R2 Capital & Investments has undergone a significant evolution since launching just over a year ago as Canada’s first online marketplace to connect property owners and developers with investors.
“Since inception, our business model has changed and pivoted a lot, and R2 has since evolved into a private equity firm that uses financial technology to scale capital raise — both debt and equity,” says R2 co-founder and chief executive officer Amar Nijjar.
“Our investors now see us as an online marketplace where they can access high-quality commercial real estate limited partner and preferred share deals across Canada and the United States.”
Nijjar and R2 chief operations and compliance officer Chad Gemmell started the company while they were both working at JLL, where they developed a network of investors and clients. Business was so good at R2, however, that they left to focus exclusively on their new vision after the first quarter of 2017.
They haven’t looked back since.
While becoming more familiar with complicated securities laws and getting to know regulators was part of a learning curve through the first year, Nijjar said R2 is “now evolving into a model where we provide joint venture equity to high-profile developers and project owners through our own pooled funds.”
R2 has had explosive growth
R2 has undergone explosive growth over the past six months and now has 27 employees in Toronto, Vancouver, Calgary and, perhaps surprisingly, Armenia. That last connection comes via the company’s Armenian chief technology officer, who took Nijjar on a tour of his homeland.
“I was fascinated with the amount of young talent in the tech industry over there,” said Nijjar. “I fell in love with the food and the people and decided to expand our software development, technology and marketing teams out there.”
R2 moved into a new Toronto head office at One University late last year, and Nijjar expects the number of staff to double by the end of this year.
R2 transacted more than $200 million of capital in 2017. Nijjar said it now has close to 100,000 qualified investors in its network and approximately 3,000 registered users of its portal, where sponsors make payments and submit reporting and updates, and investors monitor and track their investments.
Sponsors are able to raise up to 90 per cent of the capital stack through R2.
R2 interviews all of its sponsors in person and fully underwrites the deals after reviewing third-party property reports, property cash flow for the last three years, future cash flow projections, leases, and other factors. The company also visits properties and conducts tenant background checks.
Most of the deals on R2’s platform have secured senior debt through one of Canada’s major financial institutions.
R2’s goal is to give investors access to a diversified portfolio of highly curated deals. It has so far raised capital for more than 10 projects in cities including Victoria, B.C., Phoenix, Ariz. and Mississauga, Toronto and Hamilton in Ontario.
The largest project is a $50-million, 102-unit condominium called The Wade in Victoria that’s 90 per cent pre-sold. R2 arranged and funded the full capital stack for the project, including $32 million of senior debt, $4 million of mezzanine debt and $2 million of preferred equity from investors, according to Nijjar.
He said The Wade is well on its way to construction and is expected to yield a 35 per cent return on investment.
Some of the largest commercial property developments and syndications in Canada and the U.S. are done with a limited partner and general partner model similar to that which R2 uses. Where R2 looks to set itself apart is through a technology platform which makes it possible for retail investors to invest in high-quality commercial property deals that typically haven’t been available to them.
“Our internal customer relationship management, marketing and data systems are unmatched in the industry,” said Nijjar. “In many ways, our tech is well ahead of its time.
“We track our investor behaviour patterns very closely. We track openers, clickers, time, location and device data of our email campaigns. All of this gives us very valuable insight, and we then modify our business according to the needs of our investors.”