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Look Out Canada, Here Comes Blackstone

World's Largest Private Equity Firm Looking at Multifamily Up North
September 7, 2018
Daniel Drimmer, left, CEO of Starlight Investments, and Olivia John, managing director at Blackstone Group, at the Canadian Apartment Investment Conference.

Blackstone Group's $3.8 billion deal for Canada's largest industrial real estate investment trust was probably enough to shake the Canadian property market on its own. But now it seems the world's biggest real estate private equity firm is ready to give the country another jolt.

Speaking at the Canadian Apartment Investment Conference in Toronto on Wednesday, Olivia John, a managing director at Blackstone, made it clear the New York-based firm, with $119 billion of U.S. dollars in real estate under management, has Canada on the radar for multifamily investment.

"We asked ourselves why we aren't more active in Canada with our neighbours to the north," said John, after the company had completed its purchase of Pure Industrial Real Estate Trust through an affiliate. Montreal-based Ivanhoé Cambridge later acquired a 38 percent stake from Blackstone as part of the deal. "We invest in a lot of countries around the world that are a lot less like the U.S. than Canada is."

John said Blackstone had been the largest buyer of industrial real estate globally and said the firm now has acquired 500 million square feet of industrial space around the world.

"We've just seen tremendous e-commerce penetration in several countries and felt that Canada was earlier in that e-commerce adoption," she said. "We thought it was inevitable that was going to change."

It didn't take long for Blackstone to turn to multifamily, which through an affiliate teamed up with Toronto-based Starlight Investments in June on a deal for a 746-unit apartment portfolio in Toronto and Montreal.

"We've been very active in the U.S. acquiring multifamily, and we've acquired 120,000 suites, which are valued at about $21 billion U.S. dollars," said John. "We were so encouraged by the trends here. You've got the population growth. The same immigration trends affecting U.S. population growth, you guys are on the opposite side of that, particularly in urban centres. You've got greater populations in urban centres than the U.S. We felt there was great opportunity, especially since supply is so limited at rent levels that are affordable."

Daniel Drimmer, the chief executive and founder of Starlight, was participating in the same panel as John on future-proofing portfolios. He said he's looking for more long-term investments with a 10-year approach.

"The No. 1 criteria we look at is the price per square foot," said Drimmer. "We take the time and if we don't have the information to measure the building to find out how much real estate are we actually buying. When people talk about price per suite, it's a bit of a misnomer because I don't know if I'm buying bachelor apartments or five-bedroom townhouses."

In-place rents are Starlight's second criteria with lower projected rates of return only justifiable because of the long-term vision. "We don't do a today accretion model, but an internal rate of return model and don't have any internal cash flow projections in the first two years," said Drimmer, who along with John did not address the partnership the two firms now have.

Garry Marr, Toronto Market Reporter  CoStar Group   
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