WHAT IS ALTA REAL ESTATE’S INVESTMENT THESIS?
Alta Real Estate acquires real estate properties at fair market values based on recent market comps and third-party appraisals. The fund avoids paying any cannabis premiums on these assets and leases the properties to licensed, creditworthy cannabis operators. The fund seeks collateral packages consisting of:
Alta Real Estate’s GP must execute transactions with the following general restrictions:
3 months’ security deposit;
12 months’ estimated NNN expenses;
Personal and/or corporate guarantees; and,
Other collateral to be determined on a case by case basis.
For each acquisition, Alta must own at least 51% of the asset and have at least a 3-year lease agreement yielding a minimum 8% annual cap rate.
No single acquisition can represent more than 40% of the fund’s capital.
If Alta elects to mortgage any of the assets in its portfolio, the mortgage cannot exceed a 20% loan-to-value.
Any investment opportunities that would diverge from these restrictions require approval from the fund’s investment committee.
WHAT IS ALTA DEBT’S INVESTMENT THESIS?
Alta Debt lends capital to licensed cannabis companies across the U.S. that are primarily focused on the industry’s retail, home delivery, and distribution sectors. The fund secures these loans with real estate that is valued based on recent market comps and third-party appraisals, avoiding any cannabis premiums on the collateral. Alta Debt has a strong syndication strategy fueled by our existing relationships with cannabis-friendly REITs, funds, and family offices who participate in the broader
ALTA ECOSYSTEM. The fund seeks collateral packages consisting of:
Alta Debt’s GP must execute transactions with the following general restrictions:
A maximum LTV of 67%;
3 months’ Debt Service Reserve Account;
Personal and/or corporate guarantees; and,
Other collateral to be determined on a case by case basis.
Loan term must be under 10 years;
No single loan can represent more than 40% of the fund’s capital.
Any lending opportunities that would diverge from these restrictions require approval from the fund’s credit committee.
WHY ARE THERE TWO SEPARATE ALTA FUNDS?
The two funds are complementary to each other and serve different objectives.
Alta Real Estate focuses exclusively on real estate equity investments. The fund will always own the real estate and act as a landlord to creditworthy cannabis tenants. The rental income provides attractive cash on cash returns for investors through tangible property that can yield outsized returns once mortgaged or sold. Alta Real Estate provides operators access to off-balance sheet financing so they do not have to carry debt on their books.
Alta Debt focuses on senior secured loans backed by real estate. It is a more attractive option for operators that do not want to sell their strategic assets but would rather lever them to access non-dilutive financing. The real estate collateral provides a strong downside protection package for Alta Debt investors, and the fund’s syndication strategy will allow us to maximize expected IRRs through origination and structuring fees.
While both funds participate in and benefit from the broader
ALTA ECOSYSTEM, it was important for us to create two separate investment vehicles so that investors can choose to place capital in one fund, or both based on the different investment theses, potential returns and risk profiles.
WHAT DIFFERENTIATES THE ALTA FUNDS FROM OTHER FUNDS IN THE SPACE?
The Alta funds are part of the broader ALTA ECOSYSTEM, which provides us with robust transaction data, market intelligence, and deal flow. These insights allow the GP to more intelligently deploy investor capital while simultaneously ensuring we see the strongest deals first. Additionally, the Ecosystem gives Alta unparalleled access to other cannabis-friendly lenders and investors, allowing us to lead syndicated transactions and maximize our IRR. Alta’s investment thesis is rooted in high-yield opportunities supported by high-value collateral, and every transaction we execute is structured with a responsible cost of capital to a creditworthy operator with adequate downside protection in case of non-performance.
WHAT IS THE TARGET RETURN TO INVESTORS FOR THE ALTA FUNDS?
Alta Real Estate targets 12.0% cash on cash annual returns with 3.0% annual rent increases, plus additional potential upside from i) mortgaging the assets and using some or all of those proceeds to pay dividends to our investors, and/or ii) selling the assets back to the tenant or to a third party at a premium.
Alta Debt seeks a 10.0% preferred annual cash on cash return, with a 15 - 20% target IRR for each transaction.
DO ALTA’S HIGHER EXPECTED RETURNS IMPLY A HIGHER RISK?
No, the transactions for both funds are structured with strong downside protection and are primarily backed by real estate, resulting in a low risk profile. The expected returns reflect current market conditions. The cannabis industry is growing at a 14% CAGR with sales, public support and use rates at an all-time high. However, cannabis is not yet federally legal and therefore lacks access to traditional financing. Even companies with the strongest financials and operating histories are excluded from bank loans, mortgages and institutional capital. Lack of capital combined with the industry’s unprecedented secular growth supports Alta’s financing terms and yields and its high target returns.
HOW LONG HAVE THE GENERAL PARTNERS BEEN MANAGING INVESTMENTS IN THE US CANNABIS INDUSTRY?
HOW MUCH DO THE GENERAL PARTNERS INVEST IN THE FUNDS?
The GP contributes 2% of all investor capital commitments into the funds.
IS IT LEGAL TO INVEST IN AN ALTA FUND IF CANNABIS IS NOT YET FEDERALLY LEGAL?
Alta Real Estate’s tenants are licensed companies that operate in full compliance with state laws, and precedence shows that landlords are not subject to legal risk if they are not interest holders in the cannabis license. Alta Debt’s borrowers are the real estate owners, not the actual operating company, and therefore Alta Debt never lends money directly to a licensed cannabis entity. Our investments are considered ancillary and are not plant touching, allowing us to avoid the legal scrutiny faced by cannabis operators. In the event that an Alta tenant or borrower engages in illegal activity and has their assets seized, such seizure consists only of the tenant’s or borrower’s net equity; the Alta fund(s) would still have due process in which any recorded liens must be paid in full as well as all collateral executed in the lender’s benefit. We always recommend consulting legal counsel prior to investing to understand all potential risks.
SINCE CANNABIS IS NOT FEDERALLY LEGAL, DO LENDERS, BORROWERS OR TENANTS PAY ALTA IN CASH?
No. All payments are made to Alta via wire transfers or certified checks.
WHAT WILL HAPPEN TO RETURNS IF THE GOVERNMENT LEGALIZES CANNABIS AT THE FEDERAL LEVEL?
We expect an increase in asset prices derived from lower cap rates, as well as an opportunity to mortgage our assets and use the proceeds to pay dividends to investors. We could also stretch our equity, invest in new properties and/or originate new loans.
WHAT IS THE MINIMUM INVESTMENT AMOUNT?
The minimum investment amount is USD$500,000 into either fund. Investors can choose to invest in one fund or both.
WHAT FEES DO I PAY AS AN INVESTOR?
Alta Real Estate investors annually pay:
After the investors receive a 20% preferred pre-tax return (including repayment of all management fees), there is a carried interest waterfall structure which is split between the LP and the GP depending on the investment yield.
Alta Debt investors annually pay:
0.65% fixed management fee over committed capital, and
0.65% management fee over invested capital
Investors will also pay an additional 1.00% annual fee to cover fund expenses.
After investors receive a 10% pre-tax annual preferred return (post management fees), there is an annual 80/20 carry split between the LP and the GP.
0.50% fixed management fee over committed capital, and
1.00% management fee over invested capital
WHAT IS THE LOCK UP OR INVESTMENT PERIOD?
Two years after the close of all capital commitments.
HOW LONG DOES IT TAKE FOR INVESTORS TO START GENERATING RETURNS ON INVESTED CAPITAL?
Immediately once an acquisition or a loan is closed.
HOW OFTEN DOES THE FUND PAY DISTRIBUTIONS?
Alta Real Estate will pay annual distributions on each property acquisition.
Alta Debt will pay a semi-annual preferred return of 10.0% and will pay an additional carried interest to investors annually.
HOW ARE PROFITS DISTRIBUTED TO INVESTORS?
Alta Real Estate pays its investors annually on each acquired property, giving investors a rolling recurring cash flow.
Alta Debt fund pays its investors a semi-annual return in addition to their annual carry.
ARE THE FUNDS LEVERAGED?
Not at this time but we are open to such possibility in the future.
WHO MAKES ALL INVESTMENT DECISIONS?
The General Partner makes all investment decisions. The investment thesis is written in the Limited Partnership agreements, which all investors agree to upon confirmation of their capital commitments. If an investment opportunity diverges from the fund’s investment thesis, the General Partner must seek approval from the fund’s investment or credit committee.
HOW ARE THE INVESTMENT AND CREDIT COMMITTEES FORMED?
The investment and credit committees are comprised of 2 GP members and 3 LP members, and all affirmative actions require 4 votes for approval. The 3 LP members for each committee will be elected amongst the investors with the highest capital commitments into that fund.
HOW MANY TRANSACTIONS HAVE THE ALTA FUNDS COMPLETED AS OF 2Q2020?
Alta Real Estate has acquired 3 properties, having looked at 100+ cannabis opportunities.
Due to our extreme discipline and rigorous diligence process, we will only pursue the best investment opportunities with the most creditworthy operators.
Alta Debt is expected close and launch by 3Q2020.
DOES ALTA ONLY TRANSACT WITH CALIFORNIA CANNABIS OPERATORS?
No, Alta evaluates transactions in all states where cannabis has been legalized for medical or adult use. Our primary target markets include cities with friendly regulators, high commercial property values and states where the cannabis economy is burgeoning, which provides additional confidence in the strength of our borrowers’ and tenants’ businesses.
HOW DO THE ALTA FUNDS SOURCE NEW DEALS?
The Alta funds source opportunities primarily through the
ALTA ECOSYSTEM. Alta has an exclusive first look right and advertisement agreement with CannaMLS, a platform for selling cannabis real estate that receives over 40 new listings per week. Alta also has an exclusive first look right through Alta Financial, which provides strong visibility into other structured lending transactions and connect the funds with cannabis borrowers seeking capital.
In addition to the
ALTA ECOSYSTEM, Alta has also developed a robust network of experienced brokers that consistently refer opportunities to the funds for our consideration.
WHAT ARE THE COMPS/VALUATION METHODS WE USE WHEN ACQUIRING A PROPERTY OR MEASURING OUR COLLATERAL UNDER A LOAN?
We use recent, local, non-cannabis sale comps in addition to third-party appraisals for property valuations.
WHAT IS A GREEN ZONE?
A green zone is the area within a municipal boundary that has been designated to allow for commercial cannabis businesses to operate. Green zones tend to be limited in size and the properties within those zones are often subject to additional zoning restrictions, like a minimum distance “buffer” from a school or park, making the best properties within a green zone more valuable to cannabis operators. Alta avoids paying a green zone premium by evaluating the value of the property as if it were not inside a cannabis green zone. If the fund needs to sell or lease the property to a non-cannabis operator in the future, there would be no significant value loss on the asset.
HOW LONG DOES IT TAKE TO EXECUTE REAL ESTATE COLLATERAL?
Typically, between 1 and 6 months.
WHAT IS THE ALTERNATIVE USE FOR THESE PROPERTIES IN CASE OF DEFAULT?
Since the funds evaluate mostly downstream assets (retail, distribution, commercial kitchens, and some manufacturing), the properties can be easily sold or leased to non-cannabis companies if necessary. Alta looks at the true value of the commercial real estate, removing any cannabis premium or “green-zone” tax.
CAN THE ALTA FUNDS USE CANNABIS LICENSES AS COLLATERAL?
No, most cannabis licenses are non-transferable. However, the funds can accept the shares of the entity that owns the licenses as collateral without having to disclose this information to local and state governments and therefore avoid falling into the “financial interest holder” category (defined below). The shares could then be sold to any interested third party, allowing the fund to realize the economic gain from the sale without ever directly owning a cannabis license.
WHAT IS A FINANCIAL INTEREST HOLDER? IS EITHER ALTA FUND OR THE ALTA INVESTORS CONSIDERED A FINANCIAL INTEREST HOLDER?
States that include disclosure requirements for individuals and entities that have interests in a licensed cannabis company will often differentiate between having a direct equity interest, which would make them an owner in the cannabis company, and having some other financial interest in the company, classifying them as a “financial interest holder” instead. Financial interest holders include individuals or companies that make loans to cannabis entities or who take a percentage of profits or revenue from the cannabis entity.
Landlords that charge a predetermined, fair market value lease rate to cannabis tenants are exempt from being classified as a financial interest holder, so Alta Real Estate and its investors’ identities do not need to be disclosed. Alta Debt does not make loans to licensed cannabis companies, but rather to a separate company that owns the borrower’s real estate collateral, which allows Alta Debt to also avoid ownership disclosures.
WHAT ARE THE POTENTIAL RISKS FOR A FOREIGN INVESTOR IN WHOSE COUNTRY CANNABIS HAS NOT BEEN LEGALIZED?
Our legal team has structured the funds to ensure that neither fund nor any of the investors are participating in plant touching enterprises. Alta Real Estate Fund will acquire real estate assets and lease them to licensed cannabis operators but will have no ownership interest in the plant touching business. Alta Debt will not lend directly to plant touching companies; it will only lend to the entities holding the assets. Thus, neither fund is required to disclose any investor information to US local and/or state governments.