The best new asset class in real estate

Tricon Residential President and CEO Gary Berman joins Yahoo Finance Live on the company’s listing day in the U.S. to discuss the state of the housing market and what his company sees as the best new asset class in real estate.

Video transcript

JULIE HYMAN: Tricon Residential started trading today in the United States. This is a Canadian-based company and had been trading just in Canada, now is trading in both places. And the company raising money in its IPO here. And this company owns rental properties across the southern United States primarily. Joining us now is Gary Berman, who is the CEO of the company. Gary, obviously on the floor of the New York Stock Exchange there, following the celebration of that listing.

So, Gary, talk to me about the business right now. I mean, when you look at the residential business in the US, certainly from a sales perspective, we've seen a hot market. What have we been seeing from a rental perspective? I was just looking at your numbers. You guys continue to see revenue and income rise, even as we know that people were challenged by the pandemic.

GARY BERMAN: Yeah, I mean, this business is just booming. Single family rental, we think this is potentially the best new asset class in real estate, both for investors and consumers. And it provides an unbelievable opportunity for consumers as well who may be struggling in the pandemic with affordability. Our business is very much focused on the middle market and, as you said, on the Sun Belt.

People are challenged looking for housing during the pandemic. And we provide what we think is a hotel-ready product and the maintenance-free lifestyle with affordable rent. And we think it's exactly what the market needs. And it's a real win, a real victory, we think, both for the consumer or renter and obviously our investors as well. So we're delighted to be here.

BRIAN SOZZI: Gary, in this challenged COVID environment, your customer base is-- you know, they are middle America. I mean, they are working class. Have you been able to push through price increases on your properties during the pandemic?

GARY BERMAN: We've been very thoughtful about that. And we're very empathetic with what the workforce is going through this very difficult time. And so, as a priority at the company, what we call self-governed or limited renewal increases. So our renewal increases during the pandemic have been anywhere from 0% to maybe 5% in an environment where we could probably be passing on renewal increases of 10% to 12%.

So we're really trying to put ourselves in the shoes of our residents and really drive the best low turnover model we can. We don't want to force our residents out of their homes. We want them to stay with us and really be long-term renters. And we think in the long-term, that's the best thing for investors as well.

JULIE HYMAN: Well, Gary, you guys were also subject to some regulatory limits in that way, weren't you, in terms of the US government, you know, imposing that rent increase moratorium and also eviction moratorium. I believe that is now done, although there was talk about extending it. So does that have any effect on your business and your ability to raise rents?

GARY BERMAN: It's had a small impact, but look, we've been complying with those moratoriums, right? And we've not wanted to push out any residents for nonpayment of rent in our single family home business. We just-- we've wanted to do the right thing. We are carrying a little bit of artificially high bad debt, but it's really de minimis, I would say, in the context of our business. Our business is extremely healthy. That's being reflected in the overall numbers. And it's something I think we'll continue to work through as we get the benefit of rental assistance.

BRIAN SOZZI: And Gary, the prospectus noted that you want to double the amount of properties over the next three years. Where else are you going to expand?

GARY BERMAN: We're just going to focus on doubling single family rental. Right now, we own about 25,000 single family homes throughout the Sun Belt. We want to double that to 50,000 homes over the next three years. And really, at the end of the day, there's so much demand for what we're doing. It's a high class problem.

To give you an example, we might have 200 or 300 homes available at any given week. And we're getting 6,000 calls a week, interested in leasing our homes. So we really need a lot more homes, a lot more product. This is something that millennials want. Again, we're providing them with a hotel-ready product, a maintenance-free lifestyle. And we just need a lot more product to service this insatiable demand.

BRIAN SOZZI: So, Gary, I imagine when you get in these buildings, I imagine you are remodeling them, installing a lot of new smart home equipment. Have you seen challenges getting appliances-- you name it-- other materials to help retrofit these properties?

GARY BERMAN: Yeah, I mean, we're definitely in an inflationary environment, both in terms of wage labor, and certainly, we're having some supply chain issues. But I wouldn't describe any of those issues as being insurmountable. It's not stopping us from running our business and running it very profitably. In some cases, it just takes a little bit longer to maybe renovate a home.

When we buy a vacant home, we do renovate it to a common standard. So we're typically buying homes at about $270,000, $280,000, putting in about $20,000 or $25,000 up front to renovate that home, to bring it up to a high common standard. And in some cases, it's taking a little bit longer. But on the whole, we're able to continue to run the business very profitably and efficiently.

JULIE HYMAN: Gary, everywhere we look, we see talk about housing shortage in terms of short supply, particularly of new construction. We see, as I mentioned earlier, higher prices also. So how difficult is it for you to expand your portfolio?

GARY BERMAN: Yeah, I mean, it's a real challenge with the new home environment. It's very difficult to bring on new supply. And we're actually trying to be part of that solution. So we're also going to build for rent business as well, where we're helping to develop new communities and bring on single family rental product.

So it's something that the market really needs more supply. It is so supply constrained. And I think that'll be an ongoing challenge. Obviously, that backdrop is good for our business. And to answer your question directly, we haven't had any issue buying homes. We continue to be able to buy roughly 2,000 homes per quarter, and we expect to do that on a run rate basis for the next three years.

JULIE HYMAN: All right, Gary, thanks for being with us. Gary Berman, Tricon Residential president and CEO, appreciate you being with us this morning. And congrats on the listing.