Tricon CEO Gary Berman on his company’s next moves — and why he told 60 Minutes millennials don’t necessarily want to own homes
In an interview on CBS News last month, Tricon Residential CEO Gary Berman came up with something of a slogan for his company: “You can rent the American Dream,” he said.
The “60 Minutes” clip has been shared widely on social media, drawing widespread attention and criticism to a once-obscure Toronto company that has built a booming business south of the border.
In the decade following the 2008 financial crisis, when the U.S. real estate market crashed, Tricon Residential steadily built a multibillion-dollar business buying up swaths of single-family homes in Sun states. Belt and renting out the units to tenants while maintaining equity.
The 34-year-old company advertises an idyllic suburban lifestyle for tenants, filled with fenced lawns and nuclear family decor, but its business model has drawn criticism for cutting housing supply while residents aspiring homeowners struggle to access an increasingly exclusive real estate market.
According to recent corporate documents, Tricon now owns approximately 30,000 single-family homes across the United States and plans to purchase another 20,000 by 2024, making the company one of the largest home operators. country rental.
Last year alone, Tricon amassed 6,383 homes and raised rents on its properties by an average of 4.8% — an increase the company says is below the US industry average of 14%.
During the same period, the company distributed $50.9 million in dividends to shareholders and $44.3 million in awards and bonuses to company executives.
In an interview with the Star on Friday, Berman claimed the company is contributing to a social good by increasing the supply of rental properties while giving younger generations who can’t afford a down payment the chance to live in their favorite neighborhoods. .
“There are so many families who, for different reasons, want to rent a single-family home or cannot afford to buy one. We give them that chance,” Berman said.
The CEO was the subject of scorn on social media after the “60 Minutes” interview in early March, when he told CBS host Leslie Stahl that “if you asked a lot of Millennials – and that tends to be our main resident – they would probably tell you that they don’t necessarily want to own a home.
“They grew up in the sharing economy, and what matters to them is their way of life. So if they can move into what we call a turnkey or hotel-ready home and have a low-maintenance lifestyle, that’s very compelling for them,” said Berman, who has earned $4.46 million in 2020.
Berman sought to clarify those comments in his interview with the Star, arguing that while he knows many millennials want to own a home, there are also many who can’t pay down payments or qualify for mortgages.
“In an American context, they may have tons of student debt or medical debt, which we know has ballooned in the United States over the past decade and made it difficult for many people to qualify for a mortgage. There is a credit problem there which can make it very difficult to access property,” he said.
Tricon’s presence in the United States differs from its operations in Canada, where the company is currently developing 11 purpose-built rental properties in the Greater Toronto Area.
These projects, most of which is in downtown Torontowill bring more than 5,500 new rental units to a city where the average rent for a one-bedroom apartment amounts to $1,446 per monththe company said.
More recently, in March, Tricon has partnered with the Canada Pension Plan Investment Board to spend $500 million on the development of 2,000 to 3,000 additional rental units, with a first project already slated for development in Toronto’s east end.
Real estate prices have soared during the pandemic, in part due to low interest rates and rising demand. Home prices in the GTA jumped nearly 30% in February to $1.3 million, while smaller towns and rural areas saw increases of up to 50% in one year.
While real estate investors bought cheap homes in the United States following the 2008 subprime mortgage crisis, Canada’s tight housing supply and high costs posed a risk to institutional investors who attempt the same strategy north of the border – although this has not been the case. turned everyone off.
Last year, Toronto-based developer Core Development Group announced plans to purchase $1 billion worth of single-family homes and convert them into 4,000 rentals in Ontario, Quebec, British Columbia and Atlantic Canada.
Toronto startup Key, backed by former Bank of Canada Governor Stephen Poloz, launched a co-ownership program last November that allows individuals to invest in fractional shares of properties purchased by institutional investors.
A recent Bank of Canada study found that investor activity doubled in the Canadian housing market between 2020 and 2021. Investors now make up one-fifth of all home buyers in Canada, according to the data, and increased their purchases, especially in less expensive areas such as Ottawa, Gatineau, Winnipeg and Halifax.
In the Canadian market, Tricon told the Star it’s only focused on increasing supply, not reducing it.
“We are not interested in buying single-family homes here. The supply constraint is much more acute in Toronto than in the United States,” Berman said.
“Here we desperately need more housing of all types. The houses we buy in the United States cost $300,000, whereas the houses here in Toronto cost over a million dollars. There are so many people excluded from this market, and if we want to be part of the solution, we need to provide more housing at market prices.
Originally named Tricon Capital, Gary’s father, David Berman, founded the company in 1988 as a boutique development firm near Bay Street that provided financing to local developers building homes for sale.
For several decades, the company operated as a private equity firm, investing primarily in land development projects and condominium projects subject to the typical boom and bust cycle of real estate.
When the company was “crushed” during the 2007-2008 recession, Tricon turned to a more stable sector: rental homes. As home prices plummeted in Sun Belt states like Arizona and Texas, Tricon opened a rental-focused subsidiary and spent the next few years buying single-family homes while acquiring investment companies. competitors until she had one of the largest portfolios in America.
“We realized that we didn’t need to build new homes in the United States because there was already such a glut of vacant homes. So we went in, along with a lot of other investors, and started buying existing homes and rehabbing them,” said Berman, who joined his father’s firm in 2002 after a stint at Goldman Sachs and took over as CEO. management of Tricon in 2015.
The company’s collection of single-family rental homes gained momentum after Tricon launched a far-reaching corporate strategy in 2019, aimed at maximizing shareholder value, called “Project Genesis” – “a reference to new beginnings in a biblical sense, but also a nod to the British rock band that spawned successful solo careers for its front men Phil Collins and Peter Gabriel,” the company wrote in a statement to shareholders.
When the COVID-19 pandemic hit, the company bought thousands more single-family homes, doubled its market capitalization, and in 2021 went public on the New York Stock Exchange.
To decide its next purchases, the company now uses a 90-factor algorithm that automatically buys homes that match their criteria, including neighborhood type, price, size and more.
Critics say companies like Tricon are contributing to the “financialization” of housing, where companies treat real estate as a vehicle for wealth and investment rather than a social necessity, often to the detriment of individual buyers.
“If you extend that for 10 or 15 years, if the visions of these companies come to fruition, we will have a much higher percentage of homes owned by ultra-wealthy elite hedge funds, which will make it harder for us to buy of a property, and the only option is to rent to them,” said John Pasalis, president of Realosophy Realty.
“I don’t think that’s the ideal solution for housing affordability.”
Martine August, an assistant professor in the School of Planning at the University of Waterloo who studies the rise of business owners, notes that the business model for most of these businesses relies on raising rents to maintain positive cash flow.
“Our research consistently suggests that when finance companies massively acquire homes and turn them into rental units, it ends up being bad for renters and bad for affordability. Not only will this contribute to higher house prices, but it will also lead to higher rents, as these institutions will want to raise their prices to maximize value for their shareholders,” August said.
Tricon, which charged an average monthly rent of $1,529 in 2021, notes that its rent increases last year were lower than the industry average.
In recent months, the company has expanded its home buying into more expensive markets, including Phoenix, Las Vegas, Austin and Nashville, keeping an eye out for “new vintage homes that tend to cost more.” , according to its latest quarterly report.
By 2024, it aims to own more than 50,000 homes, and the company says it is only at the start of what could become a much bigger business.
Trends that have emerged during the COVID-19 pandemic have been a boon for Tricon as public interest in real estate has increased and city dwellers have increasingly turned to the suburbs to settle.
“Our core single-family home rental business has been a huge beneficiary of these drivers,” the company told investors at its 2021 annual report.
The coming years, he said, could be a “golden decade for residential assets”.