Bluevale Capital Group was formed as a client advisory services provider, but is increasing its focus on real estate, expanding its portfolio and laying plans to eventually become a public company.
The Toronto-based investment management firm specializes in due diligence, acquisition, optimization, construction, and project and property management of multiresidential and residential real estate assets.
About one-third of those assets were acquired between 2010 and 2019, primarily by Bluevale co-managing directors Jefferson Huang and Samuel Karamanis on a personal level, according to Bluevale director and partner Terry Chen.
“Over the last two to three years, they’ve really honed in on MDUs (multiple-dwelling-unit properties) and value-add because they felt that was where we can get the highest returns for our investors and we have an interest in affordable housing,” Chen told RENX.
“We all believe that the government hasn’t done a great job of handling the affordable housing issue. Like a lot of problems in life, sometimes private companies can do a better job of tackling these issues than the public sector and the government.”
Bluevale’s investment and growth strategy
While Bluevale would consider investing in other asset classes, it’s currently targeting one- or two-year plays where it can generate 20 per cent returns for investors through value-add renovations of existing residential properties and converting commercial and hospitality properties to purpose-built rentals.
“It’s a project management mentality that we have here,” said Chen. “If you can do a conversion in as little as 18 months, it’s a lot easier to hit those 20 per cent metrics.
“We’re also working with governments at all levels so that we’re optimizing all programs available for affordable housing and CMHC financing terms to maximize our investor returns.”
As examples of Bluevale’s strategy, Chen cited two projects.
The firm developed eight residential units in the previously unfinished basement of a property in St. Catharines, Ont.
In nearby Welland, it’s converting eight previously commercial units to five residential units in a mixed-use asset. Prior to this repositioning, the property contained a dozen commercial units among a total of 30 units.
Bluevale’s portfolio is growing
In the first four months of this year, Bluevale has significantly added to its assets under management, which previously included 140 units in markets including Welland, Cambridge and London, Ont.
“For now, we’re looking at opportunities as they come up based on our existing relationships, which is substantial,” said Chen. “But, at the same time we’re looking to mature a bit.”
Bluevale’s 2022 acquisitions now under management are: 120 units in Edmonton; 21 units in Maple Ridge, B.C.; 52 units in St. Catharines and 92 units in Niagara Falls, Ont.; and 18 units in Los Angeles. There’s also a deal in progress for 192 units in Nanaimo, B.C.
“I’m personally responsible for our U.S. expansion and spent the better part of the spring in L.A.,” said Chen. “We feel like we’re starting to run out of opportunities in Ontario and we have some Canadian relationships in California, so that’s why we chose to tackle California.
“I don’t think it has the same types of returns as Texas or Phoenix have had in the last 12 to 24 months, but it’s growing at a very healthy clip and we found a property that we really like. It has 18 units and each one is 825 square feet, which allows us to build two bedrooms in each one.
“That was a good starter project for us, at about $5 million, to get relationships in L.A. from a property management and lender perspective. We want to look at $10-million to $30-million conversion opportunities out there.”
Laying groundwork for initial public offering
Bluevale is entering its pre-initial public offering (IPO) phase to raise $25 million that will consolidate its real estate portfolio and support its growth ambitions.
It aims to attract more than $100 million in assets under management within 12 months and is searching for sponsors to help fund the pre-IPO private placement.
“We want to solidify and streamline our cash flow situation a little bit to make sure that we’re capitalized to match our ambitions,” said Chen.
Bluevale’s portfolio of stabilized, multiresidential assets, as well as a pipeline of new acquisitions, will back the capital raise.
“Generally we get our investors’ equity back in two years or less,” said Chen. “Now that we’re trying to go public, we’re looking at refinancing and keeping properties ourselves. We’re starting to transition.”
In addition to building its portfolio, Bluevale has grown to 21 employees with investments in leadership on the vice-president, partner and advisory levels while establishing a new business development and marketing team.