HOW DOES THE PELORUS EQUITY FUND’S PORTFOLIO CONSTRUCTION CREATE MORE VALUE FOR INVESTORS?
Over the last five years, the Pelorus fund, a privately held mortgage real estate investment trust (mREIT) for cannabis use and cannabis-related properties has achieved 434% year-over-year growth. The fund ended the year with $243M assets under management (AUM) and $193M of equity—more equity than any other privately held and most of our publicly traded commercial real estate lendering peers in the cannabis space.
We are one of the first mREITs that is specifically non-plan touching. Investors can take advantage of the 20% federal tax savings on income distributed to the fund members, due to the private mREIT structure. (Most funds wait to become much larger before converting, but our net yield was so high, that the net benefit to our investors of converting to this structure superseded the costs of implementing this change.)
Investors only pay state taxes in their domiciled state; this does not apply in our home state of California, or in states where the fund’s loans generate income. Notably, California has one of the highest rates of state taxes, as high as 13%. To say another way, investors only pay states taxes, if any, in their home state. Benefits also include cleansing UBTI for self-directed IRA investors, and the Pelorus Fund has the first right to fund any cannabis-use commercial property transactions before the transaction would be syndicated to outside investors.
100% of all loan-fee income goes into the fund, and 50% of all net-profit income goes into the fund. Additionally, members benefit from multiple revenue sources, such as extension or exit fees, origination fees and interest income. We can demonstrate hedge fund and equity-like returns due to this practice, essentially operating as a no-cost fund.
The Pelorus Equity Group Fund portfolio is currently constructed of various property types:
- 51% mixed use
- 38% cultivation
- 10% manufacturing and distribution
- 1% laboratory
While we understand the cannabis real estate environment of the West Coast–and more specifically California–better than most, we are largely unbiased in sourcing opportunities by geography and type. 39% of the properties we’ve funded in the portfolio are located in Southern California, 1% in Northern California, 8% in Central Valley California, 1% in Colorado, 35% in Michigan, and 16% in Illinois.
To date, our team has completed over 5,000 loans and $5B in origination, making the fund, in our opinion, the most specialist and applicable product in the cannabis-lending real estate market.
And we must be doing something right. We have seen consistent increases in AUM from $1.495M in 2018 to $243M at the end of 2021, and IRR from 11.60% in 2018 to 17.17% in 2021. In 2021, we outperformed our original 2021 growth projections of 300% by 134%, and we have consistently achieved our target IRR of 15%, with our weighted average note rate of 15.3%.
About Pelorus Equity Group
Pelorus Equity Group (“Pelorus”), the leading provider of value-add bridge commercial real estate loans to cannabis businesses and owners with cannabis-related real estate, and its Pelorus Fund, a private mortgage real estate investment trust (“mREIT”), are changing the commercial real estate lending landscape in the cannabis sector. Pelorus Fund offers a range of innovative transactional solutions to address the diverse needs of real estate investors and portfolio managers, and its flexible acquisition and bridge lending programs are the direct result of the firm’s involvement in more than 5,000 transactions of varying size and complexity. Since 1991, Pelorus’ principals quickly understand an opportunity, structure a logical solution and execute a timely close and have participated in more than $5B of real estate investment transactions using both debt and equity solutions. To date, Pelorus has completed 63 commercial real-estate loan transactions and deployed more than $350 million to cannabis businesses and real estate owners, comprising of more than 3,200,000 sq. ft. in eight states across the U.S. With the ability to fund approved construction draws for reimbursement in an average of one to three days and a single agreement covering the financing of the entire project, the Pelorus Fund helps to stabilize cash flow for its clients, so they are able to remain focused on their core business goals and objectives.
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