First Rock pivoting to REIT in push for rental income
Published:Friday | March 28, 2025 | 12:10 AMNeville Graham - Business Reporter
First Rock Real Estate Investments Limited is in the process of recasting the business in a hunt for sustainable sources of income amid falling demand in the residential real estate market, particularly the high-income bracket, in which the company plays.
First Rock will reduce its involvement in real estate development and reshape itself into a real estate investment trust, or REIT, with an emphasis on large commercial tenanted properties, according to First Rock Group Chairman Ryan Reid.
“We expect that (the REIT) will be fully crystallised by the end of this financial year. We will morph into, fully, a real estate investment trust,” Reid said in an interview with the Financial Gleaner.
By that time, he expects that rental income will become the company’s main source of business.
The pivot to rental income comes at a time when First Rock seems to be battling headwinds. Its year-end results are delayed – the expected release date is now March 31 – but for the nine-month period, January-September 2024, the real estate company registered a loss of US$1.45 million.
“That’s expected. Basically, what we had before was that we were accumulating real estate for the purpose of development, and those large holdings were non-income-generating. That’s the primary reason why we have decided to take this paradigm shift towards becoming a real estate investment trust,” Reid explained.
He added that the demand for apartments was waning, making it imperative for the company to seek out new sources of revenue.
First Rock’s latest deals seem to buttress its new approach to business. The company acquired a 20-year lease for two KFC locations in Costa Rica, and announced last December that it purchased a majority stake in the Crown Square Commercial complex in Cayman Islands for $1.7 billion. Other deals are under consideration, Reid said.
First Rock, which is still a young company that was incorporated in 2017 and came to market in 2020, has already gone through one rebranding to better align its business with its name. It was known as First Rock Capital Holdings Limited before its name change in 2022.
Initially, the company had gone all-in on real estate development. Ground was broken in February 2023 when First Rock Real Estate Investments sought to weigh in on the high-rise housing boom by undertaking a $2.5-billion residential development called Bonne Chance. It was to be a 10-storey edifice in New Kingston, encompassing 43 apartments – a mix of 31 studios, 10 one-bedroom units and 2 two-bedroom penthouses.
On a recent visit to the Brompton Road site, the gates to the incomplete Bonne Chance project were padlocked, with the left side unhinged on the ground.
When the decision was made to mothball the project, its investors opted then to keep watch on the market. Now Reid says a meeting with First Rock’s joint-venture partners is pending to determine the timing of any further action and the way forward.
That meeting will happen within a context of waning demand and an oversupply of residential housing, especially in the higher-price bracket.
“There’s an oversupply for sure …,” said Reid.
The sweet spot in the market, right now, is low to middle-income residential developments, he added – a segment that large housing and mortgage provider, National Housing Trust, estimates has unmet demand of 195,000 units.
Before signalling its pullback from residential housing and development, First Rock had been playing in the higher end of the housing market. In addition to Bonne Chance, the company also faced delays regarding the 12-unit luxury development called Hambani, starting with the COVID-19 pandemic.
Started in April 2021, Hambani was originally scheduled to be completed in April or June of 2023, but was pushed back to this year, with full handover of units now expected to be finalised towards the end of summer.
“As it stands now, we are looking to hand over, given its practical completion,” Reid said of the Hambani development. “Two additional homes” will be handed over “within two weeks, and we expect to be fully out of it by the beginning of the third quarter this year,” he said.
Regarding the Crown Square Commercial complex, First Rock described the acquisition of the tenanted property as “a significant step” in its ongoing efforts to diversify and expand its portfolio within Caribbean and Latin America markets. The transaction was largely financed by Cayman National Bank, the company said in its market filing.
Basically, what we had before was that we were accumulating real estate for the purpose of development, and those large holdings were non-income-generating. That’s the primary reason why we have decided to take this paradigm shift towards becoming a real estate investment trust