For more than a decade, Gary Berman has been chasing an ambitious goal—taking Toronto-based Tricon from a mere private provider of equity and mezzanine capital to a "housing brand."
By the looks of it, he's been successful.
With its May 2010 IPO, Tricon has grown into a public company with reach into about every portion of North American real estate, including land development and home building, single-family rentals, manufactured housing, and multifamily rentals.
"We consider ourselves to be a housing brand," says Berman, who recently was promoted to president and CEO of Tricon as his father, David, moved to executive chairman and director. "We want the public markets and the private markets to think of us that way."
In the American single-family business, people may first think of Tricon as a company that does joint ventures with big builders like the New Home Co. and Shea Homes. And there's a good reason for that: that business, under the banner of Tricon Housing Partners, currently constitutes about $1.5 billion of the company's $2.2 billion assets under management.
Over the next two to three years, that will change. "Our goal is to go from $2 billion to $5 billion," he says. "The majority of that growth will be in the other verticals [outside of single-family new home investment]. Tricon Housing Partners will continue to grow. But there will be much more growth in single-family rental and manufactured housing and, of course, multifamily development."
But Berman promises he wouldn't forget about single-family development.
As Tricon Housing Partners has grown to $1.5 billion, it has relied on partnerships with American builders.
"It's very much about partner selection," Berman says. "We don't believe that we can a parachute ourselves in from Toronto and think we really understand Phoenix. It's always about partnering with people on the ground that are really entrenched in their communities."
The network includes Larry Webb, CEO of The New Home Co. In early 2011, Tricon invested in the New Home Co.'s growing platform. "I did a lot of research on them," Webb says. "I went to Toronto and toured their communities. Everything I heard was positive. And, it all turned out to be true."
Webb says he uses Tricon's leadership as a sounding board for his own company, which went public in 2014 (David Berman sits on his board). Tricon also has partnered with New Home on development deals in California.
"They are very involved from planning to architecture to the selling and pricing of the homes," Webb says. "We take large deals to them because they're so well capitalized."
Berman seems focused on fostering his existing relationships, like the one with New Home, in single-family.
"We'll continue to see a large amount of repeat business with them, but there's always room to add new partners," he says, adding that he can see adding a few more over time—but not at the expense of current partners. "We're pretty happy with our existing partners. We want to make sure that we serve them properly."
Tricon has remained focused on the Sun Belt, and Berman says that trend will continue. "That's where Americans are moving and people want to be," he says.
The Rental Segment
Over the past five years, Americans haven't just been buying homes. The homeownership rate has fallen from 69% to 64% as the foreclosure crisis, anemic job growth, and lack of affordable options kept people out of homeownership. Just because someone can't afford to buy a new home, Berman doesn't want to necessarily lose that person as a customer.
"We're trying to serve the entire demographic—anyone who is looking for a place to live whether it's ownership or whether it's rentership," Berman says. "In our land and home building [business], which is the for-sale business, we're servicing more affluent consumers who want to buy new homes. On the rentership side, we're servicing the workforce."
With its single-family rental business, Tricon American Homes, the company has picked up more than 5,000 rental homes through mainly one-off acquisitions.
"We are one of five to 10 operators helping to institutionalize the [single-family rental] industry," Berman says. "I think it's the most exciting thing to happen to real estate since the invention of REITs."
With some of the early single-family rental housing pioneers—like Ellington Housing (who sold its business to American Homes 4 Rent in December)—looking to exit, Berman thinks there ultimately only will be about five big players in the business.
"I think we're at the beginning if a consolidation wave," Berman says. "At the end of the day, there are only a small number of groups that can access the lowest cost of capital, which is through securitization. I think anyone who can't access capital will basically fall away. They won't be able to compete."
While Tricon has made a big bet on single-family rentals, it's kept its multifamily focus above the border in Canada. Eventually, it plans to build apartments in the Sun Belt.
"In Canada, there isn't much of a multifamily industry," Berman says. "All of the new apartments provided in Canada are through condos. Developers build condos and sell to investors who rent them. We think there is an opportunity to replicate [with large institutional investors] what's happening in the U.S. in Canada."
The Return of For-Sale
Despite his bets on the single-family rental market and interest in multifamily, Berman's gut tells him that over the next few years, the for-sale market will start seeing a greater percentage of starts, and that the homeownership rate likely has plateaued at 64%.
"The majority of Americans are owners are not renters," Berman says. "Credit is loosening, the economy is strong, and there's a lot of job growth. When people are feeling good about their lives and prospects, they'll make that home purchase decision."
In fact, Berman thinks that when buyers do start to buy, it could be the beginning of a sustainable cycle. "This could be a long cycle because the entry-level buyers haven't been participating," he says. "It's inevitable they will form households, have families, and move to areas with good schools. That typically is in the suburbs. That trend is still there. It's just taking longer to happen."