Private equity firm R2 and construction management company Gillam Group have partnered on a north Toronto infill development that R2 believes will be the first crowd-funded real estate deal in Ontario.

This condo and mixed-use building on Toronto’s Avenue Road will be crowd-funded by R2 and Gillam Group. (Image courtesy R2)

“The Avenue Road project is a corner site, across from the LCBO and a Loblaws grocery store, that will be redeveloped from an existing two-storey building into a five-storey mixed-use property with condos on four floors and ground-floor retail,” said R2 founder and chief executive officer Amar Nijjar.

“There is no major zoning hurdle on the subject site, other than the committee of adjustment/minor variance process that will be needed.

“The total time horizon for building completion is three to four years.”

Opening CRE to small investors

Based on securities laws, real estate developments are considered alternative investments and have historically been open only to accredited investors. However, Nijjar explained, under new crowd-funding regulations, ordinary retail investors now have the opportunity to invest in such projects.

Nijjar said accredited investors can put in upwards of $50,000 in the Avenue Road development, located in the Bedford Park neighbourhood north of Lawrence Avenue West. Other investors can put in from $1,000 to $2,500.

“For the first time in the history of Canada, ordinary investors will now be able to invest up to $2,500 per person into commercial real estate projects and see the revitalization of landmark properties in their own neighbourhoods,” said Nijjar.

Toronto-based R2 is licensed with various provincial securities regulators across Canada and provides detailed underwriting and other information to its investors once it fully qualifies them.

Through R2’s online portal, investors can access due diligence material on deals, speak with a financial adviser regarding a suitability analysis, and then make their investments. Nijjar said the portal has more than 2,400 registered investors, while tens of thousands of people receive R2’s weekly newsletters.

Nijjar said the Avenue Road project will deliver a development margin north of 20 per cent. The capital stack will initially be kept close to 50 per cent equity and 50 per cent traditional debt, with the debt portion going higher during the construction stage.

“Beyond the senior debt and deposit structure, we have structured a class of limited partnership units that will allow retail investors to participate on the basis of 10 per cent preferred return per year, with back-end profit participation on top of that,” said Nijjar.

Creating capital for smaller developers

In addition to giving people an opportunity to invest relatively small amounts in commercial real estate developments, this platform also opens a channel of capital for mid-market developers previously unavailable.

Toronto-based Gillam Group might be classified as a mid-market developer at the moment, though perhaps not for much longer.

It placed first on the Profit 500 ranking of Canada’s fastest-growing companies last year. Gillam has achieved revenue growth of more than 29,000 per cent since it was founded in 2011, and now has 85 employees working on a wide range of projects.

“Our long-term goal is to become one of the leading private equity shops in Canada that provides access for ordinary and larger investors alike to invest into high-quality commercial real estate deals by way of direct property level investing,” said Nijjar.

“All of this is to be done online through our advanced e-platform that not only does front-end investor origination, filtering, on-boarding and suitability analysis by way of an algorithm, but also provides an efficient transaction and investment management platform that ultimately offers investors liquidity by way of security tokens retrading on a secondary market exchange.”