The current portfolio of District Property Trust (District REIT) is not large, but the trust’s vision certainly is. It’s even bringing in some star power in an effort to raise its profile, partnering with HGTV personality Scott McGillivray.
The REIT was created by Valour Group of Companies founders Richard Hall and Carmen Campagnaro.
“District REIT was formed in the latter half of 2017 with the purpose of creating a vertically integrated series of companies that can raise capital, develop real estate and ultimately buy and own the real estate as well,” District REIT executive vice-president Erik Kroman told RENX.
The Valour Group is a full-service real estate entity based in Burlington, Ont., that includes:
* Valour Mortgage Services Inc., a mortgage administrator to Pro Funds Mortgages;
* Valour Management Inc., which is involved in project monitoring, management and accounting, as well as development consulting, sales, leasing, and property, construction and site management;
* Valour Capital, which sources real estate assets with approved development proposals, and is involved with property and project review and assessment, developer reviews, market analysis, project costing and validation, financial projections, independent appraisals, legal reviews, acquisition or partnership suitability, finance model structuring, project exit and real estate development and management plans.
“The Valour Group is able to develop very specific, purpose-built real estate for the REIT. We can lock in the agreement of purchase and sale up to two-and-a-half years in advance, which secures the price for the REIT,” Kroman explained.
“Naturally, during that time, the REIT will benefit from some appreciation in the underlying real estate while the development group gets comfort in knowing that there’s an exit plan and a financing strategy in place for the portfolio. We have a bit of a win-win where more and more developers are looking to work with the Valour Group because of our potential exits.”
Partnership with McGillivray Group
That includes McGillivray Group, which is led by chief executive officer and HGTV host Scott McGillivray. As part of a strategic partnership, McGillivray serves on the executive committee and assists the REIT’s leadership with realizing its acquisition strategy and growth plans.
McGillivray Group launched in 2014. It spans four business areas, including brand management, product and service partnerships, real estate developments, and television and digital production through McGillivray Entertainment.
Scott McGillivray also co-founded real estate investing education company Keyspire. He’s invested in properties across North America and is also a contractor and author.
“He made a very compelling case to work with District REIT,” said Kroman. “Since he’s come on board, we’ve really enjoyed his presence and his strategic insights on value creation on each of the properties and also his understanding of various pricing and cap rates in some of the markets that we work within.
“He’s a fantastic property manager as well, and we plan on leveraging that as we build some satellite offices to facilitate some of the future growth that we have. He’ll have a variety of contributing functions.”
District REIT investment strategy
District REIT is focused on investing in stabilized, diversified income-producing real estate assets in Southern Ontario.
It targets off-market opportunities and its objective is to maximize investor value by providing stable, monthly cash distributions and long-term appreciation through effective management and cumulative portfolio growth.
District REIT has a distribution of eight per cent per annum and a capital appreciation target of three to five per cent per year, for a combined return of 11 to 13 per cent.
That capital appreciation target hasn’t yet been reached, but Kroman said it’s getting closer.
District REIT has raised more than $14 million since February 2018. It has deployed the funds to acquire three properties, with a combined appraised value of approximately $25 million, at a large discount.
Kroman said some of the REIT’s pipeline of future investments also includes a “heavy discount.”
District REIT current and target properties
District REIT’s three current properties are:
* McClary Apartments, comprised of two low-rise, multifamily apartment buildings with 34 units in London, that are more than 90 per cent occupied;
* and 100 Bronte – The Rose, a mixed-use building in Milton, where the commercial area is 100 per cent leased and the residential units are more than 95 per cent leased.
District REIT is targeting these properties, has financing in place and hopes to close on the acquisitions in the first quarter of 2020:
* Riddell Gardens, a 56-unit, two-bedroom townhouse development located in Woodstock with a gross leasable area of 49,868 square feet that’s close to full occupancy;
* Wonderland Path, comprised of 47 three- and four-bedroom townhomes in London that are close to full occupancy;
* and Victoria Westmount Centre in Kitchener, which includes a two-storey medical office building with a finished basement, a retail plaza and a restaurant pad.
District REIT growth strategy
“The growth strategy calls for a series of acquisitions in 2020 that will bring the gross book value of real estate under management to $100 million,” said Kroman. “The most important pillar in District REIT’s strategy is strong property management.
“The REIT prides itself on creating value through diligent property- and portfolio-level real estate management.”
Kroman said there’s “about $400 million in real estate that can roll in over time to support the growth plan. The actual REIT itself could become quite large just based on the portfolio of potential acquisitions.”
District REIT has “a diverse group of accredited investors, alongside growing interest and commitment from local family offices and institutions,” according to Kroman. “We’re at a sweet spot with the REIT now, where it’s ready to catch some steam behind it.”