Housing has not fully recovered in the United States, but Tricon Capital Group Inc. (TCN-T) is betting $155.6 million Cdn that there are pockets of strength.
Specifically, Tricon sees encouraging signs in Corona, Calif., where this week it announced it is leading a $155.6 million investment in the development of a large scale, infill residential master-planned community.
“It is a major master plan as far as Southern California goes to find 300 acres in that part of the world and build roughly 1,300 homes is a pretty major deal,” said David Berman, Tricon’s chairman and chief executive officer.
Although Tricon is leading the venture, its financial exposure is far less than the total invested. An institutional partner has allocated $105.65 million with the additional $38 million and $11.74 million allocated by U.S. fund Tricon XI and Tricon, respectively.
“We, Tricon the public company, is making some of the investment but the majority of the capital is coming from some big institutional investors,” said Berman.
“The closing of this transaction is further evidence of the confidence that institutional investors are showing in Tricon’s time-tested U.S. residential investment strategy,” he said in a statement announcing the deal.
The Tricon CEO expects site work for the new development to start next year and the build out to take about five years with the sale of its final lots by 2020.
Tricon has named publicly traded developer and home builder The New Home Company Inc. as the developer of the project. New Home Co. will build some of the homes, but Berman expects other builders to construct some of the homes in the master plan community.
The new community will feature “production-type homes” averaging 2,200 square feet on lots of 5,000 sq. ft. selling for around $500,000. “I wouldn’t call that luxury, but better quality housing.”
Berman said the housing market “which is definitely moving sideways” has displayed recovery in sub-markets such as California’s “Inland Empire” which includes Corona.
“We still have a ways until we revert back to the mean in terms of pricing and certainly production, but for areas that are well-located, in good school districts, that are close to job nodes – this is one of them in Corona – there is definitely a strong market for new housing. So it is not speculative. We think that the demand is there today.”
• Tricon noted that a “historically low new home community count and limited supply of tentative map approved, large scale master planned communities in the region” should create strong public homebuilder demand;
• The Inland Empire housing market continues to recover, with median new and resale home prices up 33% and 65% from the 2009 trough and remain 13% and 30% below 2006-07 peak pricing levels, respectively;
• The planned community is situated immediately west of the I-15 freeway within a valley that offers mountain views and close proximity to destination retail and dining amenities as well as three nearby 18-hole golf courses. As well, the project will have convenient access to major employment in Orange County, as well as Riverside and San Bernardino Counties;
• The transaction increases Tricon’s assets under management by $107.5 million or five per cent, to a total of $2.2 billion.
Not the biggest
Tricon’s Corona development is slightly smaller than its $164 million investment in the 3,200-acre Cross Creek Ranch master-planned community just west of Houston in 2012.
“This is pretty close,” said Berman.
In July, Tricon also announced it had closed a $64-million investment to support the acquisition, development and sale of almost 1,200 homes on a 606-acre site in northwest Charlotte, N.C. In similar fashion to the Corona investment, one of Tricon’s institutional partners has committed $43 million with the additional $17 million and $4.7 million committed by U.S. fund Tricon XI and Tricon, respectively.
Berman does not expect Corona to necessitate a breather by the company.
“We are always looking at major projects like this. This is on the larger end of what we do, but we are well-positioned to invest in these types of projects. I wouldn’t think of it as a one-off.”