Building rendering from Grove Street in Barrie, Ontario.

Investment Opportunity – SkyDev Phase 1 Barrie LP

Watch: Investment Opportunity – SkyDev Phase 1 Barrie LP

Transcript

[00:02:53] Wayne Byrd:

Thank you very much, and welcome to everyone who’s joined. For those who don’t know me, I’m Wayne Byrd, Chief Financial Officer of the Skyline Group of Companies. Joining me today are Greg Jones, President, SkyDev, and Carrie Lamarche, Vice President, SkyDev. Thank you both for joining me today.

[00:03:10] Wayne Byrd:

Let’s get things kicked off here, and we’ll jump right into it.

So, Greg, I’m sure we do have some existing SkyDev investors on the call with us today, but for those that are new, we would appreciate it if you could provide a brief description of what exactly SkyDev is and how does it function in the broader Skyline ecosystem.

[00:03:33] Greg Jones:

Happy to Wayne, thanks.

SkyDev is a real estate development company within the Skyline Group of Companies. We’re a fully integrated asset acquisition, management, development, and investment entity with a mission to build developments that create meaningful value for the communities we invest in.

Carrie’s joining us today, a civil engineer with over 25 years of development experience. I have a Master of Land Use Planning and Finance, with over 20 years of experience. We have a great team working with us of development experts who are experienced in navigating complex regulatory requirements and delivering results from land acquisitions to occupancy.

[00:04:15] Wayne Byrd:

Thanks, Greg. So, with SkyDev, how is it unique from other development companies that our viewers might know of?

[00:04:25] Greg Jones:

I mean, being integrated with Skyline is a big bonus, being able to leverage that experience and 25 years of management, but it’s a blend of real estate expertise, focus on service, and a commitment to sustainable technologies that enhance returns. Over the years, we’ve become leaders in development by checking every detail to work through the best solutions, provide transparency, and always do the right thing.

[00:04:53] Wayne Byrd:

And then, how does SkyDev differ from the other Skyline Investment Funds?

[00:04:59] Greg Jones:

Yeah. So, SkyDev has been around for five years. We haven’t been on the main investor platforms and debates because SkyDev is not a fund. We provide development services to other Skyline Funds in support of their new developments, but we also offer investors exclusive institutional quality, limited partnership investments, and specific real estate developments. So, someone can invest in a very specific development that they’re excited about, which is what we’re here to talk about today, Barrie, our latest project.

Our investments are generally non-liquid, with timeframes ranging from three to five years. And we provide investors with the opportunity to be part of something, to create something tangible and new. We’re hoping to have investor events with our new builds to come tour the site and see your money at work.

[00:05:56] Wayne Byrd:

Thanks, Greg for the overview. So, let’s get a little deeper, expanding on that. Carrie, could you provide the viewers with insight into SkyDev’s development strategy – strategies – and how does your team find the opportunities? Maybe you could speak to some of the current projects that you and your team are managing?

[00:06:17] Carrie Lamarche:

Great. Yeah. I mean, SkyDev’s strategy is really aligned with Skyline’s overall strategy of focusing on developing within secondary markets. Specifically, we are looking at growing communities within Ontario.

Overall, Ontario is in a housing crisis. There’s strong demand everywhere in Ontario for new housing, and there’s a real opportunity, especially with the additional incentives that the government has put in place to reduce the cost of constructing new rental housing.

There’s a growing trend of those migrating away from the expensive GTA prices, and that’s increasing the demand within those secondary markets as well. And so, we have currently got projects in Simcoe and Belleville that we recently closed, as well as we’re under construction in Collingwood with 187 units there. And so, really focusing on those secondary markets.

[00:07:13] Wayne Byrd:

Then the process and the stakeholders involved, can you speak at a high level to the buy-in from the communities and municipal governments?

[00:07:23] Carrie Lamarche:

With 444 municipalities in Ontario and that strong demand overall, we’ve completed an analysis and prioritized the municipalities that we’re looking to do business in based on market potential, as well as community partnership.

What do we mean by community partnership? Communities that are going to cut the red tape and allow us to get going quickly, as well as those that provide financial incentives. We’ve had mayors calling us from many municipalities asking us to build rental housing in their communities, offering to expedite approvals and work with us to meet our needs. And others, like Chatham and Barrie, have put in place tax incentives to lower the cost of new housing. And so, we’re prioritizing those communities to choose to invest in.

[00:08:08] Wayne Byrd:

Great. So, you have definitely touched upon a couple of current locations. So, let’s get into the LPs (Limited Partnerships) within the portfolio right now. And here’s where you can showcase some of the asset slides. Touch on Barrie but, carry on.

[00:08:24] Carrie Lamarche:

Yeah. So, we recently completed 627 apartments across five communities in Ontario, and we had a slide show playing when you joined that showcased some pictures and renderings from those various projects in Chatham, Tecumseh, Welland, Pelham, and I’m missing one. Of course, Gravenhurst, how could I forget? As well as the 187 that I talked about that are underway in Collingwood.

We’ve turned our mind to that next wave with the Feds putting in place high leverage loans as well as removing HST (Harmonized Sales Tax) on rental housing. The provincial government has the More Homes Built Faster Act that they recently passed that reduces development costs, as well as various municipal incentives. The time is ripe for us to consider investing in new rental housing within the province of Ontario.

As well, there’s trade availability increasing with the condo market kind of softening, as well as interest rates coming down. It’s kind of a perfect storm of a good time for us to move ahead. We recently closed investments in the Town of Simcoe with 199 units there in two buildings, as well as in the City of Belleville for another two buildings and 166 units. So that’s 365 new rental apartments, plus the project in Barrie that we’ll get into more detail on here, in a minute.

[00:09:52] Wayne Byrd:

Yeah. So, you talked about the current developments, briefly touched upon the project in Barrie, formerly referred to as SkyDev Grove Barrie LP. So, now’s the time to really jump right into this one as it’s your most recent investment opportunity and part of why we are all here today. So, let’s go. Provide the audience with some background on the project and then speak to the current opportunity.

[00:10:17] Greg Jones:

I’ll get us started here, and then Carrie can come in partway through.

We originally purchased the site from the YMCA in 2021 and have been taking the time to carefully design and approve this now shovel-ready property. The City of Barrie is one of the top ten fastest-growing cities in Canada. It’s expected to grow 45,000 people in the time it takes to build this project and stabilize and sell.

We’re anticipating strong absorption, trying to capture 1% of that population growth in our development. We’re seeing most of this growth from inter-provincial migration, people moving out of the GTA for a better cost of living and better proximity to cottage country generally. Site location, you can see we’re about 900 metres from downtown and the lake. We’re going to have a rooftop amenity area with indoor/outdoor space overlooking the lake. Removal of the former YMCA that you see in that picture gives us about $1.4 million in development charge credits. We’re near the Bayfield Mall, we’re right beside Ontario Highway 400. It’s a highly visible location where you can drive by and say you are part of something, you’re building something, and you’re part of Skyline.

So, we’re pretty excited about it. Next slide.

[00:11:47] Greg Jones:

So, there’s a total master plan for 928 units. In this investment proposal where we’re building the first two buildings to ensure strong absorption, you can see that rooftop patio on the eighth floor. Most of the suites will have views of the water, the amenity deck will have views of the water and you’ll have amenities within fingertips but also you can hop on the 400-series highway to get to your outdoor location or get to the city.

Through lobbying efforts with us and the City of Barrie, as well as their housing pledge with the federal government for $42 million, they need people to build, and condo developers are not building. And so, they just passed a CIP (Community Improvement Plan) bylaw that provides all rental housing, as targeted for our development, a ten-year tax incentive, no property taxes the first few years and then it kind of phases out over a ten-year period.

It also has a number of other incentives that are factored into what is in that investment summary. The development itself consists of 541 rental apartments, a 25-storey and a 27-storey tower. It’s got seven levels of above-grade parking for cost efficiency, it’s a clean property that has a record of site condition.

[00:13:20] Greg Jones:

It’s got deep groundwater, good geotechnical conditions, it’s the highest site in town. It’s a great site. The next slide here, you can see that as part of the development plan, we’re building tower A and B, and we believe it’s going to add a ton of value to the residual lands, tower C and D, which we’re planning to sell as part of this development plan.

So, the RSC (record of site condition) received, this record of site condition from the Ministry of Environment, it is site plan approved. We are in for permit, or in for CMHC (Canadian Mortgage and Housing Corporation) financing, and it’s four separate freehold parcels. We’re intending to finance them separately such that as each tower occupies, we’ll get permanent debt and commercial bond rates on those parcels.

We’ll just go through some renderings of what it looks like on the next slide. So, you got a bit of a piazza, and you can see that above-grade parking garage with the buildings. The view from Bayfield, we’ll have a nice big skyline on the top until someone acquires it.

Next slide, a view of the lobby and next slide. And then I’m going to turn it over to Carrie to talk a little bit about the unit mix of the development and the opportunity.

[00:14:52] Carrie Lamarche:

Thanks, Greg.

As we set out to design the project, we completed both an appraisal as well as a market study to inform the design. The suite mix and rental rates proposed within the investment summary are in line with the recommendations from that third-party consultant. The suite mix provides for 40% two bedrooms and 31% one bedroom plus den. These sizes allow for two people to share, or for retirees looking to downsize and provide a little bit more space within the suite. While having 29% one bedrooms allow us to offer the lowest possible rental rate on a per unit basis. In fact, 10% of the units are planned to meet the affordability criteria, and this is because this qualifies us for a better CMHC loan as well as additional incentives from the city.

If we take a closer look at those amenities Greg touched on, so in addition to the outdoor amenities, each building will have contiguous indoor spaces that are located adjacent to that rooftop amenity space. We’re showing tower A as an example here, but the same amenities will be replicated in tower B as well. And so, we have a lounge and a bar area, kitchen, dining and games room, gym, and yoga area, all for the tenant’s use. Additionally, on the lower levels, we’ll have a pet washing station, storage lockers for bikes or winter tires or other such gear that they may want to store there, as well as EV charging stations.

And so, the timeline. The timeline is anticipated to be five years and three months, with construction commencing in January for tower A. We’ve submitted for building permit and have onboarded Gillam as our general contractor, who, by the way, have also committed to be an investor in this project. This timeline allows for the construction of both of the buildings, lease-up, and stabilization, as well as the sale of this completed asset. With a combined return on equity (ROE) of 100% and a targeted internal rate of return (IRR) of 20%, we think this is an amazing opportunity to invest in the City of Barrie.

[00:17:05] Wayne Byrd:

So, Carrie, you mentioned IRR, let’s get into a bit more details on the investment itself. And I know investors can speak directly to their Skyline Wealth representative on the specifics, but could you provide a bit of a summary on the investment details?

[00:17:20] Greg Jones:

I’ll take that one. I mean, it’s an opportunity to be a partner with Skyline and a development of one of the most iconic buildings of our history. Investors will receive Class A units in a partnership, enjoy limited liability, and will not be required to guarantee any of the loans. With all the economic variables coming together of government incentives, housing demand, interest rates, trade coverage, it’s the perfect moment to invest in new rental apartments.

[00:17:53] Wayne Byrd:

So really, Greg, if it’s me, how will I, as an investor make money here? And why do I want to invest?

[00:18:04] Greg Jones:

You make money on completion, you’ll get income as the buildings stabilize, and then the total return coming from the sale of the additional lands, as well as the buildings themselves. You can be part of something great and still make a good return and see something tangible, just like all the other Skyline assets, when you invest in something, you can actually go and see and visit it and know your money is at work.

[00:18:32] Wayne Byrd:

So, we can turn over things here to the investors or those interested on some Q&A. One of the ones that I’ll kind of kick things off here and see others as they type in. So, a good question and this is, what type of financing is required for a deal like this?

[00:18:51] Greg Jones:

I’ll take that one.

The investment summary contemplates a high leverage, low interest CMHC insured loan. It contemplates a 45-year amortization, but we’ve actually submitted for a 50-year, essentially trying to get the best positive leverage at completion with commercial bond rates sitting around plus 50 basis points through that program. You’re just under 4% on your debt and it gives great leverage on the yield of the asset itself. So, high leverage, low equity, great rates. It’s what the Feds keep talking about with their low interest loans for rental housing, that’s what we’re after.

[00:19:41] Wayne Byrd:

Okay, so with interest rates and inflation, have you seen any significant changes in costs, expenses associated with the project? And a common question will be is there a buffer in place to address potential unexpected expenses?

[00:19:57] Greg Jones:

Carrie, do you want to take that one?

[00:19:58] Carrie Lamarche:

Yeah, absolutely.

What we’ve seen from a cost perspective is that things have really stabilized. During COVID, there were supply chain issues, and there was a bit of uncertainty around goods at that time, but things have really stabilized. In fact, there’s actually a surplus of trade availability with the condo market softening. We really feel that it’s a good time to be out to bid, as we should get some really competitive pricing.

However, to not take too many chances, we’ve, of course, included a contingency within our budgets. We typically allow for a 3% contingency on hard costs and 6% on softs to make sure that we’ve got a good amount of contingency in there for the unexpected, or if things change. The lead time on this is a couple of years, there could be some new cool technology we want to put into the building, and the contingency allows us to make sure we can be adaptable as things come up.

[00:20:59] Wayne Byrd:

Thanks, Carrie. Question now coming in from an interested investor. What type of reporting will you provide investors during the term of the project?

[00:21:10] Greg Jones:

I’ll take that one. We’ll give quarterly reporting on spend, budget. During the construction, we’ll have photos of what we’re doing and probably some cool drone imagery, but we’re also hoping to have periodic site visits, where investors can come out and tour the property and the development and what it is they’re investing in.

[00:21:33] Wayne Byrd:

Thanks, Greg. Another common question that we get as well is, does SkyDev do projects outside of skyline?

[00:21:43] Greg Jones:

Carrie?

[00:21:43] Carrie Lamarche:

Okay, I’ll take that one. Our focus really is supporting the Skyline Group of Companies, and they keep us pretty busy with supporting the various REITs (Real Estate Investment Trusts) as well as our own projects. And so, we currently are not looking to do work for other companies but, these assets that we’re constructing, we will look to sell on the open market to make sure we get the best value for our investors, for the Barrie project, as well as the others we’re working on.

[00:22:13] Wayne Byrd:

All right. Another question is, how are the returns taxed? I’ll answer this one. This is considered active business income. So, this will be, as an LP, a T5013 slip would be produced annually if there is anything to report through. Otherwise, it will all be active business income because this is a development project and not a passive real estate investment. Another question. Will the units be pre-sold? What level of risk is tied to the pricing of residential housing?

[00:22:54] Greg Jones:

I’ll take that. We’re not planning to pre-sell individual units like a condominium, it is a rental project. That said, towards the end of the project, when every trade is awarded and we know pretty well where our interest rates are tracking on a floating rate, and we’ve got our expense side nailed down, we would seek to sell in advance of completion on a forward sale if it makes sense for our investors to do that.

We don’t want to lock in our revenue before every expense is known and solid. I think that’s where a lot of developers have gotten themselves into trouble over the last couple of years, with condo developers specifically.

[00:23:40] Wayne Byrd:

Thanks, Greg. I will then prompt this as well. Out to the investors, if anybody else has any questions, please type them into the Q&A in the upper right and we’ll circulate these and get them. Another question has come in. How much is Gillam investing into the project?

[00:24:03] Greg Jones:

I’ll take that one there, at least 10%. They’re discussing internally for more. I can’t disclose until I have it for sure. And they say it’s okay to disclose, but 10% so far.

[00:24:23] Wayne Byrd:

Another question then gets into the GP/LP (General Partners/Limited Partners) split. How is the profit split between investors and the developer?

[00:24:32] Greg Jones:

Do you want that one Carrie, or should I take it?

[00:24:35] Carrie Lamarche:

Whatever you like, Greg.

[00:24:36] Greg Jones:

Okay, I’ll take it.

Essentially, it’s an 80/20 split, but we’re not doing any kind of loan guarantee fees, we only earn that if you make money and it’s at the end of the project. During the course of operations, there’s a preferred return on regular income before we take a split. But generally, upon completion, it’s an 80/20 split; 80% for the investor.

The returns we were talking about with the 100% and 20% factor that performance bonus in. And that performance bonus is essentially the part that the Co-Founders of Skyline coming in and guaranteeing that high leverage, low interest loan and not charging you for it, over 80% of the cost of the project.

[00:25:35] Wayne Byrd:

Thanks, Greg. Again, a prompter just for any other questions. While I wait a minute or two, is there anything that either of you would like to add or share on the status of the lands at present, or anything further that you’d like to share with, with the audience.

[00:26:02] Greg Jones:

Carrie do you have anything to share? I can.

[00:26:04] Carrie Lamarche:

Yeah, I mean, the lands are shovel-ready, and I think I can’t stress how important that is in de-risking a project like this. We have site plan approval, we’ve got all the clearances from the Ministry of Transportation and Highways, the off-site works to extend servicing and road networks to this property are sorted out, and literally, we’re ready to put a shovel in the ground as soon as we can raise the debt and the equity required. It’s a pretty exciting time to be that close to shovel in the ground.

[00:26:39] Greg Jones:

I mean, I’m for one, I’m excited at the opportunity to outperform and have ways to win and have contingencies and move forward with the City of Barrie and some of their incentives that we haven’t even applied for yet to make the project even better.

So, it’s just, the recipe is right for municipalities and government to come to the table and say, hey, maybe we shouldn’t be taxing housing so much, maybe we should be supporting our developers and, and making sure that they can actually build and get a decent long-term return. I think that we’re in a great position to perform well in what we’ve projected and exceed that through debt, through incentives, through trade coverage. There’s a number of ways to win.

[00:27:33] Wayne Byrd:

All right. Thanks, Greg. Thanks, Carrie.

No other questions have come in, so I’ll just move right to kind of wrapping this up. Again, thank you, Greg, and Carrie, for joining me today and providing us with insights into this really incredible investment opportunity in the City of Barrie.

So formally, this concludes our webinar. And I do appreciate all of those who joined us live today. If you do have any further questions or would like to discuss the Phase One Barrie investment opportunity, I encourage you to, well, I’m going to say A, B or C, all of the above, reach out to your Skyline Wealth Management representative directly. They would be happy to set up some time to go over this with you.

Or if you would like to, if you still have some other further discussions or questions that you would like addressed, schedule some time one on one with myself, Carrie, Greg, or all three of us all at the same time. We’d be happy to sit down and go over anything more specific if you need more information.

Again, greatly appreciated. This has all been great and thank you all for joining.

[00:28:43] Greg Jones:

Thanks, everyone.

[00:28:44] Wayne Byrd:

Thanks.