Tricon Residential and CPP Investments have forged a partnership to create up to 3,000 apartments in build-to-core multifamily developments with a value of up to $1.4 billion in the Greater Toronto Area.
The two partners are providing up to $500 million (all figures CAD unless specified) in equity for the partnership. CPP Investments is contributing $350 million and Tricon Residential up to $150 million (a 70-30 split). The balance of the $1.4 billion would be financed.
The partners plan to focus on developing high-quality rental apartments, located close to major transit and employment nodes, intended for a long-term hold. Tricon is to serve as the developer, asset manager and property manager of the JV projects.
“The joint venture will increase the stock of private rental housing, a stated goal of the City of Toronto and provincial government, and will play an important role in enhancing the city’s vibrancy and livability,” said Gary Berman, president and CEO of Tricon Residential, in the announcement Tuesday morning.
“Toronto’s compelling long-term rental fundamentals are firmly in place, including high population growth, a diverse economy and increasingly stretched home prices.”
First project for Tricon, CPP Investments
The JV’s first project is in Toronto’s Downtown East neighbourhood and is expected to consist of two towers totalling 870 units on a 1.8-acre site.
It is designed to feature a mix of one-, two- and three-bedroom units as well as an amenity package that includes a commercial-quality fitness facility, rooftop garden, outdoor pool, 24/7 concierge, automated parcel management system, bike lockers and a half-acre public park.
The location is a short walk to a future Ontario Line subway station and is walking distance to the downtown Toronto Central Business District.
“The current dislocation we are seeing in the land market presents an opportunity to source attractive development sites and provide high-quality rental apartments that respond to the needs of today’s renters, with relatively large livable suites, extensive amenities and lifestyle programming (including virtual offerings) that contribute to a sense of resident community,” Berman said in the release.
The development cost is expected to be approximately $600 million, including approximately $192 million of equity capital contributed from the JV, of which Tricon’s share is approximately $58 million. Construction is expected to commence in early 2022 with completion expected in 2025, pending closing of the transaction.
GTA needs more housing
“The Greater Toronto Area continues to experience significant undersupply of purpose-built rental properties, and even less stock of modern, institutionally owned and operated rental properties,” said Hilary Spann, managing director, head of real estate Americas, for CPP Investments in the release.
“We see a long-term opportunity to build and invest in properties alongside Tricon, a well-respected owner, developer and operator in the region, to meet this need with newer multifamily properties in transit-oriented locations.”
Tricon is one the most active developers of rental housing in downtown Toronto. The venture is expected to allow Tricon to scale its Toronto-based multifamily portfolio to above 7,000 units in partnership and maintain an active development pipeline as nearly 1,300 units are constructed and stabilized over the next two years.
Tricon expects to maintain its capital allocation below 10 per cent for development activities, with over 90 per cent allocated to stabilized rental assets.
Tricon raising equity, expanding joint ventures
In a recent interview with RENX, Tricon managing director, capital markets Wojtek Nowak said the firm wanted to raise US$1.2 billion in equity in as little as the next nine months to expand its portfolio.
He made the comments in February after Tricon had announced the sale of an 80 per cent stake in its 23-property, US$1.3-billion multifamily portfolio in the United States to two institutional investors. Tricon planned to use the proceeds, about US$425 million once debt was taken into account, mainly to lower its leverage by 500 basis points
“We are looking to raise a lot of money in 2021, this is just one piece,” Nowak said at the time, noting that raising third-party capital is a major focus this year. “We were looking to raise $1.2 billion of equity over the next two years, but really we are looking for it in the next nine months.”
A syndicate led by Blackstone Real Estate Income Trust, Inc. made a US$395-million investment in Tricon Residential in August of 2020, which president and CEO Gary Berman told RENX in another recent interview “injected a lot of liquidity into the company” and left it well-capitalized.
About Tricon and CPP Investments
Founded in 1988, Tricon is a rental housing company catering to the middle-market demographic in the U.S. and Canada. Tricon owns and manages approximately 31,000 single-family rental homes and multifamily rental units.
CPP Investments manages investments of the more than 20 million contributors and beneficiaries of the Canada Pension Plan. Investments are made around the world in public equities, private equities, real estate, infrastructure and fixed income.
Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At Dec. 31, 2020, the fund totalled $475.7 billion.