In the United States, Canadian-based Tricon has made its name in single-family housing doing joint ventures with big builders like the New Home Co. and Shea Homes. Under the banner of Tricon Housing Partners, that business currently constitutes about $1.5 billion worth of the company's $2.3 billion assets under management.
But things are changing. After expressing an intent to diversify, the publicly traded firm announced the launch of Tricon Luxury Residences in late summer. Its purpose: to invest in Class A, purpose-built rentals in the U.S. and Canada.
In the States, Tricon has entered into a partnership with Dallas-based StreetLights Residential. "We see much better risk-adjusted opportunities in the U.S. than in Canada," says Gary Berman, Tricon's president and CEO. "We're focused on U.S. housing. If there's any bright spot in the market right now, from a public-market perspective, it's U.S. housing. If interest rates remain low and we're in an environment with lower oil and gas prices, that's a positive for U.S. housing."
Berman was drawn to StreetLights for a number of reasons. "They're fully integrated—they do architecture, design, engineering … in a lot of markets," he says. "They produce a product we feel is differentiated, and they try to create a sense of place. They're able to drive rents and absorption against buildings across the street because, we think, their buildings are better designed."
Doug Chestnut, CEO of StreetLights, sees a lot of commonalities with Tricon. "We believe they have a strategic approach to real estate and that their partnership is relationship focused, as they make a great effort to know and understand their partners prior to making deals," he says. "They're also very like-minded with SLR, in that they place a high level of importance on urban design principles."
Initially, Tricon and StreetLights will seek opportunities in Dallas, Phoenix, and San Diego. The companies began working together 18 months ago with two stand-alone venture deals, one in San Francisco, The Kathryn, and one in Austin, Texas, The Michael. "Those are markets with good job and population-growth fundamentals," Berman says.
"They're institutional but don't attract the same amount of institutional capital as the gateway cities."
Berman is focused on developing new assets, which can give him a yield 150 to 250 basis points wider than where underlying cap rates are for stabilized properties, and holding them. Once they're stabilized, Tricon could look to bring in an institutional investor. "Tricon's core competency is development," Berman says. "It's something we're comfortable with."
With StreetLights, Tricon has about 2,600 units in the pipeline. Eventually, it could look to partner with builders in other markets, similar to its strategy in for-sale product. "If Streetlights doesn't have an expertise in, or isn't interested in pursuing, other markets, we're obviously open to exploring relationships with other developers," Berman says.
In Tricon's backyard of Canada, where the company has three buildings in the pipeline in Toronto, the apartment environment is much different. There, condo developers build luxury units and sell them to investors. Those buyers end up renting their condos out—leaving a fragmented rental market.
"What we want to do in Canada is basically replicate U.S.-style multifamily development," Berman says. "We build projects that look and feel like condos, but they'll be professionally managed."
As far as the effect of its American single-family business, Berman says Tricon is still looking to new markets. "We're still in expansion [mode]," he says.
