That is the concerning part. We already have a limited manufacturing base, and for those tenants that are unfortunate enough to have their leases expiring, they are getting forced out. That might mean that they are going out of state to where they can find something more affordable, or they close up shop and we are not getting those industries back. Industries like truck parking and trailer parking are having a particularly hard time on some of these increased rates for properties that fall in those zones. When those groups take over those zones, it will be really concerning. We saw it in our Denver office, which gave us guidance on how to handle these overlays. Eventually, larger companies will gobble up the smaller companies and values drop back down and level out.

GlobeSt.com: Did you see this activity start directly following the election, or even earlier?

Carrillo: California passed medical years ago because there was an attempt by the city to generate sales tax revenue. It basically petered out. Now that we have passed recreational, there is more of a comfort level in regards to medical marijuana. A lot of politicians are saying that this is what they want to do to shore up their debt.

GlobeSt.com: There are quite a lot of these businesses popping up. Do you expect this to remain a local business or will it evolve to be businesses that can operate nationally?

Carrillo: It is going to end up like any other business. We have a huge pick up in breweries. It is interesting to see that the sophisticated palettes that consumers now have for craft beer. I see a similar trend eventually happening in the marijuana industry, as this becomes more of a norm and as states see that there is a model that works—and if it becomes legal at a federal level. Usually, as California goes, the nation goes.

GlobeSt.com: Because this is federally legal, the financial aspect of marijuana businesses is a major challenge. How is both the State and local governments handling this?

Carrillo: The State of California is looking in to setting up its own bank to deal with cash deposits from groups in this industry. The City of Long Beach is actually requesting that those that get their permits for the dispensaries as well as the manufacturing and laboratories bring in their taxes via cash, and they are figuring out a way to manage those cash deposits. It is really interesting to see how this is all going to play out.

The legalization of marijuana in November has created even more industrial demand in the Los Angeles market, where the industrial vacancy rates is dipping below 1% in some submarkets and there is an extreme dearth of supply. According to Brandon Carrillo, a principal at Lee & Associates, says that the firm has seen a tremendous amount of new activity for B- and C-class assets as a result of legalization. To find out more about these emerging trends, what the new activity will mean for existing users and how the State and local cities are handling the challenge of managing the income tax from these businesses, we sat down with Carrillo for an exclusive interview.

GlobeSt.com: Has the legalization of marijuana spurred activity for older industrial product?

Brandon Carrillo: Absolutely. We are seeing a majority of our activity geared toward marijuana uses for industrial product. As some of these other industries are trying to see what is playing out, you have a lot of groups that are getting money from so many different areas and they are running their businesses like drug dealers, or how I would imagine a drug dealer runs a business. There are a small percentage of these groups that are funded by institutions. We are seeing sophisticated companies come in and gobble up real estate, while speculating on securing the right assets and licensing to get a market share in cities that are passing these overlays. We thought that values would start dropping a little bit, especially in cities where it is double to triple the value, and all of these industrial pockets that have marijuana overlays, like Bell Flower, Lynwood, Los Angeles, the values have not dropped and there continues to be a huge demand. More cities are getting on board for this because of the sales tax revenue that it generates.

GlobeSt.com: Industrial in Los Angeles is already suffering from a dearth of supply. Carrillo: How has this new demand affected existing users?

That is the concerning part. We already have a limited manufacturing base, and for those tenants that are unfortunate enough to have their leases expiring, they are getting forced out. That might mean that they are going out of state to where they can find something more affordable, or they close up shop and we are not getting those industries back. Industries like truck parking and trailer parking are having a particularly hard time on some of these increased rates for properties that fall in those zones. When those groups take over those zones, it will be really concerning. We saw it in our Denver office, which gave us guidance on how to handle these overlays. Eventually, larger companies will gobble up the smaller companies and values drop back down and level out.

GlobeSt.com: Did you see this activity start directly following the election, or even earlier?

Carrillo: California passed medical years ago because there was an attempt by the city to generate sales tax revenue. It basically petered out. Now that we have passed recreational, there is more of a comfort level in regards to medical marijuana. A lot of politicians are saying that this is what they want to do to shore up their debt.

GlobeSt.com: There are quite a lot of these businesses popping up. Do you expect this to remain a local business or will it evolve to be businesses that can operate nationally?

Carrillo: It is going to end up like any other business. We have a huge pick up in breweries. It is interesting to see that the sophisticated palettes that consumers now have for craft beer. I see a similar trend eventually happening in the marijuana industry, as this becomes more of a norm and as states see that there is a model that works—and if it becomes legal at a federal level. Usually, as California goes, the nation goes.

GlobeSt.com: Because this is federally legal, the financial aspect of marijuana businesses is a major challenge. How is both the State and local governments handling this?

Carrillo: The State of California is looking in to setting up its own bank to deal with cash deposits from groups in this industry. The City of Long Beach is actually requesting that those that get their permits for the dispensaries as well as the manufacturing and laboratories bring in their taxes via cash, and they are figuring out a way to manage those cash deposits. It is really interesting to see how this is all going to play out.