Getting money from institutional investors can seem futile, even to successful managers. According to a Financial Post article by Barry Critchley, published August 16, 2011, one company seems to have found the key to the cash.
Raising funds from institutional investors can be a thankless task even if the manager has a successful track record.
But Timbercreek Asset Management seems to have found the secret. This month it closed a $100-million fund, its third in the past four years, mostly from a small group of institutional investors. The proceeds are earmarked to buy and improve underperforming multi-residential real estate. The third fund – which has a term of five to seven years and which brings to $280-million the amount that Timbercreek has raised through such funds since 2007 – has outlayed $22.5-million to acquire a 250-unit apartment complex in west Toronto.
“We do [the fundraising] internally, with a lot of repeat institutions,” said Ugo Bizzarri, chief financial officer at the Toronto-based company. “They like the product we have been doing for 11 years and keep investing with us,” added Bizzarri, who worked in the real estate group at Ontario Teachers’ Pension Plan Board before forming Timbercreek with Blair Tamblyn in 2000. Timbercreek has a staff of 400 people and doesn’t outsource any functions involved in buying, renovating and maintaining its stock of units.
“With real estate, you need to run your assets,” added Tamblyn. “You are much better equipped to know what’s going on. Institutions like it that we are vertically integrated.”
Despite the boom in condominium construction and ownership, Bizzarri still believes there is healthy interest in providing rental accommodation. “In general, tenants want good-quality product. If you provide good quality product you can rent the units,” he said, arguing that while the condo market “is a competitor” it tends to be just for “higher-quality product,” given that condos rent for considerably higher prices than apartments.
The two previous Opportunity Funds raised $180-million which has been invested in 12,000 units across the country – from Calgary to Halifax – though most of them are in Ontario. “We try to find existing properties that are either under-capitalized or undermanaged, spend capital on the buildings and try to create value. Through active management we try and create a core product for our investors,” he added. Bizzarri defines a core product as a long-term investment that generates a predictable cash flow.
The value creation aspects arise once the apartment buildings have been renovated and made more efficient – all of which leads to the opportunity to raise the rent when the tenants leave. (Bizzarri said annual turnover is in the 20% range.) In general, the rent can be raised by about $200 a month.
Bizzarri said the first fund, which has been closed with investors paid back, generated returns of about 20% a year, while the second fund, launched in 2009, has raised the capital and is renovating the 1,700 apartment units it has purchased. The portfolio is valued twice a year.
Timbercreek’s latest $100-million fund follows three other recent successful fundings: Last October, Timbercreek Mortgage Investment Corp. raised $48.9-million, which it followed up with a similar-sized offering in January, while in March another $15.8-million was raised for a global real estate fund.
In all, the listed mortgage investment corporation, which was launched in mid-2008, has almost $230-million in net assets, and targets a yield to investors of two-year government of Canada bonds plus 550 basis points. The global fund is listed, has been around for about a year and has about $61-million in net assets.
