Denver’s warehouse space is going to pot.

Industrial brokers estimate that medical-marijuana grow houses have leased more than 1 million square feet of warehouse space — about the size of the Republic Plaza office building downtown — over the past year, propping up a commercial real estate market that has had a glut of vacant space.

“Growers have saved numerous warehouse owners from going under in this economy,” said Nick King, co-owner of Alpine Herbal Wellness, a medical-marijuana dispensary in Cherry Creek. “Without the influx of cannabis growers, many of these warehouses would be forced into short sale or foreclosure.”

Under House Bill 1284, signed into law in June, medical-marijuana dispensaries are required to grow 70 percent of the product they sell. The new law had dispensary owners scrambling to find warehouses to convert into grow facilities.

“It’s like calling all the burger joints in town and saying now you have to raise your own cows,” said Eric DeWine, co-owner of Patients Choice of Colorado.

Patients Choice, among the state’s largest dispensaries based on the number of patients, had to scale back the number of people it serves until its new grow house is completed. Under the law, the location of grow houses is confidential for security reasons.

But despite a sluggish real estate market, it was difficult to persuade warehouse owners to lease to a marijuana grower — at first, said John Wickens, an independent broker who since February has done grow-house deals totaling about 500,000 square feet.

“When I first started doing this, we’d call a building and the landlord would say, ‘No,’ ” Wickens said. “Six months later, one of four are saying, ‘Let’s do this.’ “

A team effort

Businesses like Cloud 9 Support have sprouted up to pull together the team — architects, engineers and contractors — to help growers build out the warehouses.

“We help them look at this as a manufacturing facility, so there’s no haphazardness,” said James Lowe of Cloud 9. “With any type of manufacturing process, whether it be a bottler or whatever you’re making, your warehouse needs to be set up in a certain workflow.”

Most grow facilities range in size from 1,500 square feet to 3,000 square feet, though there is at least one in the metro area that’s 120,000 square feet — roughly the size of a Lowe’s or Home Depot — and several in the 10,000- to 75,000-square-foot range.

Lowe estimates that it costs anywhere from $50,000 to $100,000 to retrofit a 3,000- square-foot warehouse to grow marijuana. Growers can spend millions to outfit a large operation.

Tight security required

Upgrading the electrical transformer to handle the power needed to operate a grow house accounts for up to $50,000 of the cost to build out a facility.

Security is another consideration.

The state Department of Revenue enforcement official who oversees the regulations wants video tracking of everything from seed to sale. At one point, it was estimated that each facility — both dispensaries and grow houses — would require a $30,000 security system.

“We’re working to figure out a way to do that and make it effective while not cost-prohibitive to the businesses,” said King, who is on the department’s rules-making committee. “We’re trying to balance the needs for visual oversight with the cost of it.”

It’s critical for grow houses to be built out properly to avoid any damage to the building over time. If the humidity is too high, for example, there can be problems with mold and condensation. Upgrades to the heating, venting, air-conditioning, electrical and plumbing systems also are often required.

Cultivating methods

The methods of cultivating cannabis vary from grower to grower. Some use soil, others hydroponics, a method of growing plants in water using mineral nutrient solutions.

A 30,000-square-foot grow house now under construction is divided into rooms for plants in various stages. There are rooms for growing, blooming, drying and processing — all of which will be restricted to badged employees of the company. The facility has two gigantic tanks where nutrients will be mixed with water to feed the plants. A huge carbon- dioxide tank will pump air through the building. CO2 levels should be high, particularly during the flowering phase.

Before employees enter the grow area, they must take a shower to remove any pests, especially spider mites, that may be clinging to their skin or clothing.

“For the most part, it’s assured that wherever these guys are, they’re increasing property values,” Lowe said. “As long as things are done right, this industry is pumping millions of dollars into upgrading empty warehouse space.”

And landlords are making money. Smaller spaces rent for about $10 a square foot, with the prices dropping to about $4 a square foot for the largest blocks, Wickens said.

The overall lease rate for industrial property was $5.80 a square foot during the third quarter, according to a market report by Grubb & Ellis. The industrial vacancy rate dropped 30 basis points in the third quarter to 8.3 percent — the lowest since early in the recession when it also stood at 8.3 percent in the third quarter of 2008.

Because of the amount of money that growers spend building out their spaces, their leases usually include a clause giving them the right to buy the building within 12 to 36 months, broker Wickens said. Leases also include a clause giving the business a way to get out of the contract if the state outlaws growing medical marijuana.

Not only is the medical-marijuana industry bolstering commercial real estate, it’s creating jobs in industries that have been hard-hit by the recession.

“There’s probably 20 to 40 guys in the building on any given day,” Van Matre Construction owner Brady Van Matre said of a 30,000-square-foot building he’s working on for a grower. “The build-out is a three- to four-month job. There’s the ancillary impact as well — guys selling lights, steel and duct.”

Designing grow houses is helping Lafayette-based architect Patricia Wilder Dallarosa stay busy as her residential-design business slumps.

“It’s brought more of a commercial side to my business,” said Dallarosa, whose company Wilder Architecture & Planning has worked on the design to retrofit old industrial space for five grow houses ranging in size for 2,700 square feet to 25,000 square feet.

“It’s helped diversify things in an economy that’s been slow. It’s another niche that’s come out of the woodwork.”

Margaret Jackson: 303-954-1473 or mjackson@denverpost.com