Baker Program in Real Estate students were treated to an engaging and lively discussion led by Daniel Sax of Sensi Properties as part of the Distinguished Speaker Series. Based in Toronto, Mr. Sax’s real estate investment portfolio is dedicated solely to properties which operate in the medical and recreational marijuana space. Between manufacturing, procurement, warehousing, refinement, testing, and production of spinoff products – the nascent Canadian cannabis market, he explained, is creating quite a buzz in more way than one.
Mr. Sax, a 2012 graduate from the Baker Program in Real Estate, started by detailing his eclectic real estate experience and wayfaring spirit. Before joining the Baker Program, he worked as an analyst on a team operating in Western Canada. He was entrusted with progressively complex development projects, including leading the development of the Mickelson National Golf Club in Calgary.
After finishing the Baker Program, Sax headed to the West Coast to join Sabal Investments working on financial work-outs. Mr. Sax estimated he worked out so many distressed capital stacks, often juggling a few at a time, that it became second nature to him. He later joined migrated back East, working for Cohen Equities in NYC, and Mr. Sax soon found himself reconnecting with Richard Baker, searching for new opportunities, and ended up being whisked away to Germany for a temporary gig, working on repositioning the Galeria Kaufhof.
Having cemented his status as a real estate mercenary of sorts, Sax returned to his roots in Toronto. At the time, Justin Trudeau was a rising star in Canadian politics, and his assent to the office of Prime Minister heralded what many believed to be a landmark event for progressive reforms in North America – particularly, Sax believes, for the use of medical and recreational marijuana. The ever-opportunistic entrepreneur recognized an opening.
When he first started exploring the space, he discovered it was primed for an overhaul by someone with his unique distressed property experience – not so much because these properties were in trouble, rather that they were performing too strongly. Naturally, Sax feels, there will be a period of bubble-like expansion in such a speculative new industry. On the up-side, the regulatory environment in Canada is unlikely to change for the medium and long-terms. Moreover, the potential for ancillary cannabis-related products is only growing, thanks largely to the complexity of its interaction with the human body. Research continues to exalt the potential virtues of medical cannabis, and it has become more mainstream in the United States, where Sax believes he is well-positioned to expand.
Sensi Properties and the larger cannabis-related asset sub-market is not without significant risks – but that is exactly the reason it is open season for cavalier entrepreneurs like Sax. Underwriting such deals is a major challenge since comparable properties are virtually non-existent. The properties are also often occupied by single tenants with little or no credit rating or history, and finding a replacement in the event of default or bankruptcy is particularly challenging given the highly specialized equipment and build-outs. Most of the facilities are as sophisticated in build design and quality as the most modern pharmaceutical manufacturing facilities, since many products have medical uses. Sax compared a typical industrial shell building, constructed at around $100psf, to the market cost of his facilities, at around $350-450psf.
Sax left the students with many questions and much to consider in terms of their impact on the future of real estate. He offered a final thought for the students to contemplate – and that is the absence of resources for real estate entrepreneurship. He mused that he would like to start an incubator of his own if only he had a moment to spare. In the interim, Sax is enjoying high times in the exciting new world of Canadian cannabis.
