MARIO ANZUONI
Tricon Capital Group Inc. expects a recovery in residential real estate, and is launching an IPO to raise the money it thinks builders will need to borrow to get their projects started.
The Toronto-based money manager creates funds to invest in real estate projects in Canada and the United States. The initial public offering will look to raise at least $100-million, said two people familiar with the deal, giving it enough of a float to appeal to small- and mid-capitalization investors.
The company is hoping to be a sort of "Onex of residential real estate," said a person familiar with its plans. Onex is known as a smart value investor that makes money both from well-timed investments and from fees charged to investors for running funds.
"With more than $1-billion of assets under management, we believe Tricon is one of the leading sources of capital to the North American residential real estate development industry," the company said in its prospectus, adding that it has invested in 137 deals for projects valued at about $8.5-billion.
While other sectors of the economy have shown encouraging signs, housing starts in both Canada and the United States have lagged the broader recovery.
The U.S. Federal Reserve's policy-making committee warned in its minutes from its mid-March meeting, released yesterday, that "housing starts had remained flat at a depressed level, investment in non-residential structures was still declining, and state and local government expenditures were being depressed by lower revenues."
The weakness has driven many of Tricon's U.S. competitors out of business, the company's prospectus said, and "most of these investors are unlikely to return to the market in the foreseeable future." Its key markets of Phoenix, Atlanta and California have been particularly hard hit.
In Canada, starts rose to 196,700 units in February, on a seasonally adjusted annual rate, from 185,400 in January, Canada Mortgage and Housing Corp. said. The number had dropped to as low as 120,000 through the recession.
"Canada's performance in the last few months has been favourable after stumbling out of the gates as the recovery started," said Toronto-Dominion Bank economist Millan Mulraine.
"That appears to be firm for the next few months, and then we shall see. At the least, we can expect more consistent levels as compared to other years."
The IPO market is showing renewed vigour in Canada, a relief to entrepreneurs who have been trying to raise cash but have been hamstrung for much of the past two years by investors wary of new names. Five big TSX IPOs this year, the largest being Athabasca Oil Sands, have raised $1.8-billion, half as much as was raised in all of 2009.
That's likely to draw more companies such as Tricon into the market, analysts said.
"A number of companies that might have considered an IPO in the last two years were forced to defer those plans as a result of the credit crisis," Neil Manji, head of Canadian IPO services at PricewaterhouseCoopers, said yesterday as the accounting firm released the results of its first-quarter IPO survey.