Are there financing opportunities in cannabis-related commercial real estate?
A Newport Beach-based real estate investment firm thinks so.
Pelorus Equity Group has launched a $100 million fund targeting real estate-based financing opportunities with licensed and established cannabis businesses. Pelorus just closed a $25 million fund aimed at fueling the growth of the cannabis industry.
The new fund will target established borrowers in the industry and will lend on commercial and industrial buildings on the West Coast. Most of the clients it lent to with its last fund run indoor cannabis growing facilities, extraction facilities, distribution, and manufacturing operations.
Pelorus is looking to fill the financing hole left in the cannabis industry by traditional financial backers that have been reluctant to invest in an industry with a murky legal standing. Beverly Hills-based Inception Companies is doing the same with a $50 million real estate investment trust announced last month.
Pelorus CEO Dan Leimel said part of its process for vetting investments includes determining if a property can be repositioned for non-cannabis uses in the event that Pelorus takes control of the property. His cited the example of a cannabis-friendly city deciding to outlaw cannabis industry business, forcing out a client.
“What can we do with that real estate? Warehouse is in demand, so we could reposition that asset in the event something went wrong” he said. “We want an investor to know we are mitigating risk from A to Z.”
Pelorus has deployed all of its $25 million fund to 13 real estate projects in California, mostly in Los Angeles County, because most industry operators are based in Los Angeles, Leimel said. Pelorus has also invested in operations in Northern California and the Mojave Desert. Its clients include Canndescent, a boutique-style marijuana product maker.
The minimum investment for the new fund is $50,000. Pelorus is targeting a 15 percent return for investors. The $25 million fund had an overall return of 12.9 percent. Leimel said it has increased its exposure in some ways, including by financing equipment and tenant improvements, and balanced that out with other measures.
Bow West Capital announced in July it was repositioning a Downtown L.A. property as a co-working space for cannabis-related companies. A cannabis-only co-working space opened in Hollywood earlier this year.