Pros & Cons: Building New vs. Retrofitting an Existing Building for a Marijuana Facility

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When beginning your search for marijuana real estate, there are many choices you are going to have to make. One major decision is regarding whether to build a brand new facility or retrofit an existing building. There are pros and cons to each, which we will analyze below, so you can make the decision that is right for you and your company.

Building New

Let’s begin by discussing the pros and cons of purchasing vacant land and building from scratch, instead of buying an existing building.


Pro – Less Competition

 

Vacant land is often easier to obtain, as it is generally less appealing to the average business operator. Managing a ground up development is often intimidating, and a lot of people will steer away from this when they are first starting out. This means you are more likely to find a piece of vacant land that suits your needs, in your desired location, than you are to find an available building in the same area. While vacant land may be on market for several months before the right buyer comes along, Green-Zoned buildings are being snatched up rapidly by cannabis business operators.

Depending on the location, you will probably have less competition with other buyers when submitting an offer for vacant land. The likelihood of a bidding war is lower with land than with an existing building, and you may get your dream property at a great price.

 

Pro – Customization

 

Many entrepreneurs prefer to buy land and build new due to the fact that they can customize their facilities completely. Ventilation and air filtration systems, insulated rooms, offices, retail spaces, heavy power, safes, and other security features can be built exactly where and how you want them. Your new vacant property is a blank slate, and you’ll be able to build your marijuana facility exactly as you visualize it.

 

Pro – Cost Control

 

Staying under budget is always a main concern when opening a new business, especially when making a large investment like building a facility from the ground up. The good news is, it is often easier to plan and follow a budget while building a new facility. It may cost less in the long run, as opposed to purchasing an existing building that is not retrofitted for your custom use. There aren’t as many surprise expenses, and nearly everything can be planned ahead of time, including construction costs. This allows for the creation of a very specific budget, while avoiding surprise expenses that are sometimes incurred after purchasing a building. 

Pro – Energy Efficiency

 

Most older buildings are less energy efficient, will need multiple upgrades, are not laid out to be used as any type of marijuana facility, and may have other issues that were not spotted during an inspection. A brand new building will not have these problems. Designing an energy efficient facility can save you a substantial amount of money in the long run, and typically provides a great return on investment.

 

Con – Financing Difficulties

 

Financing vacant land and the construction of a building is often more difficult than financing a building. This is true across the board for many different types of real estate, not just cannabis. A lender is going to want to see that you have experience in ground up development, and a solid game plan for getting the building constructed. If you have never built a new building, you may need to find somebody that has experience to work with.

 

Most banks are not eager to loan to marijuana businesses, and this can cause a hindrance in your project if you do not plan ahead. There are companies that specialize in financing marijuana projects, such as Copper Street Lending. Their team will present you with a variety of options by working with various private and hard money lenders, so you can make the best choice for yourself and your business.

 

Con – Construction Difficulties

 

After purchasing a vacant property, you may need to clear trees, level the ground, or alter the land in other ways in order to prepare for construction. As expected, there is much more planning involved when constructing a new building compared to retrofitting an existing building. 

 

It is often a good idea to hire an experienced project manager, depending on your background in land development and construction knowledge. Various professionals will need to be involved in the planning construction process, including contractors, architects, engineers, and more. It can be much less stressful collaborating with a project manager, who deals with all the different professionals on your behalf. 

Con – Timeline

 

Construction of a brand new cannabis facility typically takes much longer than purchasing and renovating a pre-existing building. From closing on the vacant lot, to clearing the land, then planning and construction, expect your new facility to take at least 6 – 12 months to complete, and often longer. Even with the best laid plans, external factors can affect your project. For example, Covid related supply chain issues have caused material delays on many projects, stay at home orders and quarantines have created staffing shortages, and municipality closures have extended permitting and approval times. 

Con – Price

 

There is no doubt that buying land and building a brand new building can be expensive, and is often pricier than purchasing an existing building, but the investment comes with many advantages. The confidence of knowing that you have more control over the finished product and are able to precisely plan ahead can be invaluable.

Con – Resale Value

 

Resale value is also a concern of many property owners. Specialty buildings, such as a marijuana grow facility, typically require a niche buyer who may be difficult to find. Property that is highly customized may not sell as quickly as a standard industrial building. Depending on your construction costs, it may be difficult to sell the property for the amount you have into the project. It is also difficult to predict how the property value will change over time, especially in an industry that changes as fast as this one. How long you plan to hold the property is often a deciding factor when considering whether to build new or retrofit an existing building.

Retrofitting an Existing Building

While purchasing a pre-existing building may seem like the easiest option while looking for a marijuana facility when compared to building a new facility, it may not be the best choice for you. Be sure to consider both options before making an informed decision. Those who purchase an existing marijuana-approved building instead of a vacant lot, do so for many reasons.

Pro – Financing

Securing financing is usually easier with a building than vacant land. Lenders typically see less risk in lending against properties that already have structures on them. It is easier to appraise a building that is located in the middle of a bunch of other similar buildings with sales data available. The company loaning the money can make an educated prediction about how long the property would take to resell if they had to take it back, what the sales price would be, and other factors.

Pro – Timeline

One crucial factor in determining whether to purchase a pre-existing building or build your own is the difference in timeline. Purchasing an existing building and renovating it into a marijuana facility is usually faster, depending on the condition of the building. But keep in mind, existing buildings will often need updates, improvements, and construction as well, which can lengthen the time until a building is operable. You should have your contractor or project manager give you a quote and timeline on renovating an existing building before you move forward with purchasing so you know what you are getting into. 

Pro – Cost Savings Utilizing Existing Infrastructure

On a positive note, while repairs and updates are being made, you can often use a little creativity to take advantage of features that are already on the property. Often, it is possible to reuse the building’s existing infrastructure, heavy power, and more. Working with what you have, like designing your cultivation facility to utilize the truck dock that is already installed, or setting up the employee kitchen adjacent to an existing bathroom to utilize existing sewer and water lines can often save you quite a bit of money. 

Con – Underlying Issues

There is always a chance that the building you purchased has underlying issues that were not discovered prior to closing. From sewer problems to roof leaks, there is always the possibility that items were missed during inspections and will force your renovation expenses higher than expected. This could mean an extended construction timeline, which may push back your opening timeline.

 

Con – Inefficient

 

Older buildings are less energy efficient than new buildings, so you may want to consider upgrading to more energy efficient features. This will save your business money in the long run, as well as increase resale value.

 

Con – Highly Competitive

 

Green Zoned buildings are in high demand. Entrepreneurs all over the country want to take advantage of Michigan’s Green Rush. Most of these entrepreneurs prefer to buy a building, as opposed to a vacant piece of land. There are often bidding wars that drive up building prices, and you will need to be ready to move quickly with an aggressive offer. Depending on the location, this is usually not the case with vacant land.

 

What's the Best Choice for Me?

It is necessary to consider all of these factors before deciding whether to build a new facility or retrofit an existing building. Your budget, timeline, risk tolerance, and need for customization will all help you determine which option can best suit your needs. As you are figuring out the answers to those questions, you can start looking through our available listings HERE. When you decide that you are ready to move forward, one of our team members is standing by to help!

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