Property Biz Canada
Canada's Tricon looks to double U.S. portfolio in 2013
Property Biz Canada
Thu Jan 10 2013
After a busy 2012 in which it acquired more than 1,500 homes in the U.S., Toronto-based Tricon Capital Group looks to maintain that pace this year.
“We don’t have a hard target yet but we would be happy with 3,000 homes by year end,” said Gary Berman, Tricon’s President.
To date, Tricon has raised about $160 million and spent $140 million on its U.S. acquisition strategy. One notable aspect of its portfolio is it is all-but debt-free, with the majority of its homes purchased “free and clear” with no outstanding mortgages.
Opportunistic and optimistic
Tricon has recognized opportunity in the U.S. foreclosure crisis, in which home prices have fallen as much as 30% in some markets, forcing “underwater” owners in many cases to walk away from homes that are worth less than their mortgages.
"We are focused on markets with positive long-term population and employment growth fundamentals," said Berman, "and are trying to maximize total return, which comes from both rental income as well as home price appreciation."
While Tricon has a “bullish” outlook for the U.S. residential market, it is not counting on a double-digit rebound in home prices over the next few years to justify its strategy. “We’re not expecting things to double, triple over the next five years or go back to where the peak of the market was,” he said.
“Looking at certain markets, in some areas, we predict that home prices could go up 5% or more per year, which over time is a huge bump-up in the capital investment we have made into these properties. In the meantime, we also generate a very healthy yield for our shareholders.”
By ones or twos, or hundreds
For the most part, Tricon has built its U.S. single-family rental portfolio the hard way, buying homes in “ones and twos,” such as in foreclosure deals, often quite literally in auctions on the courthouse steps.
Tricon got a big boost recently when it announced the acquisition of a portfolio of 550 homes in Charlotte, North Carolina for US$26 million, marking its first significant portfolio purchase. Based on current income in place, the portfolio is generating an income yield/cap rate of over 12.5% before maintenance/capex reserves, according to Tricon.
The Charlotte portfolio was put together over several decades by a private investor and has an occupancy rate of approximately 95%. Tricon is entering Charlotte in partnership with Lake Success Living, which has been active in Southeast Florida (Miami-Dade, Broward and Palm Beach Counties) since 2009 and in Charlotte since mid-2012.
Tricon has also set its gaze westward, inking a new partnership in single-family rental specialist Turnstone, LLC. Tricon, which is already active in California, expects to begin acquiring homes in the Golden State in partnership with Turnstone early in 2013.
Tricon said it will be on the lookout for similar portfolio deals like it found in Charlotte, but it expects the majority of its portfolio growth will continue to be the tougher “ones and twosies” purchased out of bank foreclosures.
Finding tenants for new properties is not as difficult as one might imagine. Many of the homes wind up being rented by the very people who used to own them previously.
Its main competition in the space is comprised of large corporate entities: Blackstone Group, Colony Capital and Silver Bay Realty Trust Corp.
End game for Tricon
The Toronto company does not see the current buyer’s market opportunity lasting indefinitely for U.S. single family homes. “In our view this opportunity will last 12 to 18 months, 24 months at best. You really have to be opportunistic – and be careful and quick – to move on this if you want to build size and scale.”
Founded in 1988, Tricon is one of North America’s leading residential real estate investment companies with approximately $1.1 billion of third-party assets under management and its portfolio of U.S. single-family rental homes. Tricon provides financing to local operators or developers in select markets in the United States and Canada, with a primary focus on for-sale housing in growing markets.
Since its creation, Tricon has invested in approximately 150 transactions for development projects valued at more than $10 billion.