The Pelorus Fund: A Cannabis Focused Commercial Real Estate Mortgage REIT Thriving in Today’s Uncertain Times
In today’s uncertain times, one certainty facing investors is the fact that real estate investing is getting hammered. Indeed, regardless of the type of real estate, the coronavirus means that many people and businesses are unable to meet their rent obligations, are not able to shop or go to work, and are putting off buying and selling property.
The Pelorus Fund stands out as an ideal counterbalance to this downward trend as one of the first lenders in the cannabis real estate financing space – and more specifically the Fund’s borrowers cannabis-use business tenants are deemed as essential and continue to thriving in the midst of COVID-19. Pelorus Equity Group has deep history in the industry and a two-year track record yielding double-digit returns with their private mortgage REIT that is largely unaffected by today’s widespread volatility.
As a key player in a truly unique alternative asset class, Pelorus understands the unique landscape of cannabis real estate investments and is well-positioned as one of the few lenders with expertise in the proper valuation of cannabis-related properties. Facility owners involved in areas such as extraction, testing, indoor cultivation, dispensaries, and co-packing hot and cold THC infused products, often find it difficult to secure funding and Pelorus Equity Group’s ability to provide them with fast, end-to-end funding is extraordinarily attractive and valuable.
“Long before entering the cannabis real estate space, our firm specialized in creative solutions to novel financing situations, including those where traditional financing is difficult or impossible to obtain. Since 1991, our principals have funded more than 5,000 transactions, totaling over $1 billion,” said Pelorus Equity Group President Rob Sechrist.
“The Pelorus Fund is a secured debt fund with a target IRR of 15% — a level of return that is often associated with higher risk equity funds. The Fund mitigates risk, however, and it’s not a driving factor at all. Rather, it is the fundamental dislocation that currently exists in the capital markets for lending to commercial cannabis facility owners,” Sechrist said.
An important differentiator is the fact that Pelorus lends on the real estate valuation of the property, as opposed to the valuation of the operating company. Unusually high barriers exist to establishing a fully improved, licensed, and appropriately zoned cannabis facility. This provides a level of security in the case that a tenant leaves. Given the scarcity of such properties, there is a high expectation of finding a new tenant for the facility.
In addition, loans are secured by real property as The Pelorus Fund primarily offers senior debt-secured loans on commercial properties. Most real estate transactions with a comparable target IRR are equity transactions, not cash-flowing secured debt.
“Owners appreciate that reimbursement approvals for tenant improvements are typically processed in 1-3 business days. The speed of draw processing is especially important to cannabis facility owners due to the high revenue of cannabis operations and the extent of tenant improvements necessary to prepare a property for occupancy. We allow them to proceed faster and more efficiently, in an industry where each day or week that production is delayed can represent significant lost revenue,” Sechrist said.
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