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Growth fund next step in The Pearl Group’s evolution

The Pearl Group is a family-owned investment management firm which has been part of the Toronto r...

IMAGE: Jordan Pearl, president of The Pearl Group. (Courtesy The Pearl Group)

Jordan Pearl, president of The Pearl Group. (Courtesy The Pearl Group)

The Pearl Group is a family-owned investment management firm which has been part of the Toronto real estate scene for almost 50 years. Under its third-generation president, Jordan Pearl, the firm has launched and is deploying funds from its first equity fund.

Pearl’s grandfather Martin immigrated to Canada in the 1950s and founded The Pearl Group in Toronto in 1973. His father Mel started with the company, but branched out on his own and co-founded Lifetime Developments with Sam Herzog in the 1980s.

“When I came out of school I went to work with my grandfather for four years until he passed away,” Pearl told RENX. “For the past 10 years I’ve been running this office.

“We’ve been steadily growing and buying new properties and bringing in outside investors. Our equity fund is the culmination of all of that work.”

The Pearl Group now has a 12-person team and more than $450 million in street-front retail, industrial, office and mixed-use assets under management.

“We don’t do ground-up development,” said Pearl. “We’ve taken a few projects through the zoning process and then sold them to someone so they could build them.

“We do acquisitions, we do due diligence, we find our own financing, we do property management, we retrofit our buildings and we do our own leasing and asset management. We basically run the whole gamut of the investment life cycle.”

Launching Pearl Group Growth Fund

The Pearl Group Growth Fund is a private, closed-ended fund that invests in mid-market, value-add commercial real estate across the Greater Toronto Area and has a 12 to 15 per cent targeted annual total net return through distributions and capital appreciation.

The growth fund was launched in November to acquire $150 million in real estate and has used about two-thirds of its equity to purchase five properties valued at $91.1 million.

“We had got to a point where we wanted to have a larger pool of capital to go and invest,” Pearl said. “It gives us the ability to act nimbly.

“It’s very competitive out there and, for a private group like us, we need to find any edge we can. Speed is one of those things that we can maybe bring to the table.

“Having this larger pool of capital helps us go out and do the kinds of things we’ve always done, but it also allows us to maybe buy some bigger properties outside of what we normally would have done and it also gives us exposure to different investors and people who can give us strategic ideas.”

Pearl Group Growth Fund acquisitions

The growth fund has acquired three commercial and retail buildings totalling 22,300 square feet at 449 King St. E. in Toronto. They’re on an nearly one-acre site where The Pearl Group and a partner are looking to add commercial density and re-lease the buildings at market rates.

“We’re trying to create more of a community on this property and make it a bit more of a destination,” said Pearl.

The fund acquired a four-storey, 9,200-square-foot building with retail and office space at 50 St. Clair Ave. E. that The Pearl Group believes has some rent upside.

The Pearl Group also sold three properties it already owned to the fund:

– a three-storey, 50,000-square-foot brick-and-beam building with commercial and office space at 20 Leslie St. in Toronto, where a retrofit was just completed and leasing has begun;

– a two-storey, 160,000-square-foot industrial building at 6515 Kitimat Rd. in Mississauga;

– and a two-storey, 7,800-square-foot building with commercial and office space at 96 Carlaw Ave. in Toronto that The Pearl Group is looking to reposition in order to lease or sell.

Pearl said the fund isn’t close to deploying the approximately $60 million it has remaining at this point.

“There’s a lot of uncertainty now with interest rates. We have another 18 months to invest it so we’re trying to be very careful about what we invest in. I take the responsibility of investing people’s money very seriously, so I’d like to see a bit of the dust clear from this interest rate increase.

“We’re still actively looking at things. We’re underwriting things every day, touring buildings and looking at new opportunities.”

Cluster strategy offers advantages

The fundamental strategies behind acquiring buildings with the growth fund are similar to what the firm employs with properties in its core portfolio, according to Pearl.

“We’re a value-add group. We’re always looking to buy something that we can add value to, whether it’s through our leasing expertise or retrofitting the building and repositioning it in some way.”

Many of the buildings in The Pearl Group’s core portfolio are near each other in groups along Queen Street West, King Street West and Yonge Street in Toronto.

“My grandfather was really focused on the Queen Street West, Yonge and Eglinton, and Yonge and Lawrence areas,” said Pearl. “When I started to take over, we started expanding a little bit geographically.

“We’re very location-focused. It’s got to be a great location. We also have a lot of knowledge about these streets that we’re buying on, so it makes sense to keep going back to the well instead of exploring areas we don’t know a lot about.”

This cluster strategy makes property management easier and enables The Pearl Group to work with and find opportunities for existing tenants who may want to upsize or downsize their space while remaining in the same area.

“When you own a lot of stuff on Queen Street West, you have a sense of what tenants want to be there and the nuances of different buildings, unit-sizing and that kind of stuff,” said Pearl.

The Pearl Group also owns one property outside of the GTA, a three-storey, 26,600-square-foot building with retail at grade and office space and apartments above at 1015-1021 West Lake Rd. in Chicago.

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