising real estate prices in Manhattan and Brooklyn will drive people out to the suburbs to live and work.