Most development funds tell you the exit will be fine. We are going to show you the three specific exits Wellington Towers is engineered for, including the worst case scenario we still win in.
PV, Mit & Jeff
We get this question on almost every call. The honest answer has three layers, and even the worst layer is a building we still win on.
PV, Mit & Jeff sit down to break down the Tranche 1 extension, why London can absorb 1,000+ new units, the affordable rent thesis, and the exit math behind Wellington Towers.
This is the question that comes up on every Wellington Towers call. Eventually. Sometimes politely, sometimes bluntly.
"Cool, you build the thing. Lease it up. Then what? Who actually shows up with a cheque big enough to buy a $100M building?"
It is the right question to ask, because the exit is where most development funds quietly fall apart. So instead of saying "we will figure it out", here are the three specific exit paths Wellington Towers is engineered for, in order of likelihood.
Once the building is stabilized and fully leased, we sell it on the open market to an institutional acquirer. Pension funds, insurance companies, mid sized Canadian REITs, family offices, and international institutional capital all underwrite stabilized purpose built rental as a long duration income asset.
The reason this buyer pool is so wide is mechanical. A qualified acquirer can buy Wellington Towers using CMHC insured financing at 5% down. On a $100M asset, that is $5M of equity and $95M of long term insured debt at sub market rates. Their cost of capital is roughly 3%. We build at a 5.5% cap. They buy at sub 4%. The spread is the trade.
This is the path we have underwritten the fund to. It is the path the comparable Canadian PBR market is already trading at every quarter.
We have already lined up FCPRET as a ready and qualified acquirer for Wellington Towers at stabilization. FCPRET is our existing private real estate trust, AUM north of $60M and growing, with a mandate to hold stabilized multi family in Southwestern Ontario.
FCPRET acquires using the same CMHC insured financing at 5% down. The fund pays the same market based stabilized cap rate the open market would pay. Dev Fund II investors get their exit at fair market value, and FCPRET investors get a building purchased at a known cost basis from a sponsor they already trust.
This is the path that exists no matter what the open market is doing in 2030. The acquirer is already on our balance sheet.
In a scenario where neither the open market nor FCPRET is prepared to acquire at the right cap rate, we refinance the building under CMHC long term insured debt and hold it. Distributions become cash flow from rent, and investors are returned their capital plus appreciation as the building continues to mature.
We view this as extremely unlikely. Two simultaneous failures would have to occur. The institutional buyer pool would have to disappear, and FCPRET would have to be unable to absorb the asset. Both at the same time. But the path exists, and it has been engineered into the structure of the fund.
Worst case is still a fully leased, cash flowing, $100M apartment building in a housing shortage. We are prepared in every scenario.
432 Units · 25 Storey Purpose Built Rental · London, ON
$100K Minimum · Cash Only · Accredited / Existing FC Investors
Tranche 1 Extension: 24% Net Annualized Targeted Return
FCPRET is open continuously at a $10,000 minimum, eligible for RRSP, TFSA, RESP, LIRA, and cash. 7% targeted distributions paid monthly, 15% targeted total return. The same fund that may eventually acquire Wellington Towers from Dev Fund II investors.
Stabilized Multi Family Buildings · Southwestern Ontario
$10K Minimum · RRSP / TFSA / RESP / LIRA Eligible
Targeted Return: 15% Annualized (7% cash + 8% appreciation)
To your success,
PV, Mit & Jeff
P.S. The reason we lay all three exits out in writing is that most prospects do not realize how much work has gone into engineering them. The institutional buyer pool is not a hope. FCPRET as a ready acquirer is not a hope. The refinance fallback is not a hope. They are three different versions of the same answer to the same question. Tranche 1 of Wellington Towers is still extended at 24%. If you want to walk through any of these paths on a call, reply Wellington or book a slot at the link above.
