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Leading U.S. Private Equity Firm Teams With Starlight on 746-Unit Portfolio in Toronto, Montreal

New York City's Blackstone Property Partners Enters Canadian Multifamily Market with Investment
June 29, 2018
Pictured: Starlight Investments' headquarters building at 3280 Bloor Street West in Toronto.

Blackstone Property Partners, through an affiliate, is making its first foray into the Canadian multifamily market, teaming up with Toronto-based Starlight Investments on a deal for a 746-unit portfolio.

Starlight wouldn't identify the seller but said it had formed a joint venture with Blackstone, which has US$120 billion in investor capital under management, to acquire six multifamily buildings - five in what it called "desirable" Toronto neighbourhoods - and one in Montreal.

"We are extremely pleased to have formed a new joint venture relationship with the largest real estate private equity firm in the world today," said Daniel Drimmer, president and chief executive of Starlight, in a statement.

The appearance of Blackstone in the market could potentially shake up the multifamily segment in the same way Blackstone's $3.8 billion takeover of Pure Industrial Real Estate Trust set industrial prices. Blackstone is estimated to have paid a 4.8 per cent cap rate on that transaction, driving up prices across the board since the deal was announced in January.

Starlight did not provide addresses for the properties or the price of the transaction.

Derek Lobo, chief executive and broker of record with SVN Rock Advisors, noted the Canadian multifamily industry is very tightly held and that prevents challenges for institutions to crack the market.

"Canada is an attractive place to invest because of its stability, not necessarily returns. You can get higher returns in Texas, maybe six or seven per cent cap rates," said Lobo. "Stability is created by having no turmoil in Canada."

He said the tie-up with Starlight makes sense for Blackstone. "The only way you can grab a foothold here is to partner with a Canadian institution which already has real estate. I have been a free taxi driver for many institutions. They come up here to find a portfolio and can't find one big enough to buy."

Privately-held Starlight manages $8.5 billion of multifamily and commercial properties for joint venture partnerships with institutional investors, Northview Apartment REIT, True North Commercial REIT and several funds.

"Blackstone is excited about the opportunity to enter the multifamily sector in Canada with a partner that has a national presence and proven track record. We believe in the multifamily fundamentals in Canada's major cities and hope to do more in the space," Olivia Hamlet, managing director at Blackstone, said in a statement.

David Lieberman, a principal in the capital markets group of Avison Young specializing in multi-residential, said he sees cap rates in the 2.5 per cent to 3.5 per cent range for Toronto apartments selling for $400,000 a door in some areas.

"There was a pause in prices for a little bit," said Lieberman, adding rising rental rates are driving the market because landlords can reposition a rent when a tenant moves out. "What was a $1,200 unit, can be rented out for $400 to $600 more [on tenant turnover.]"

Garry Marr, Toronto Market Reporter  CoStar Group   
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