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Pelorus started originating cannabis transactions in 2016.
Pelorus has originated 32 transactions for a combined total of approximately $65M
The Pelorus Fund was launched in 2018.
- 20% Tax Deduction: with a REIT ordinary dividends qualify for the new “20%” tax deduction under §199A.
- State K-1 reporting to fund investors. REIT dividends would be taxable in the state of the investors’ residence rather than being sourced to a state at the fund level.
- REITs “cleanse” UBTI for Self-Directed IRA accounts.
The Pelorus Fund was structured to be an ultra-low cost or effectively no cost Fund. This was achieved with a low asset management fee of 1% combined with the Manager sharing revenue with the Fund Members.
Yes, the Manager of the Fund has aligned its interests with the Fund Members and shares 25% of origination fees, 75% of extension and exit fees and 50% of all other fees. The combination of the revenue sharing from the Fund Manager should offset more than the 1% asset management fee in most years. Additionally, there is no carry-interest split or preferred rate of return because 100% of all net revenues go to the Fund Members.
There are more than four dozen other private lenders currently in the space, as well as dozens of state FDIC insured banks and credit unions, all lending within their own states. In addition, there is at least one publicly traded national FDIC bank lending nationally.
The Fund makes quarterly distributions.
One year starting on the date each portion of capital is invested.
Each Fund Member’s distributions are based on when they were admitted to the Fund and if they choose to reinvest the proceeds or take cash distributions. Additionally, Fund Member Year-To-Date and Life-Time averages are based on time they were admitted into the Fund.
New Fund Members’ capital is received into a non-interest bearing holding account called the admitting account. The capital is held until the next transaction is closing for the capital to be admitted into the Fund, at which point the capital starts to earn yield. This process usually takes 2-4 weeks, but can sometimes take more time.
The current average investment amount is approximately $250k, with a $100k minimum investment.
No, the borrowers must make their payments by wire or check from an accredited bank or credit union.
Yes, Pelorus is banking with an FDIC state bank.
Pelorus focuses on value-add transactions, meaning a portion of the loan proceeds is reinvested into the property to enhance the value in tenant improvements or new construction. A major differentiator for Pelorus is our experience — most other private lenders have little or no experience in these types of transactions. In addition, Pelorus has refined the draw process that the borrower uses to be reimbursed for the improvements made to the property. The draw process with most lenders takes 5 – 10 days, whereas Pelorus has streamlined this process to 1 – 3 days. This is extremely important in cannabis lending because improvements must be completed to stabilize the asset, which allows for the cannabis operator to start generating income.
Some reports indicate there are currently more than 600 credit unions and dozens of FDIC insured state banks for depository accounts.
Yes, we are aware of dozens of credit unions, about a half-dozen FDIC insured state banks and at least one publicly traded FDIC bank.
No, Pelorus is non-plant touching and does not lend directly to any cannabis related business. Pelorus only lends to the owner of the property, which in turn leases the property to cannabis tenants.
As of 12/31/19, none of the cannabis transactions are in default. However, if we were to foreclose, it is typically a 120 day process.
The highest and best use for an alternative use would be another cannabis related business, since that is what the property is zoned, licensed and has tenant improvements for.
Pelorus uses the cannabis sales comp and income approach to determine the values.
Nationally in any medically licensed state.
Pelorus is able to lend on all types of cannabis related business and currently has at least one in each category.
Pelorus is not associated with any illegal acts, since our borrowers are the owners of the real estate and not the actual cannabis operators (tenants). However, in the event any borrower is prosecuted for any reason, and loses the case (including upon appeal), and subsequently has its assets seized, it is important to remember the seizure consists of the borrower’s net equity. The lender (Pelorus Fund and its investors) still has due process in which any recorded liens must be paid off in full.
Yes, BUT it must be a cannabis-friendly account if you’re using a 3rd party custodian such as PENSCO they will not allow investment into our Fund yet.
We can provide a list of cannabis friendly custodians.
The Fund would syndicate the balance of the loan.
Not directly into the Pelorus Fund, but we have helped to create feeder funds for ultra-high-net-worth and institutional international investors with initial investments of more than $1M.
The largest risk is the fact that this is an emerging market, which naturally comes with certain unknowns. The vape crisis of 2019 is a good example of an unforeseeable circumstance. If a similar crisis leads to a policy change, which in turn causes a tenant to fail, it could require the borrower to replace that tenant with another cannabis related tenant. Compression or commoditization of certain cannabis related products can also change the market. But such a change would develop over time, and there should be recognizable indicators that would allow for adjustment, such as the markets pulling back in specific sectors. Regardless, unforeseen changes do occur in emerging markets, which is why all Pelorus Fund loans are secured by real estate assets and personal or corporate guarantees.
Borrowers may try to file bankruptcy but so far the federal bankruptcy court has denied any cannabis related transaction the ability to file for bankruptcy protection. This could, however, change depending on how the assets are held.
The average loan amount is approximately $2M, with an 18 month term.
Yes, the Fund has first priority on any transaction that fits the Fund’s investment criteria.
Yes, Fund Members can reinvest their quarterly distributions. This DOES NOT extend the one year lock.
The Pelorus Fund provides Quarterly Statements of accounts and is actively working finding an online platform for investors to view their accounts.
Currently the Fund does not have any leverage, but the offering documents allow for leverage. It is possible that at some time in the future the Fund may utilize leverage, most likely in the form of a warehouse line of credit in order to minimize yield drag.
Pelorus underwrites and approves all of the transactions internally. The underwriting process is complemented by SitusAMC, one of the world’s premier asset underwriters, to complete the credit memos using the credit policy developed in conjunction with SitusAMC.
New loans come directly from borrowers, brokers, asset managers, attorneys, and a vast array of networks that Pelorus has developed since 2016.
The Green Zone is the area a city has designated to allow for cannabis related businesses located within the city.
Each property within the Green Zone must also apply for a CUP, which allows for cannabis related business operations on the property.
The CUP pertains to the property, so it DOES transfer with the property in the foreclosure process. The Operator Licenses, on the other hand, are issued to the cannabis operators tenants (tenants), and therefore do not transfer.
The principals have approximately $1M invested in combination between both the Manager and the Fund.
Yes, all loans have personal and/or corporate guarantees. In the rare exception that a guarantee has been removed, the loan to value would be significantly reduced to adjust the risk.
No, the reason we are able to achieve a 15% target yield is because of the revenue sharing from the Manager and the lack of competition in the value-add lending space.
We believe our lending peers are already closely watching us and will be entering the cannabis lending space soon, but we still believe we will be able to achieve close to our 15% target for the next couple of years because we are originating the transactions today, which will take at least 18-24 months to pay off and most of our peers are not focused on the value-add transactions.
The Fund is comprised mainly of debt, but has the ability to provide real estate equity deals.
In the event that cannabis is legalized at the federal level, the capital markets will open up and provide more liquidity to our borrowers. This will provide access to lower-cost refinance options (which already do exist). Institutional equity will enter the market, pushing up both demand and valuations. Even in this environment, Pelorus is very confident of our continued success. We have successfully competed against banks for our entire careers, and feel comfortable continuing to do so. The biggest challenge will likely come from our lending peers compressing the yields downward over time.
Four loans have been paid off for a combined total of $6,200,000.