Tricon Capital Group Inc., the Canadian company whose profit rose five-fold last year after betting on U.S. housing in the depths of the slump, now plans to expand into upscale mobile-home parks.
Tricon is looking to buy communities of manufactured homes in the so-called “sun belt” of Arizona, Florida, and California, where selling prices average $60,800, the cheapest of any U.S. region. The Toronto-based company aims to buy assets of about C$750 million ($670 million) in the housing segment, with the first investment possibly this year, according to Chief Operating Officer Gary Berman.
“If you look at the U.S. population, it’s definitely growing, it’s definitely getting older, and it’s probably getting poorer,” Berman, 40, said yesterday at Bloomberg’s office in Toronto. “What single-family rental and manufactured housing do is they provide very affordable housing for people.”
Tricon has gained 35 percent since it went public in 2010 after purchasing single-family homes in the U.S. following the 2008 financial crisis and then renovating them for sale. The stock rose 0.9 percent to C$8.18 at 9:52 a.m. in Toronto today.
The company currently owns about 3,500 rental units, in a strategy that competes with private equity players including Blackstone Group LP.
The U.S. single-family home market is worth $2 trillion to $3 trillion, and manufactured housing is about a $400 billion business, said Berman, who helps run Tricon with his father David Berman, the chief executive officer.
Berman is targeting homes that rise above traditional trailer parks, a term he avoids.
“There’s a star system,” Berman said. “If you looked at a one-to-two-star park, you would see trailer parks, you would see RVs. If you looked at a five-star park you wouldn’t know the difference between that and a single-family home. They’re beautiful. That’s what we’re interested in targeting.”
Entering the sector is a natural extension for the company, which profits from purchasing at a low price and selling or renting as values rise, according to Trevor Johnson, an analyst at National Bank Financial.
“It’s in the wheelhouse that they’ve come to know over the years through managing funds and projects in the U.S.,” Johnson said by phone yesterday. “They’re being opportunistic.”
Tricon, which funds housing development in Canada and the U.S. and manages private real estate funds for institutions, has about C$1.9 billion under management, with 80 percent of its assets in the U.S. and 20 percent in Canada.
It wants to keep the geographical mix that way as it aims to triple assets under management to C$5.7 billion in five years. After financing construction in Toronto of such condominium projects as Lanterra Developments’ Murano and Burano towers near Bay and College Streets and the art-deco inspired College Park highrises, Tricon hasn’t invested in the city since 2012.
“There’s a lot better risk-adjusted returns in the U.S. than in Canada,” said Berman, who previously worked in the real estate units of Goldman Sachs Group Inc. and Blackstone Group. “We see that affordability in Canada is stretched. We can be patient and we can wait for prices to correct and go back in.”
Tricon’s adjusted net income rose to C$34.7 million in 2013 from C$6.76 million in 2012. The company closed its largest fund, the $334 million Tricon XI, that invests in distressed U.S. residential property, and expanded its advisory business.
In the U.S., demand for more affordable housing is high as federal subsidies haven’t kept pace with the growing need, according to Harvard University’s Joint Center for Housing Studies. Family incomes have fallen while the supply of rentals has remained flat, contributing to a shortage of 4.9 million rentals in 2011 for low-income families, or those making less than about $19,000 a year. That’s up from a gap of 1.9 million in 2007.
“There’s certainly a tremendous need for more affordable housing -- this could be a very profitable venture,” said Andrew Hamlin, an asset manager at Aston Hill Financial Inc., who helps manage C$7.8 billion including Tricon shares.
The risk is that distressed homes and communities are a well-targeted asset and it’s getting harder to find good properties at a good enough discount, Johnson at National Bank said.
Blackstone Group, the biggest U.S. single-family home landlord, is slowing purchases of houses to rent as prices have risen about 24 percent since March 2012. Private-equity firms, hedge funds, and other investors spent more than $20 billion buying about 200,000 rental homes in the last two years.
“It’s a blessing and a curse,” Johnson said. “The assets are cheap but institutions are really involved in the space now. It makes it a little more challenging but the general population hasn’t quite come back yet. That’s the bet Tricon’s making -- that they’ll buy the inventory from them.”