Starlight Reorganizes for Growth Amidst Loan Default Shadow

TORONTO, ON – December 30, 2025 – Starlight U.S. Residential (Multi-Family) Investment LP announced today the successful completion of a major reorganization, a strategic move designed to simplify its structure, enhance investor liquidity, and extend its operational runway. The newly formed entity, trading under the ticker "SURF.UN" on the TSX Venture Exchange, emerges from the former Starlight U.S. Residential Fund with a renewed mandate extending to November 2029.

However, the announcement of this strategic pivot was coupled with unsettling news: the partnership has received a formal notice of default from the lender on its Sunlake Apartments property. This development casts a significant shadow over the reorganization, creating a complex narrative of forward-looking strategy clashing with immediate financial headwinds.

A Strategic Overhaul for a New Era

The reorganization, which received overwhelming approval from unitholders on December 10, 2025, marks a significant transformation. It consolidates multiple classes of units from the predecessor Starlight U.S. Residential Fund into a single class of Canadian dollar-denominated Class A units of the new limited partnership, SURF LP. This structural simplification is intended to streamline operations and make the investment vehicle more transparent and accessible.

Central to the plan is the listing of the new LP Units on the TSX Venture Exchange, which are expected to begin trading on or about December 31, 2025. This move aims to provide unitholders with greater liquidity compared to the previously fragmented and partially unlisted unit structure. Following the conversion and the cancellation of all its old units, the former Fund has officially ceased to be a reporting issuer, with SURF LP now carrying on its multi-family real estate business.

By extending the term by three years to November 15, 2029, management has secured a longer horizon to execute its strategy of acquiring, owning, and operating income-producing residential properties in the United States. The partnership currently holds interests in three multi-family properties totaling 1,029 suites.

What the Restructuring Means for Investors

For investors, the transaction triggers several important financial and administrative changes. Unitholders of the old Fund automatically received new SURF LP units based on predetermined exchange ratios, which varied by unit class. Notably, some ratios included a foreign currency factor to account for the original U.S. dollar investments.

The most critical consideration for many will be the tax implications. The partnership has advised that a final T5013 tax slip for the 2025 tax year will be issued by March 2026. It is expected to allocate a U.S. source capital loss to investors, which would reduce the adjusted cost base of their holdings. Furthermore, the disposition of the old Fund units in exchange for the new LP units is expected to trigger a capital loss for many long-term investors. In the press release, the company stressed that it is not providing tax advice and strongly encouraged investors to consult with their own tax advisors to understand the personal impact and their ability to utilize any such losses.

The proceeds for calculating this loss are tied to the trading price of the Fund's units on the reorganization date, adding another layer of complexity for unitholders navigating the financial outcome of the conversion.

A Cloud on the Horizon: The Sunlake Default

Complicating the otherwise positive strategic news is the formal notice of default concerning the mortgage on the Sunlake Apartments property. While SURF LP stated it is disputing the notice and continues to engage in good-faith negotiations, the lender now has the expressed right to demand full repayment or initiate foreclosure proceedings.

In its official statement, the partnership noted it "does not expect a material impact on its net asset value as a result of any remedies the lender may exercise." However, a potential foreclosure represents a significant risk to the partnership's portfolio. The loss of a key asset could impact cash flow and the overall valuation of the LP, regardless of management's current assessment. The lender has not yet exercised its remedies, leaving the outcome of the dispute and negotiations as a critical uncertainty for the newly restructured entity.

This development is not entirely out of the blue. Public records show the loan for the property, then known as Bainbridge Sunlake, had its maturity extended by one year to June 1, 2026, back in July 2025, suggesting that challenges with the financing may have been brewing for some time.

A Bellwether for the U.S. Multi-Family Market?

The troubles at the Sunlake property may reflect broader pressures within the U.S. multi-family real estate sector. The market in 2025 has been defined by a precarious balance. While long-term demand for rentals remains robust, the sector has been grappling with the impact of higher interest rates, cautious lending, and a surge of new supply hitting the market.

Data from 2025 shows a notable rise in commercial mortgage delinquencies, with the multifamily delinquency rate for Commercial Mortgage-Backed Securities (CMBS) climbing to nearly 7% by November. This stress is amplified by what analysts have termed a "wall of maturities," with nearly $300 billion in multi-family property loans estimated to have come due in 2025, forcing many owners to refinance in a much more expensive and restrictive credit environment.

Starlight's own recent performance reflects these market conditions. For the nine months ending September 30, 2025, the predecessor Fund reported a 16.4% decrease in property revenue, citing increased competition from new supply in key markets like Austin and Phoenix. While its value-add program of renovating suites has yielded strong returns on cost, it has not been enough to completely offset the broader market headwinds.

Despite these challenges, the long-term outlook for the sector has positive indicators. New construction starts have slowed dramatically, which should ease supply pressures in the coming years. Furthermore, with homeownership remaining prohibitively expensive for many, the underlying demand for rental housing is expected to stay strong. The success of SURF LP's new chapter will ultimately depend on its ability to navigate the immediate crisis at its Sunlake property while positioning its portfolio to capitalize on this anticipated market recovery.