If patience is really a virtue then this trait has rewarded Timbercreek Asset Management many times over.
The Toronto-based real estate company has adopted a patient approach to investing in real estate properties since its inception approximately 12 years ago, which has enabled it to become a significant player in the Canadian multi-residential real estate market.
“We have always been about finding a good quality property. If we don’t find a quality property, we won’t buy. But if we continue to find good investments, then we will continue to buy,” says Ugo Bizzarri, a founding managing director of Timbercreek. “It is not just growth for growth sake. We are very patient. Some years we will do very big deals and some years we will do very little,”
Since the inception of the first Timbercreek real estate fund in 2000, Bizzarri has overseen the acquisition of more than $2.1 billion worth of multi-residential real estate, comprising 17,200 units in 27 cities.
But it was a blockbuster deal earlier this year that saw Timbercreek bulk up its holdings across the country. The company was part of a massive transaction that saw TransGlobe Apartment REIT privatized by Starlight Investments Ltd. As part of the transaction, Timbercreek acquired 26 properties, comprising 5,400 units located in Montreal, Ottawa, the Greater Toronto Area, Cambridge, Ont., Guelph, Ont., London, Ont., Calgary and Medicine Hat, Alta.
“The TransGlobe transaction is strategically aligned to Timbercreek’s commitment to actively grow when the right property investment comes along.” says Bizzarri.
Although this deal saw the company grow its portfolio by approximately 30 per cent in a single transaction, the company has largely adhered to its game plan of taking its time when seeking properties.
“While we are thrilled to come across portfolio investment opportunities like the TransGlobe transaction, much of our multi-residential portfolio has been built one asset at a time,” says Bizzarri. “We have always paced our growth to be sure we have adequate resources to absorb and effectively manage the assets we acquire. In this case, we were sure to have the necessary resources in place to successfully handle the increase in our portfolio.”
Alternative investing
Timbercreek was founded in 1999 by Bizzarri and Blair Tamblyn as an investment firm focused on providing alternative investment opportunities to institutions, trusts and endowment funds, discretionary investment advisors as well as qualified individuals.
It now actively manages approximately $3 billion in assets through various private and public investment vehicles that focus on direct real estate – primarily multi-residential, mortgage debt and public real estate securities.
Since its inception, Timbercreek’s approach has been focused on value investing with an active management style. An approach that was first applied to multi-residential real estate (with the belief that through active management)), Timbercreek felt it could surface long-term value for its investors.
“We were attracted to the asset class due to its low volatility, strong predictable cash flow and low correlation with the broader equity markets,” explains Bizzarri.
The real estate investments are held through different vehicles. On the multi-residential real estate side, the company concentrates on two different mandates: targeting core, stabilized assets; and repositioning distressed properties. Although Timbercreek started in direct real estate investing and exclusively multi-family, it has since branched out to access real estate through other means: mortgage debt and global real estate securities.
“However, our multi-residential roots have been a critical foundation to our success as a real estate investment manager,” says Bizzarri. “Multi-residential real estate is a very labour intensive asset class and having the expertise to underwrite and manage multi-residential real estate definitely makes us a better lender and real estate investor in general.”
As more capital has become attractive to multi-residential real estate over recent years, Timbercreek has focused on finding value for investors through a more value-add investment approach. The company has spent the last 12 years building and refining a multi-residential management platform. This platform now allows the company to take advantage of investment opportunities that are not as appealing to the general investment community because “they require a manager to really roll-up their sleeves” says Bizzarri.
“We look for buildings in good locations but that need a little ‘TLC’,” he says. “You can fix a building but it is very hard to fix a location.”
Today, the company boasts a large portfolio of properties in 16 major cities across the country from Calgary to Halifax.
Building enhancements
Once a property has been purchased, the company looks to improve its overall efficiency by addressing the maintenance needs of the building, including the boilers, windows, lobbies, hallways and lighting as well as the balconies and parking lots.
“Our first priority is to renovate the building if we think there is a need,” says Bizzarri. “At the end of the day, our tenants are our customers, so we try and create a better product for them. We are also able to compete with the rest of the market by providing a better quality product.”
This was the case with the Lord Dufferin – one of its recently renovated buildings in Toronto’s trendy Liberty Village. The 40-year-old building had not seen much capital invested in it in recent years and was in need of a makeover.
“We saw the opportunity to upgrade the quality of the common areas, add amenities, renovate the suites and really revitalize the property,” says Jeff Hutchison, managing director of asset management.
The building was upgraded with condo-quality amenities and features such as an upgraded, open concept suite with custom kitchen cabinetry and stainless steel appliances. In addition to standard amenities such as parking, on-site laundry and storage lockers, the building also offers tenants a fully equipped gym, pool and social room.
“The goal was to try to reposition a tired, old building to as close to condo-quality as possible,” says Hutchison. “It’s a great, up-and-coming area. Five years ago it might have been different but it’s a market that is seeing a complete revitalization. A whole resurgence and transformation from what it was to what it is.”
Another property, the Maitlands, is considered a “gem” in Timbercreek’s portfolio. Located in the Yonge and Wellesley neighbourhood, the 1911 property was restored back to its original grandeur.
Acquired in a state of varying degrees of deterioration in November 2010, Timbercreek had its work cut out with this project. Over the years, previous owners had completed various retrofits but upgrades were done on an impromptu basis, which meant leaving “mix and match” unit finishes.
The newly renovated suites include refinished original hardwood floors, wood trim and crown moulding as well as stained glass windows and fireplace mantels. Kitchens and bathrooms were completely upgraded with modern conveniences, including stainless steel appliances and quartz countertops.
Electrical, plumbing, and fire building systems were also replaced, and common areas and corridors were renovated. As part of the upgrade (and to ensure fire safety), the original wood doors were replaced with fire-rated solid wood unit doors to ensure that the heritage character was not lost. New energy-efficient windows with lead glass inserts were installed, and the exterior brickwork and façade were cleaned and refreshed.
In Hamilton, Ont., Timbercreek has undertaken a significant retrofit program with a number of properties that it accumulated over the past five years. This includes two buildings that were acquired in 2008, and another package of buildings that it added in 2011.
“This deal in Hamilton was an exciting one for us as it allowed us to grow in a region that we have had some success on a smaller scale,” says capital manager, Eli Miller. “The Hamilton buildings fit our value-add strategy perfectly. We got a chance to take some underutilized space, incorporate some amenities into it and add some more units that we didn’t originally anticipate.”
Timbercreek has “a pretty simple formula” when it updates buildings, says Miller. The company looks at the building systems, building exteriors, common areas and garages.
“We try to touch on each of these elements depending on the needs, the target and the general condition. These buildings weren’t in terrible condition. The windows were all pretty good and the balconies were in decent condition.”
Miller says some garage work was needed and some security upgrades were made. Timbercreek also did some interior work, including painting lobbies and updating the carpeting and lighting in the hallways.
More capital intensive work included updating boilers and six new elevators.
Miller says Timbercreek tried to stick to the company-wide plan of supporting the local contractors.
“We like the smaller, local service providers. Our philosophy has always been to have local relationships,” he says. “In our experience on the multi-residential side, the local suppliers understand it a bit better and they seem to be a little bit more creative in working with us. It is partnering with the right people that can help us manage our expenses.”
A focus on tenants
Just like the individual buildings in Timbercreek’s portfolio, the company’s online efforts are also seeing an upgrade to bring it more up-to-date with the latest technology and trends.
“We are in the process of completely re-doing our website and really focusing on how to interact more effectively with our existing and future tenants. It will continue to be an area of focus for us,” says Hutchison.
All this is being done with an eye on maintaining and even improving the company’s tenant retention rate.
“Obviously, there is a lot of talk around the use of social media as a means of having a conversation with tenants and communicating with them. This is where the industry is headed and, as such, these are areas of focus for us as well,” he says.
Always considering its tenants, Timbercreek has been active in the Ontario-based Certified Rental Building program. Developed by the Federation of Rental-Housing Providers of Ontario, it is the only multi-residential apartment building certification program in North America.
Basically, it assures tenants they are choosing a well-run, well-managed building, says Hutchison.
Companies seeking inclusion in the program must adhere to approximately 40 established building management and customer service standards, which cover a wide range of practices. Mandatory external audits, conducted by J.D. Power and Associates, and completion of the program’s property manager training and education course by building management and staff is also required.
Today, Timbercreek is one of the top companies in the program with approximately 75 properties listed.
“We are committed to being a positive influence in the industry and work to improve the level of professionalism,” says Hutchison. “Our industry is changing. It used to be one where we were really focused on selling a physical product. That isn’t the case today. It really is about customer service, building a better customer experience and focusing on those needs.”
Scott Anderson is acting editor-in-chief of Canadian Apartment Magazine.
