Forgestone Capital was created eight years ago and has grown into a full-service real estate investment firm with $6 billion of assets under management and another $1 billion in development projects.
Along the way, Forgestone has built a 19-person team with expertise in planning, development, income analytics, asset management and debt financing. Its three primary areas of business are: private equity; advisory and asset management services; and a mortgage fund.
Forgestone’s initial focus was on closed-end opportunity funds which invest both directly and with like-minded partners. There’s no restriction on asset class or geography, although the primary markets of interest are the Greater Toronto Area, Vancouver, Montreal and Ottawa.
“We remain active and are looking at all sorts of different things in the post-COVID environment,” chief executive officer Trevor Blakely told RENX. “We’re finishing our third fund off this year and then will look at what the tea leaves show in the market in terms of how we would deploy a fourth fund.”
Forgestone Mortgage Fund LP
The open-ended Forgestone Mortgage Fund LP has been operating for a year-and-a-half and has been the biggest growth area of the Toronto-based company’s business during the pandemic. It has just north of $300 million in capital, which is about 50 per cent deployed.
“We think like principals because we’re equity players, but we lend like partners,” said Blakely. “Almost all of the deals we become involved with are partnerships.”
Most of the lending over the past year has been on first and second mortgages of up to 85 per cent.
The focus has been on industrial, multifamily and land in major Canadian markets because they’ve been the most liquid sectors. President of mortgage investments Stefan Simonyi told RENX Forgestone will also consider other asset classes, depending on the sponsor.
Lending decisions are generally made within 24 hours, according to Blakely.
The typical loan size is from $5 million to $50 million. Simonyi said the sweet spot is from $10 million to $20 million, but Forgestone also looks at transactions of $50 million to $100 million.
“The borrower is very important and key for us in the way we look at things because we want to make sure we’re lending to the right groups,” said Simonyi.
While declining to name specific partners, Blakely said all have proven business plans, strong balance sheets and expertise in such areas as land entitlement, land development, industrial and multifamily rent rollovers, and expanding buildings.
“All of our partners have a specific expertise in markets and areas that we want to grow,” said Blakely. “Instead of waiting for the brokers to come and show us deals – and we’re happy to work with brokers – what we did was identified people that really understand their business well and could benefit from not only our money, but our creativity and our expertise.”
Simonyi said partners that are growing are those the firm is most interested in working with:
“It’s not about one deal, it’s about the next five deals that we’ll do together.”
Forgestone’s lending program can include:
– asset repositioning, bridge and portfolio lending;
– first, second and mezzanine mortgages;
– fixed or floating interest rates;
– loan terms ranging from one to five years, with flexible repayment options;
– collateral security not limited to real estate assets;
– non-recourse and equity repatriation;
– becoming an equity partner through its value-add or opportunity funds;
– providing future capital for value-add projects;
– portfolio recapitalization with groups that own a number of properties with longer-term debt;
– and loan-to-value ratios upwards of 75 per cent to 85 per cent.
“We’re taking a very proactive approach with our partners that are bidding on assets and looking to buy assets,” said Blakely, who expects to finalize another $100 million in loans during the next six months.
“We have a good pipeline of activity going right now,” he said, noting the mortgage fund will look to raise more money in 2022.
Advisory and asset management services
Through its advisory and asset management services, Forgestone strives to deliver attractive risk-adjusted returns to institutional, foreign and private high-net-worth investors. It represents 17 investment groups on the advisory side and Blakely said most have done more than one deal with the firm.
Forgestone can address small and large-scale projects from long-term core investing to value-add income and development projects.
Third-party advisory is the largest part of Forgestone’s business, with approximately $4 billion in assets under management. The business is centred around larger core assets in which Forgestone invests, in either on- or off-market deals, with stakes ranging from 50 to 100 per cent.
“It’s straight buy-side advisory work,” said Blakely. “The difference is that we are not just putting the deal together or being in a partnership together, we’re staying on as the asset manager or in other roles throughout the process.”
The advisory business was Forgestone’s slowest-growing sector in 2020 due to the pandemic, as most clients were on pause for six months, but Blakely said activity is picking up again. It’s doing more industrial and multifamily deals now because of the unknowns in the retail and office asset classes.
Future growth for Forgestone
Forgestone is exceptionally well-capitalized in all of its buckets, according to Blakely.
While looking to continue to grow its three primary areas of business, Blakely said Forgestone is also working on creating new silos and platforms.
Blakely initially thought COVID-19 would have a greater negative impact on real estate, but he’s now cautiously optimistic about the future — particularly in major markets.
“Notwithstanding the exodus we’ve seen during COVID, with increasing immigration and people getting back to more normal historical lives, we feel that the positive elements that the major markets bring will be re-established.”