Tricon Residential Forms $1.5B SFR Joint Venture
- May 12, 2021
Tricon Residential is expanding its single-family rental portfolio with a new $1.5 billion joint venture formed with Pacific Life Insurance Co. and an unidentified leading global institutional investor that aims to acquire approximately 5,000 newly built homes in the U.S. Sun Belt.
Tricon will be the asset manager and property manager of the joint venture which already has several dozen homes under contract.
The new joint venture, Homebuilder Director JV, will serve as a complement to Tricon’s existing single-family rental joint venture (SFR JV-1), which is focused on the organic acquisition of resale homes and was formed in 2018. Tricon, an owner and operator of SFR rental homes and multifamily rental apartments in the United States and Canada, entered the SFR market in 2012 as an owner-operator and started to manage third-party institutional capital and its own capital in the rapidly growing SFR market about three years ago.
The company has been expanding its reach and investment strategies from buying existing homes through the SFR-JV-1 to the acquisition of new purpose-built homes from homebuilders in the new JV.
The Homebuilder Direct JV will have an initial equity commitment of $300 million (one-third from each partner) and include the ability for the investors to increase the vehicle size to $450 million, representing $1.5 billion of purchasing potential when including associated leverage. The strategy will enable the JV to purchase about 5,000 new single-family homes directly from national and regional homebuilders, including both scattered site homes and finished built-to-rent communities.
Gary Berman, Tricon Residential president & CEO, said in prepared remarks the Homebuilder Direct JV leverages the company’s longstanding relationships with homebuilders across the U.S. and rounds out its SFR strategy to include new homes along with its ongoing acquisition of existing homes in the SFR JV-1 and development of BTR communities in its THPAS JV-1, a $450 million joint venture with the Arizona Retirement System that has an anticipated capitalization of $1 billion. The company’s three strategies represent a total of up to $1.65 billion of equity capital with a total investment capacity of up to $4.5 billion in up to 19,000 SFR homes.
“We now have a clear runway to grow our single-family rental portfolio well beyond 30,000 homes,” Berman said in a prepared statement.
In making the announcement with two institutional investors, Berman cited “exceptional demand for high-quality homes as a result of de-urbanization, de-densification and work-from-home trends that have only accelerated in the past year.”
Growing SFR Market
Tricon’s new JV with Pacific Life and the unidentified global investor, an existing partner, comes as the National Association of Realtors reports 99 percent of the U.S. metro areas covered saw median home price increases in the first quarter of 2021. The NAR reported 89 percent of those metro areas saw median home price gains in double-digit percentages.
With home prices rising along with aging Millennials who are moving to suburbs, the SFR market in the U.S. continues to be red hot and increasingly attracting investments from institutional players like Blackstone Group and Pacific Life.
During an April webinar sponsored by Walker & Dunlop, Jon Ellenzweig, Tricon’s chief investment officer, said the SFR trend was growing before the COVD-19 crisis and is going to continue long after the pandemic recedes.
Other big deals in recent months include Lennar Corp. launching a $4 billion BFR platform with Centerbridge, Allianz Real Estate and other institutional investors and DivcoWest investing $250 million in equity in a joint venture with Atlas Real Estate to deploy $1 billion into acquiring and renovating homes for the SFR market in the Western U.S.
In March, the Great Gulf Group formed a SFR partnership with Westdale Real Estate Investment and Management and a global institutional investor with $200 million in equity to build 1,000 to 2,000 BRF homes a year.