Hazen Road is a 72-unit workforce housing multifamily asset located in a secondary market in the Canadian Prairie region. The property consists of three-storey wood-frame walk-up buildings constructed in the early 1990s on a well-positioned lot approximately 4.2 kilometres from the central business district. The market has experienced consistent population growth of 1.8 to 2.2 percent annually over the past decade, supported by regional government employment, light industrial activity, and a university presence that absorbs approximately 600 to 800 rental households per year in the 1-bedroom segment.
The acquisition thesis is a classic distressed-seller transaction: the prior owner, an individual investor carrying floating rate debt that was originated in 2022, reached a maturity event in Q4 2025 that could not be refinanced at the original basis given current rates. Facing a capital call from the lender to bridge to permanent financing, the seller accepted a price below current replacement cost rather than inject additional equity into a property they did not want to manage through stabilization.
The investment team applies a four-part filter to acquisition candidates. Hazen Road passed all four.
Below-replacement-cost basis. At $148,000 per unit versus an estimated construction replacement cost of $205,000 per unit, the acquisition creates a structural competitive advantage. New supply cannot be delivered at a price that competes with this basis. Rents can be maintained and modestly increased without facing pressure from new development economics, because developers cannot feasibly build at a rental rate that pencils at the acquisition cost.
Distressed seller, not distressed asset. The seller's problem was a financing mismatch, not underlying demand weakness or deferred maintenance that would require unexpected capital expenditure. Occupancy of 84 percent on a 72-unit building represents 11 vacant units. Vacancy analysis showed 8 of the 11 units were undergoing routine turn between tenancies, with 3 units held vacant by the prior owner pending a renovation program that was never executed. The operational distress was largely apparent rather than structural.
Population inflow supporting demand. The submarket's vacancy rate for workforce housing in the 550 to 850 square foot range ran at approximately 4.2 percent through 2025, below the 5.5 to 6.0 percent range the prior owner was using to justify flat rents. Market rents for 1-bedroom units in the corridor had increased approximately 6.5 percent over the prior 24 months, with new tenancy agreements signing at $1,275 to $1,375 per month versus the in-place average of $1,180 per month.
Identified value creation path. The 13-unit mark-to-market opportunity, combined with 8 units eligible for modest renovation and re-leasing at a $90 to $120 per month premium over current in-place rents, represents a definable NOI improvement that does not depend on market appreciation.
The capital structure was designed to limit equity exposure while maintaining LP-protective economics at every layer. The stack uses three tranches.
Rationale for each layer:
The CMHC MLI Select program was the right senior debt vehicle because the property meets the affordability threshold for the preferential insurance premium, and the fixed rate locks the debt service at $4.65 percent for a full decade regardless of rate movements. The senior debt represents only 62 percent LTC rather than the maximum allowable under MLI Select (which can reach up to 95 percent for qualifying affordable projects), because maintaining a lower LTC improves debt service coverage and reduces refinancing risk at maturity.
The preferred equity layer bridges the gap between senior debt proceeds and total project cost. At 9 percent, the preferred equity return reflects the risk of the layer: subordinate to $6.64M of senior debt but senior to $2.14M of common equity. The preferred equity providers bear the first loss above the senior debt value. The callable feature after Year 3 allows the preferred to be retired if cash flow or a refinance supports it, reducing the ongoing cost of capital to the common equity holders.
Common equity is structured with LP-protective economics: 8 percent cumulative preferred return on contributed capital, full return of LP capital before GP participate in profits, then a 75/25 split of profits above the preferred. The GP co-invest is 18 percent of common equity in cash at close.
LPs participate at the common equity layer. Minimum investment is $100,000. Capital calls are made in a single tranche at close. The preferred return begins accruing from the date of each LP's capital contribution at 8 percent per annum, cumulative and non-compounding.
The waterfall operates as follows:
Interim distributions are projected to begin in month 13, contingent on the property reaching 91 percent occupancy and maintaining 1.25x debt service coverage on the senior loan. Distribution frequency is quarterly. Under the base case underwriting, cumulative LP interim distributions represent approximately 22 percent of total LP returns, with the remaining 78 percent captured at exit.
Base case hold: 5 years. Exit at stabilized NOI with a 5.5% cap rate applied.
LP projected net IRR: 11.2 to 13.8 percent depending on hold period. LP projected equity multiple: 1.68 to 1.82x net of all fees.
These figures assume base case rent growth of 2.8% annually, stabilized occupancy of 93% by month 18, and no material capital expenditures beyond the budgeted renovation reserve of $1,800 per unit. All figures are net of acquisition fee (1.5% of purchase price), annual asset management fee (1.25% of effective gross income), and GP promote.
The acquisition closed in Q1 2026. The property is in its initial stabilization phase.