Procida 100 Mile Fund Becomes A REIT

Procida Funding has formed a taxable real estate investment trust subsidiary for its 100-Mile Fund, an open-ended commercial real estate debt fund. The move, aimed at reducing the tax burden on the company’s private investors, comes as more institutional managers are looking at options to broaden their distribution and bring in a wider swath of investors.

Since its inception, income generated from the fund has been taxed as ordinary income but Billy Procida, founder and president, noted that the fund operates similar to a REIT. REITs are generally exempt from taxes at the corporate level as long as they distribute at least 90% of their income to investors.

The Englewood Cliffs, N.J.-based real estate private equity firms originates loans within a hundred miles of its headquarters through the fund, which was established in 2011 as a limited liability company. The fund is also an approved alternative investment for IRAs through custodian Millennium Trust.

“[The 100-Mile Fund] has more than 100 investors, distributes 100% of its income annually and reports quarterly transparently, and is audited like the best public companies,” Procida said. No other operational or functional changes have been made at the company level, he added.

Changes under the 2017 Tax Cuts & Jobs Act reduced the highest effective tax rate for investors from 37% to 29.4%. “To finally get some tax relief will leave more money after taxes in our investors’ pockets!” Procida added.

The fund has delivered investors annual net dividends of more than 13% with an annual targeted return of 10%. It originates loans and makes investments of $2m to $50m in and around the New York City area and has originated more than $600 million in loans. It specializes in new construction, gut renovations, historic restorations, and community improvements including manufacturing and hospitality projects.

Sills Cummis & Gross P.C. provided legal and advisory services and Smolin Lupin provided auditing services.