Below is our recent interview with Rob Sechrist, President at Pelorus Equity Group:
Q: Could you provide our readers with a brief introduction to Pelorus Equity Group?
A: Pelorus Equity Group, LLC (“Pelorus”) is an asset-based lender that is providing senior secured term loans backed by real estate assets owned and/or operated by companies focused on the cannabis industry. The Pelorus team has extensive asset-backed career lending experience comprised of completing more than 5,000 transactions totaling more than $1 Billion in secured real estate lending. The team couples vigorous underwriting with custom tailored loan structuring and best-in-class procedures to every transaction. Pelorus has focused on value-add financing where borrowers seek to improve upon and/or reposition real estate assets. Pelorus was one of the first to entered into the cannabis lending industry in 2016 and since that time has become one of the most recognized lenders providing real estate financing to cannabis business owners and operators. To date, Pelorus has funded more than $34 million in cannabis transactions.
Q: What’s wrong with traditional financing institutions?
A: Cannabis is still Federally illegal and the bank are not willing to risk losing their banking licenses to meet the stringent criteria that is required to allow for cannabis related businesses (CRB) to be able to make deposits, or have access to other traditional banking products such as real estate or equipment finance loans.
Q: Why do we need an alternative?
A: Banks have different rules and compliance regulations that don’t allow them to be able to be as flexible in structuring customized lending solutions, or be able to close a complex real estate transaction in as little as 72 hours as opposed to months with a traditional bank.
Q: What makes Pelorus different?
A: Pelorus has developed extremely sophisticated policy and procedures that culminate in allowing for extremely fast and efficient closings and just as importantly a smooth and effect draw process for value-add transactions in which a portion of the proceeds of our loan included a budget to add value to our collateral for tenant improvements or ground-up construction or some other element that was required to stabilized the income for our subject property.
Q: How exactly does it work for someone who wants to borrow the money?
A: Borrower’s that are top tier sponsors with real net worth, excellent credit and ample liquidity that are acquiring real property or refinance an existing loan with a best in class cannabis operator can submit their loan requests for short term bridge loans of up to 50% loan to value using the cannabis valuation basis. Each loan is priced on a case-by-case basis, but on average are priced between 4-6 points and 15% interest only payments for one year terms with extensions available provided certain criteria is met. Currently we have more than $90M in loan requests for the next 30-60 days and have become one of the most well known lenders in the space providing lending solutions to some the largest cannabis operators in the industry.
Q: What are the benefits of investing with your company?
A: We have a proven track record of extraordinary performance that comes from years of experience and continuing to fine tune and improve upon vigorous underwriting and closing processes. Accredited investors that wish to invest in the Pelorus Fund will get the benefit of being a diversified pool of senior secured loans on real properties with cannabis tenants and a targeted yield of 15%.
Q: What are your plans for the future?
A: We plan on launching a second fund with an operator loan product for the cannabis tenants that don’t own real property and will secure these loans by having them pledge all assets of their company, licenses, equipment, inventory to us that is held by 3rd party custodian and sweep our loan payments daily, weekly or monthly from their gross revenue before release the remaining funds to the borrower. This lending product show generate returns to our investors about 20%.
Q: What kind of returns are your getting?
A: Our most recent quarterly distribution was 18.8% for Q1 of 2019 and our lifetime IRR is 13.3%. We are expecting to achieve our targeted lifetime yield of 15% as early as Q2 of 2019.