Rob Sechrist: How to Navigate Complex & Costly Cannabis Real Estate Financing
This week, Rob Sechrist, president of the Pelorus Equity Group, discusses his role leading one of the cannabis industry's largest commercial real estate lenders. Sechrist has focused on the cannabis industry for more than four years, but the company has been in business for more than two decades. Since 1991, Pelorus has participated in more than $1 billion of commercial real estate investment business across 5,000 transactions.The company is an asset-based lender that focuses on value-add transactions, which means a portion of each loan is held back to be used for property improvements. Sechrist says that getting a cannabis business off the ground doesn't stop with buying a cannabis-use property, but rather the tenant improvements to the building to configure it for cannabis use and the equipment. Until Pelorus came along, industry lenders were solely focused on acquisition or refinance lending. As a result, lenders weren't concerned with how they would get paid back -- or stabilizing the business for cash flow -- even though tenant improvements and equipment are typically more costly than the property value.Sechrist sees cannabis real estate as a tremendous opportunity, with cannabis properties generating 10x to 15x more than non-cannabis tenants. Pelorus limits its scope to experienced operators and performs a feasibility review of every element of a project before they ever get off the ground -- they want to make sure the tenant will be able to make the payments. There are very few value-add lenders that are solely dedicated to cannabis. Federal law prevents most traditional lenders from financing these projects. Even when financing is obtained, it's a complex process with multiple stages that can take several months to complete. These financing delays are widespread and often cost businesses millions. Since joining the industry, Sechrist has noticed that the cannabis borrowing community is different than any he has experienced. However, because every cannabis operator has fought through similar struggles, competitors have a sense of community resulting from surviving through similar issues that have created mutual respect. Pelorus prides itself on being faster than institutional lenders. The team uses its extensive experience to understand an opportunity rapidly, structure a logical solution and execute a timely close (approved construction draws in 1-3 days).