Exclusive Interview with Pelorus Equity Group President Rob Sechrist and Managing Partner Travis Goad
Two years ago, the ideal loan for private mortgage REIT Pelorus Equity Group was typically $4 million to $7 million. Now, it is looking at typical loans of $10 to $30 million, with some even larger deals, according to Managing Partner Travis Goad. New Cannabis Ventures last checked in with the Pelorus team at the end of 2021. Since then, Pelorus has grown its team to 15 employees, including a new interim CFO and head of asset management.
Now, Goad and President Rob Sechrist sat down to talk about Pelorus’s portfolio, its stabilized lending program and the competitive landscape.
Listen to the entire interview or read the summary below:
The Pelorus Portfolio
Pelorus has issued more than 69 transactions, deploying more than $435 million into the cannabis space secured by more than $700 million of collateral, according to Sechrist. The REIT has already had 34 payoffs. Currently, there are 32 assets in the fund, a total of $300 million in assets under management. Sechrist anticipates that number to be closer to half a billion before the end of the year.
The REIT lends against real estate value, not against the value of corporate assets. It is able to offer borrowers flexibility in its capital structure without a lot of corporate and financial covenants.
Goad shared a success story from one of the REIT’s borrowers: Growpacker. Growpacker is a co-packing company based in California. Pelorus was an early-stage lender for the company, coming in pre-revenue and pre-construction. Growpacker participated in the REIT’s construction program and then transitioned into Pelorus’s stabilized lending program. The company has gone from pre-revenue to a $30 million run rate, according to Goad.
The Stabilized Lending Program
Pelorus initially focused on bridge lending and construction lending, but it saw the need for more financing options. So, the company launched its stabilized lending program, which offers up to five years and up to 75 percent once assets are cash flowing and stabilized.
Pelorus closed a $77 million loan with Statehouse in California, the first large transaction in the stabilized lending program. The REIT was able to structure a unique loan facility for the borrower. The Statehouse transaction is a three-way merger between Harborside, a publicly traded company, and Urbn Leaf and Loudpack. Two of the portfolio companies had near-term debt maturities that needed to be refinanced prior to the final merger closing, according to Goad. Pelorus structured three separate loans to meet the near-term funding needs and to allow the combined company to access additional funding following the close of the merger.
The REIT has $300 to $500 million worth of deals in its near-term pipeline and $2 billion worth of opportunities in the cannabis space in the medium-term. Pelorus is one of the few lenders with capital to deploy, and it is continuing to grow its market share relative to its peers, according to Goad.
The Pelorus team has found a model for vetting investments that works. It has built a successful track record of deploying capital and getting loans paid off, according to Goad. The REIT lends into any legal market, and it is seeing demand coming from the northeastern states, as well as southern states, as the regulatory environment evolves. Pelorus also remains interested in the California market.
A Data-Driven Strategy
Cannabis is a new industry, which means there is not a lot of data available to help underwrite real estate assets. So, Pelorus is setting out to gather that data. It founded a data company that is compiling a best-in-class database of real estate assets to help the team understand each market it lends to and to form a data-driven approach to underwriting deals.
A Private Lender
The company was the first privately held mortgage REIT in the cannabis sector to receive a BBB+ rating from the Egan-Jones Rating Company. The last time the Pelorus team spoke with New Cannabis Ventures, they emphasized the REIT’s decision to remain private. Goad reiterated the value of sticking to that strategy. By remaining private, Pelorus has been shielded from market volatility. Many competitors that made the decision to go private are trading below book value, according to Goad. Pelorus is able to continue growing its market share in this environment.
Pelorus has more than 1,000 investors, a mix of high-net-worth individuals, family offices and institutional-level investors. Sechrist considers institutional investors those that need to go to a credit committee. A total of 16 of this type of investor participated in the company’s bond of $50 million.
Dislocation of the capital markets continues to be an opportunity for Pelorus. The equity markets are challenging, and debt is an attractive option for many borrowers. Pelorus will continue to evaluate its deal flow while navigating a landscape shaped by the growing pains, such as sluggish regulatory progress, that come with a new industry.
To learn more, visit the Pelorus Equity Group website. Listen to the entire interview: