Costs of Executing a Cannabis Real Estate Loan

Cannabis real estate and real estate/construction combination loan requests continue to rise. At HEF, we review daily with prospective borrowers the estimated costs of rate and term, as well as the typical costs to get a loan to the closing table. With that said, it’s important to understand regular use property valuations vs cannabis property use valuation to understand the cost of the money as there is a big variance. That topic will be covered in our next blog post and we’ll link to it from this post once it’s published. So, for now, this post will focus on the basic costs a borrower may incur to close a cannabis real estate or real estate/construction loan combination.

Engagement Fee

An engagement fee can range between $6000-$12,500 depending on the size and scope of the project. If it is a loan encompassing multiple properties, it could be more. Engagement fees are deposited after a review of the project and its merits have been given a green light from an HEF senior consultant or our CEO, and contracts have been signed the borrower and HEF.

Cannabis Property Appraisal

Initial underwriting takes about 1-2 weeks depending on how quickly a borrower can produce financials required to obtain a term sheet. Once a term sheet is issued, an appraisal is ordered. Cannabis property appraisals consider different factors than other commercial property appraisals such as the value of the licenses attached to the property and business. Licensed cannabis properties typically yield higher profit margins than most regular use properties and as such a cannabis appraisal will likely result in a substantially higher appraisal. This uptick in valuation may increase the borrower’s loan amount and feasibility of execution. The cost of an MIA certified appraisal costs around $7000-$8000.

ALTA Surveys and Phase 1 Environmental Studies

Some of the time an ALTA Survey or a Phase 1 Environmental study is required. The costs can range from $1500-$3000 for each for them. Here is why title insurance company may require an ALTA survey: Here are reasons why a property may need a Phase 1 inspection:

Legal and Documents

After terms have been executed, and an appraisal has been completed which can solidify the loan amount and sometimes raise it, the final phase of engaging title and legal is initiated. While legal and title can be processed in tandem with the appraisal if time is extremely critical, typically it is prudent to incur this cost after the appraisal is completed to verify the final loan amount. Private lenders engage attorneys to draft loan documents and complete due diligence on borrowers. They pass this cost onto the borrower and typically charge around $6000.

Adding up the above elements shows the cost of getting a typical ($500K-$12M) cannabis real estate loan to the finish line can range between $19,000 to $32,500 depending on what title insurance companies need to close the loan and the size of the loan. Cannabis real estate/construction loans that are higher than $12M will usually carry a substantially higher legal cost – possibly $25,000-$50,000 in legal costs alone.

These numbers are estimations based on daily experience underwriting cannabis loans, but do not represent a prediction of any future loan’s rate and term.

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