Dream Impact Trust says it has agreements to pay $378 million to acquire over 900 multifamily residential units in Toronto through a series of transactions.

The trust (MPCT-UN-T ) also announced a $30-million investment from Fairfax Financial Holdings Ltd. and/or affiliates, as well as a partnership with BlackTusk Group, which it describes as “a promising new real estate asset management firm which is minority founded and led.”

Dream Impact has not identified the buildings it plans to acquire, but says in line with its operating principles it wants to maintain and create new affordable housing opportunities within the properties.

“Through Dream Impact’s Affordable and Attainable Housing and Inclusive Community verticals, the trust is focused on creating as many affordable housing units as possible while providing competitive returns to our investors,” said Michael Cooper, Dream Unlimited Corp.’s chief responsible officer, in the announcement.

“While we continue to be focused on delivering affordable housing through our extensive development pipeline, today we announce that we are also now focused on creating affordable housing units through an innovative plan for existing apartment properties.

“Based on our approach to finance the acquisition of these existing properties, that will become a mix of market and affordable housing, we can achieve competitive returns with less risk than developments.”

The Dream Impact multifamily acquisitions

The acquisitions will have an average cap rate of 3.5 per cent with in-place rents about 20 per cent below market, so Dream anticipates returns in the mid-teens. The properties will mark Dream Impact Trust’s first acquisitions of existing Canadian multifamily residential units and compliment its development pipeline of 18,447 residential units.

Financing will include $279 million of debt.

The intention is for Dream Impact to acquire a 33 per cent interest in the properties, alongside Dream and its affiliates. The acquisitions will immediately contribute recurring income and are anticipated to close during Q3 2021.

Dream Impact reports it is exploring additional low-cost financing to allow it to maintain a significant portion of the units as affordable units and achieve attractive returns.

Aligning with the federal government’s previously announced affordable housing goals, and with its lending partners, Dream Impact seeks to “pioneer a financing strategy and structure to create and preserve affordable units in existing multifamily residential buildings” it says in the announcement.

“This innovative strategy aims to deliver more affordable units on an accelerated basis through existing assets, while the trust continues to pursue new development opportunities for affordable housing units.”

Dream Impact plans to introduce social programs to benefit residents within the communities. It will also pursue building modernization retrofits to reduce the greenhouse gas emissions.

Canada’s first impact-dedicated convertible debentures

The Fairfax Investment consists of $30 million of impact convertible unsecured subordinated debentures, which Dream says is the first such issuance in Canada. Proceeds are to be used to finance eligible impact investments by Dream Impact.

The debentures will bear annual interest at 5.50 per cent and can be converted into trust units for $7.755 per unit. The debentures will mature in July 2026.

“We believe that Dream and Dream Impact, led by Michael Cooper, are pioneering an innovative approach to incorporating and measuring both social and financial returns, which we believe will prove rewarding for all of its investors, including Fairfax,” said Prem Watsa, chairman and CEO of Fairfax, in the announcement.

“With the acquisition of existing income properties to immediately generate income and meaningful social and environmental impact, we hope to lead the way for adoption throughout the real estate industry to have the largest possible social impact,” Cooper said in the release.

Closing remains subject to a variety of agreements and conditions, including the approval of the Toronto Stock Exchange.

Partnership with BlackTusk

Dream Impact’s partnership with BlackTusk Group will involve co-investments on a project-specific basis and provide the firm with access to Dream Impact’s platform of resources. The agreement preserves the founders 100 per cent ownership of BlackTusk, but Dream Impact will provide general partner capital for approved projects.

The partnership provides Dream Impact a pipeline of attractive opportunities with meaningful impact and assists BlackTusk in scaling its own platform. The partners expect to acquire their first property within the partnership during Q3 2021.

About Dream Impact Trust

Dream Impact is an open-ended trust dedicated to impact investing. Its underlying portfolio is comprised of real estate assets in two operating segments: development and recurring income.

The objectives of the trust are to create positive and lasting impacts for stakeholders through its three impact verticals:

– environmental sustainability and resilience, attainable and affordable housing, and inclusive communities;

– balance growth and stability of the portfolio, increasing cash flow, unitholders’ equity and NAV over time;

– leverage access to an experienced management team and strong partnerships in order to generate attractive returns for investors; provide investors with a portfolio of high-quality real estate development opportunities, concentrated in core geographic markets;

– and to provide predictable cash distributions to unitholders on a tax-efficient basis.