Renting out single-family homes was supposed to be a transitional business for Tricon Residential; a stopgap while the US for-sale housing market recovered from the global financial crisis.
Real estate assets under management
Who’s in their corner: Institutional investors such as the Teachers’ Retirement System of Texas, Arizona State Retirement System, Pacific Life and CPP Investments through a series of joint ventures
“We didn’t even know what single-family rental was,” Tricon chief executive Gary Berman says. “If you go back 12 to 15 years, nobody had heard of it as an institutional asset class.”
Today, single-family rentals are the Toronto-based firm’s core business. It owns more than 27,000 rental homes, which account for the bulk of its $12 billion of assets under management.
Tricon started buying foreclosed homes and land in the Sunbelt at deep discounts in 2009 and 2010, Berman says. Unlike large groups such as Blackstone and Starwood, which followed a similar path, the firm was not wading into new waters so much as trying to stay afloat.
Originally focused on financing US homebuilders, Tricon shifted to existing homes out of necessity, betting it could turn a profit when the market recovered. When that recovery began taking longer than expected, the firm put the homes up for rent to generate income.
In 2012, it made a business out of it and began building systems – using a hybrid of humans and software – to scale the platform and manage it efficiently, Berman says. Those investments remain an edge today.
“It’s very difficult for someone to come into this business now,” he says. “We and a few other players have started to build a moat around the business, because we made such a big investment in both people and technology over a long period of time.”
By 2018, Tricon had proven the business model worthy of institutional capital. That year it launched a $750 million joint venture, with $250 million apiece from the Teachers’ Retirement System of Texas and an unnamed sovereign wealth fund, to buy 10,000 rental homes.
The following year, in 2019, Tricon inked a $450 million partnership with the Arizona State Retirement System to develop build-to-rent communities. Then, in 2021, Pacific Life Insurance Company joined the other two institutions for Tricon’s second single-family rental joint venture, this time with $1.5 billion of equity to acquire 18,000 homes.
Berman says Tricon aims to own 50,000 homes by 2024 and then double that figure shortly thereafter. Such growth brings with it the opportunity to manage steadily more capital for institutional investors, he says, but not at the expense of the firm’s owner-operator identity.
“We’re in the early days of how much capital we can manage for private investors,” Berman says. “But I don’t want to confuse the market and make them think we’re an aggregator or an allocator. First and foremost, we’re a landlord and we’re making a major co-investment into any fund that we raise.”