Blackstone Property Partners might be the world’s largest private equity real estate investor, but its global portfolio has been lacking assets in a key Canadian sector. That deficiency is one factor which led to a partnership with Starlight Investments to purchase six Canadian multi-family buildings in Toronto and Montreal.
“As large as they are, they’ve got a noticeable gap in their overall portfolio, with Canada representing that gap,” Starlight’s global head of private capital and partnerships, Raj Mehta, told RENX after the deal was announced Thursday afternoon. “Multi-family was something they were very interested in doing, and that they had done their due diligence on.”
The five properties in Toronto and one in Montreal contain a total of 746 units. The transaction marks the first move into the Canadian apartment rental market for Blackstone, which has more than $120 billion in assets.
“Blackstone is the largest real estate investor in the world. They could have gone a number of different ways — they may still decide to do a number of different things because of their size and scope,” Mehta told RENX. “But we’re humbled that with the work and analysis they did on the Canadian market, they ended up choosing Starlight.”
Starlight has $9B in assets
The latest investment pushes Starlight’s assets to about $9 billion, he said.
Mehta said two other key factors were major contributors to the joint venture; a long-time connection he forged in his previous job, and Starlight CEO Daniel Drimmer’s ability to grow Starlight even with the constraints of the Canadian market.
“I used to be at Goldman Sachs before I joined Starlight and I have a network of people that I know. One of those people is the principal (at Blackstone), Olivia Hamlet,” Mehta explained. “Olivia and I reconnected, starting talking.”
As for the Drimmer factor, “Daniel Drimmer is one of the pre-eminent names in Canadian multi-family, has been for 23 years. And because of our history and our track record and our operating record, you are able to bring all parts of that engine to the forefront and be able to find opportunities.”
Finding those “opportunities” is key. Having a major U.S. investor enter the Canadian apartment market these days is rare because there is, comparatively speaking, not much product available. Mehta said the Canadian rental market is about two million units – while a single market such as Dallas in the U.S. has about 500,000 units.
Apartment buildings difficult to find, buy
He said about 90 per cent of those Canadian units are in the hands of family or small individual investors, and few of them want to sell – the financial returns are good and they worry about tax implications of a sale. Couple that with relatively little purpose-built apartment construction in the past few decades, and the problem for large investors becomes apparent.
“The Canadian marketplace there just hasn’t been a lot of development and a lot of new product that’s come onto the market. The supply is quite restricted,” he said. “So the Canadian market, it has been challenging for any player, let alone a brand new entrant, to come in and assemble scale because it’s just very hard to access product.”
Mehta would not disclose details of the relationship, but said this will not be the end of the Blackstone partnership – they plan to continue working together to acquire other properties.
“We don’t do anything like this as a one-off,” he said. “We do things with the long term in mind. We have set everything up in this partnership that will allow us to grow the partnership over time.”
From Blackstone’s perspective, Hamlet said the firm is pleased to have a foundation in Canada.
“Blackstone is excited about the opportunity to enter the multi-family sector in Canada with a partner that has a national presence and proven track record,” said Hamlet, managing director at Blackstone, in a release. “We believe in the multi-family fundamentals in Canada’s major cities and hope to do more in the space.”
Mehta said due to confidentiality agreements, he could not provide specifics about the buildings being acquired, nor the vendor. Starlight did say the portfolio is comprised of a mix of high-, mid-, and low-rise concrete multi-family buildings.
“They are assets that we are familiar with,” he said. “These are very good neighbourhoods in the GTA, and one of the assets in Montreal. It’s a good portfolio of size, with just under 750 units. It’s a portfolio where we see there is an opportunity to grow it, move forward on.”
About Blackstone Real Estate Advisors
Blackstone is a global leader in real estate investing. Blackstone’s real estate business was founded in 1991 and its real estate portfolio includes hotel, office, retail, industrial and residential properties in the US, Europe, Asia and Latin America.
It also operates one of the leading real estate finance platforms, including management of the publicly traded Blackstone Mortgage Trust.
About Starlight Investments
Starlight is a Toronto-based privately held, full service, real estate investment and asset management company with more than 150 employees. It manages multi-family and commercial properties for joint venture partnerships with institutional investors, Northview Apartment REIT, True North Commercial REIT, Starlight U.S. MultiFamily (No. 5) Core Fund and Starlight U.S. Multi-Family (No.1) Value-Add Fund and for private investors.
Starlight’s portfolio consists of approximately 36,000 multi-family units across Canada and the U.S. and over 5.3 million square feet of commercial properties.