Blackstone Group, the investment firm that bills itself as the world’s largest commercial property owner, is getting deeper into the single-family rental business and betting on the surging Canadian market with a deal to take Toronto-based Tricon Residential private.

Blackstone Real Estate Partners X, together with Blackstone Real Estate Income Trust, agreed to pay 3.5 billion U.S. dollars in cash for all outstanding common shares of Tricon. That amounts to US$11.25 per share, 42% more than the weighted share average over the past 90 days and 30% over the price at the close of trading Thursday, Blackstone and Tricon said Friday in a statement. Blackstone REIT plans to maintain its 11% ownership stake after completing the deal.

"Tricon provides access to high-quality housing, and we are fully committed to delivering an exceptional resident experience together," Nadeem Meghji, global co-head of Blackstone Real Estate, said in the statement. “Our capital will propel Tricon’s efforts to add much-needed housing supply across the U.S. and in Toronto."

In addition to the purchase, Blackstone plans to complete Tricon’s existing US$1 billion development pipeline of new single-family rental homes in the United States and a US$2.5 billion pipeline of new apartments in Canada. Blackstone also said it intends to complete an additional US$1 billion in planned capital projects to enhance the quality of existing single-family homes in the United States over the next few years.

"We look forward to benefiting from their expertise and capital," Gary Berman, chief executive of Tricon, said in the statement.

Tricon provides rental homes and resident services in the United States across the Sun Belt, including the markets of Atlanta; Charlotte, North Carolina; Dallas; Tampa, Florida; and Phoenix. Its U.S. rental business has roughly 38,000 existing homes, 2,500 homes under development, and land development projects capable of supporting almost 21,000 single-family homes.

In Canada, which represents 2% of Tricon’s assets according to a January presentation, the company has 500 stabilized units, with 1,056 units in lease-up, and another 4,015 market-rate and affordable apartments under development. Toronto and some other parts of Canada have a housing shortage that's been driving up costs.

Berman previously predicted Tricon would have "Canada's premier multifamily portfolio with institutional scale" during a conference call with analysts. He has also said the book value of the stake in this portfolio is expected to double.

The rental market in Canada saw asking rents reach a new all-time high of US$2,178 in December, according to the site Rentals.ca. Rents rose 8.6% in the past year and are up 22% over the past two years. In the United States, rent growth has been more subdued over the past year, but remains well above the cost of a mortgage.

“What's astonishing is that owning a single-family starter home today costs US$1,000 more per month than renting the same home. This is what makes single-family rental so compelling for many American families," said Berman on his last quarterly conference call.

That dynamic is likely a driving force behind Friday’s announced deal, according to industry analysts.

“Investors are willing to pay a premium for single-family rental housings, especially in U.S. Southeastern states, because that property type offers outsized growth potential,” Brad Case, chief economist at Middleburg Communities, told CoStar News.

Case noted that Tricon’s property segment has been strong on operating fundamentals, but the company hasn’t been equally as strong as an operator. “The 30% premium on Tricon’s stock largely corrects for the discount on those properties under Tricon’s management,” he said.

Tricon entered the U.S. single-family rental business during the 2008 financial crisis and has had a longstanding relationship with Blackstone and Blackstone REIT. Friday’s deal comes a little over three years after a group led by Blackstone invested US$300 million in Tricon, whose holdings in the Sun Belt — then closer to 21,000 single-family rentals — had proved resilient during the COVID-19 pandemic as renters rushed into the region looking for more space and warmer weather, according to CoStar reporting.

The August 2020 investment also resulted in Frank Cohen, chairman and CEO of Blackstone REIT, being appointed to the Tricon board.

Not long after the initial Blackstone investment, Tricon began selling off its 23-property apartment portfolio in the Sun Belt to focus on single-family rentals, according to CoStar reporting. It first sold an 80% stake for US$1.3 billion in February 2021. The remaining 20% sold for US$315 million in October 2022.

Blackstone’s interest in single-family rental housing likewise began during the Great Recession. It formed Invitation Homes in 2012, becoming the largest owner of single-family rentals in the United States before selling its remaining shares in the company in November 2019.

Following its initial investment in Tricon, Blackstone further expanded into single-family rentals after it purchased Home Partners of America’s portfolio of 17,000 homes in June 2021 for US$6 billion. Tenants at Home Partners properties are also provided with the option to buy the home eventually. The company had halted additional home purchases in 38 markets as of September 2022, according to CoStar reporting.

A special committee made of independent members from Tricon's board recommended Friday’s deal after advisers received the agreement.

"The transaction with Blackstone is in the best interests of Tricon and its shareholders and that the transaction price represents compelling and certain value for Tricon's shares," said Peter Sacks, chair of the special committee and independent lead director of Tricon, in the statement.

The board can still accept a superior offer subject to a US$122,750,000 break fee. The fee would be reduced to US$61,250,000 if Tricon terminates the arrangement agreement on March 3.