Real estate darling Tricon raises $150-million as shares climb

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The Toronto-based residential real estate company taking the United States by storm is tapping investors for fresh funds as it builds a brand new dimension of its business model.

Late Tuesday, Tricon Capital Group announced the creation of a new initiative, Tricon Luxury Residences, which will focus on developing and managing top-tier rental apartments in Canada and the United States. Until now, Tricon has largely focused on developing residential homes and managing single-family rentals south of the border – 90 per cent of its assets are housed in states such as Texas, Florida and California.

To help fund the new business, Tricon launched a $150-million bought deal, co-led by RBC Dominion Securities and GMP Securities. The company is one of Canada's recent real estate success stories, and since its initial public offering in 2010, its share price had nearly doubled. "We felt this was an opportune time to access the public market" chief executive officer Gary Berman said on a conference call to discuss the deal.

Tricon's new rental initiative is heavily rooted in expectations for the millennial generation. The demographic segment is huge, Mr. Berman said, adding that this group has very specific needs that make them prefer rental properties, and Tricon is particularly keen on the prospects in cities such as Dallas, Phoenix, San Diego and Toronto.

South of the border, many millennials are saddled with heavy school debts. Some have also watched their parents suffer through the recent housing crisis. Both factors lead them to rent. In Canada, immigrants keep arriving in urban centres and more millennials are moving to downtown hubs, which has kept vacancy rates under 2 per cent in cities such as Toronto, Calgary and Vancouver – an astoundingly low level. House prices in many big Canadian cities are also through the roof, pushing more people to rent.

In the United States, Tricon is partnering with StreetLights Residential to develop the company's apartment portfolio. Two opportunities have already been secured in Dallas. In Canada, Tricon has partnered with a domestic pension plan to fund the development of a new 50-storey condo tower in downtown Toronto.

Tricon estimates annual internal rates of return of 15 to 20 per cent for the new projects on both sides of the border – though it admits IRR's can be a bit weaker in Canada.

The bought deal is the company's first equity financing in two years, and it comes on the heels of a successful $75-million IPO for Automotive Properties REIT, which gave Bay Street's real estate sector a much-needed confidence boost.