Tricon CEO Gary Berman on his company’s next moves — and why he told 60 Minutes millennials don’t necessarily desire to own homes

In an interview on CBS News last month, the CEO of Tricon Residential, Gary Berman, presented a tag line of sorts for his company: “You can rent the American Dream,” he said.

The clip from “60 Minutes” was shared widely on social media, drawing widespread attention and criticism to a once-obscure Toronto company that has developed a booming business south of the border.

In the decade following the 2008 financial crisis, when the U.S. housing market collapsed, Tricon Residential gradually built up a multibillion-dollar venture buying swaths of single-family homes in the Sun Belt states and renting the units to tenants while keeping the equity.

The 34-year-old company advertises an idyllic suburban lifestyle for tenants, replete with picket-fenced lawns and nuclear family decor, but its business model has drawn criticism for reducing housing supply while aspiring homeowners struggle to access an increasingly exclusive real estate market.

According to recent corporate filings, Tricon now owns approximately 30,000 single-family homes across the U.S. with plans to buy another 20,000 by 2024, making the company one of the largest rental home operators in the country.

Last year alone, Tricon amassed 6,383 homes and raised rents across its properties by an average 4.8 per cent — an increase the company notes is below the U.S. industry average of 14 per cent.

Over that same period, the company distributed $50.9 million in dividends to shareholders and $44.3 million in awards and bonuses to company executives.

In an interview with the Star on Friday, Berman argued the company is contributing a social good by increasing the supply of rental properties while giving younger generations who can’t afford a down payment the chance to live in their preferred neighbourhoods.

“There are so many families that, for different reasons, want to rent a single-family home or can’t afford to buy one. We give them that chance,” said Berman.

The CEO became the subject of social media scorn following the “60 Minutes” interview early in March, when he told CBS host Leslie Stahl that, “if you asked a lot of millennials — and that tends to be our primary resident — they would probably tell you they don’t necessarily desire to own a home.

“They’ve grown up in the sharing economy, and what’s important to them is lifestyle. So if they can move into this, what we call, turnkey or hotel-ready home and have a low-maintenance lifestyle, that’s very compelling for them,” said Berman, who earned $4.46 million in 2020.

Berman sought to clarify those comments in his interview with the Star, arguing that while he knows that plenty of millennials want to own homes, there are also many who cannot afford down payments or qualify for mortgages.

“In an American context, they may have tons of student debt or medical debt, which we know has swelled in the U.S. over the last decade and has made it difficult for many people to qualify for a mortgage. There’s a credit problem there that can make home ownership very difficult to attain,” he said.

Tricon’s presence in the U.S. differs from its operations in Canada, where the company is presently developing 11 purpose-built rental buildings across the Greater Toronto Area.

Those projects, the bulk of which are in downtown Toronto, will contribute more than 5,500 new rental units in a city where average rent for a one-bedroom apartment amounts to $1,446 per month, the company said.

Most recently, in March, Tricon partnered with the Canada Pension Plan investment board to spend $500 million on the development of 2,000 to 3,000 more rental units, with a first project already slated for development in Toronto’s east end.

Real estate prices soared during the pandemic, driven in part by low interest rates and rising demand. GTA home prices jumped almost 30 per cent in February, to $1.3 million, while smaller cities and rural areas have seen increases as high as 50 per cent in one year.

While real estate investors snapped up dirt-cheap homes in the U.S. in the aftermath of the 2008 subprime mortgage crisis, Canada’s narrow housing supply and high costs have presented a risk to institutional investors trying the same strategy north of the border — though that has not dissuaded everyone.

Last year, Toronto-based developer Core Development Group announced plans to buy $1 billion worth of single-family homes and convert them into 4,000 rentals in Ontario, Quebec, B.C. and Atlantic Canada.

Toronto-based start-up Key, backed by former Bank of Canada governor Stephen Poloz, launched a co-ownership program last November that allows individuals to invest in fractional shares of properties bought by institutional investors.

A recent study from the Bank of Canada found that investor activity doubled in the Canadian housing market between 2020 and 2021. Investors now account for one-fifth of all residential buyers in Canada, the data found, and have increased purchases particularly in cheaper areas like Ottawa, Gatineau, Winnipeg and Halifax.

In the Canadian market, Tricon told the Star it is solely focused on adding supply, not shrinking it.

“We’re not interested in buying single-family homes here. The supply constraint is much more acute in Toronto than it is in the U.S.,” Berman said.

“Here, we desperately need more housing of all types. The homes we’re buying in the U.S. are $300,000, whereas the homes here in Toronto go for over $1 million. There are so many people priced out of this market, and if we want to be part of the solution then we need to provide more market-rate housing.”

Initially named Tricon Capital, Gary’s father David Berman founded the company in 1988 as a boutique development firm off Bay Street that provided funding to local developers building for-sale housing.

For several decades, the company operated like a private equity firm, investing primarily in land development projects and condominium projects subject to the typical boom-bust cycle of real estate.

When the company got “crushed” in the 2007-08 recession, Tricon pivoted to a steadier sector: rental homes. As home prices plummeted in Sun Belt states like Arizona and Texas, Tricon opened a subsidiary focused on rentals and spent the following years buying up single-family dwellings while acquiring competing investment firms until it held one of the largest portfolios in America.

“We realized we didn’t need to build new homes in the U.S. because there was already such a glut of vacant homes. So we went in, with many other investors, and started buying existing homes and rehabilitating them,” said Berman, who joined his dad’s company in 2002 after a stint at Goldman Sachs and took over as Tricon’s CEO in 2015.

The company’s collection of single-family rental homes accelerated after Tricon launched a far-reaching company strategy in 2019, aimed at maximizing shareholder value, called “Project Genesis” — “a reference to new beginnings in the biblical sense, but also a nod to the British rock band that spawned successful solo careers for its front men Phil Collins and Peter Gabriel,” the company wrote in a report to shareholders.

When the COVID-19 pandemic hit, the company bought thousands more single-family homes, doubled its market capitalization, and, in 2021, went public on the New York Stock Exchange.

To decide its next purchases, the company now uses a 90-factor algorithm that automatically buys homes that fit their criteria, consisting of neighbourhood type, price, size and more.

Critics say companies like Tricon contribute to the “financialization” of housing, where corporations treat real estate as a vehicle for wealth and investment rather than a social necessity, often to the detriment of individual homebuyers.

“If you extend this out 10 or 15 years, if these companies’ visions unfold, we’ll have a much higher percentage of homes belonging to über-wealthy elite hedge funds that make it harder for us to buy property, and the only option is to rent from them,” said John Pasalis, president of Realosophy Realty.

“I don’t think that’s the ideal solution to housing affordability.”

Martine August, an assistant professor at the University of Waterloo School of Planning who studies the rise of corporate landlords, notes that the business model of most of these companies is built on boosting rents to maintain positive cash flow.

“Our research regularly suggests that, when financial firms acquire housing en-masse and turn it into rental housing, it ends up being bad for renters and for affordability. Not only will it contribute to rising home prices, but it will also lead to higher rents, as these institutions will want to raise their prices to maximize value for their shareholders,” August said.

Tricon, which charged an average monthly rent of $1,529 in 2021, notes that its rent increases last year were below the industry average.

In recent months, the company has expanded its home purchases to more expensive markets including Phoenix, Las Vegas, Austin and Nashville, with an eye on “newer vintage homes which tend to have a higher cost,” according to its latest quarterly report.

By 2024, it aims to own more than 50,000 homes, and the company says it is just in the early innings of what could become a much bigger business.

The trends that emerged during the COVID-19 pandemic were a boon for Tricon, as public interest in real estate surged and city-dwellers increasingly looked to the suburbs to settle down.

“Our core single-family rental business has been a massive beneficiary of these drivers,” the company told investors in its 2021 annual report.

The coming years, it said, may be a “golden decade for residential assets.”

Jacob Lorinc is a Toronto-based reporter covering business for the Star. Reach him via email: jlorinc@thestar.ca