Tricon, Arizona Pension Plan Invest $500M in SFR Strategy

Tricon Willow Creek. Image courtesy of Tricon Residential Inc

Tricon Residential Inc. is teaming up with Arizona State Retirement System for a second time, adding $500 million in equity to its previous $450 million investment in the single-family rental home market that will create an estimated 2,500 homes in the U.S. Sun Belt.

The new $500 million joint venture includes $100 million, or a 20 percent co-investment from Tricon, which it expects to fund gradually over a three-year period, Gary Berman, president & CEO, said during an analysts’ call in early August to discuss Tricon’s second-quarter earnings report.

The newest infusion of capital by the partners into the hot SFR market represents an investment of more than $1 billion when associated leverage is included. Combined with other joint ventures Tricon has made in recent years, the company has committed $2 billion to new SFR housing developments in the United States. The first joint venture between Tricon and ASRS announced in September 2019 resulted in 2,000 homes already built and nearly 3,500 home sites currently under development. Tricon owns and operates approximately 37,000 single-family rental and multifamily rental apartments in the U.S. and Canada with a primary focus on the U.S. Belt.

Berman said in a prepared statement the newest joint venture is aimed at increasing the available housing supply so families have more single-family home options while alleviating pressure on the rental housing market. To meet the growing demand, Tricon has already invested $1 billion in developing new rental housing and has a pipeline of more than 7,000 new homes under development.

Building a SFR Platform

Tricon 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 sector about three years ago. The company’s build-to-rent program is focused on developing well-designed single-family home rental communities in neighborhoods with good schools, low crime rates and easy access to employment centers and retail. The communities include parks, playgrounds, pools and gathering spaces. All newly built homes include high-quality finishes and features such as granite countertops, stainless-steel appliances and wood-style flooring. More than 70 percent of the single-family homes have clean energy amenities including energy-efficient water heaters and solar energy systems. Berman said during the Aug. 11 earnings call Tricon is also piloting its first net zero rental homes in a build-to-rent community in Grand Central Park in Houston.

Late last year, Tricon announced an additional build-to-rent pipeline of 3,000 new rental homes across 23 communities. Tricon Willow Creek, a partnership between Tricon and HHS Residential, is part of the pipeline and will include 146 rental homes in Tomball, Texas. Set to open in late 2022, it’s the first of 14 SFR home communities Tricon is building in the Houston, Dallas, Austin and San Antonio areas that will total 1,900 homes. Tricon and HHS Residential also broke ground this spring on the 155-home Triton Bryson rental community in Leander, Texas, that is expected to open in early 2023.

Tricon’s SFR strategy also includes acquisitions. Tricon stated in its Q2 earnings report the single-family rental portfolio had expanded by 7.7 percent during the quarter, up 34 percent year-over-year, through the organic acquisition of 2,489 homes at an average price of $364,000 per home, for a total acquisition cost of $906 million. Tricon’s share of the investment was $274 million. Those acquisitions are funded with a $5 billion joint venture announced in July 2021 with three institutional investors including the Teacher Retirement System of Texas and Pacific Life Insurance Co. to purchase more than 18,000 SFR homes in the Sun Belt. Tricon also formed a $1.5 billion partnership with Pacific Life and a global institutional investor to acquire another 5,000 newly built homes in those target markets.