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Brookfield bids for REIT with “host of challenges”

The alternative asset manager is reportedly looking to take Forest City Realty Trust private, two months after bidding $14.8bn for another REIT.

Brookfield Asset Management is making another play for a take-private, this time for a Cleveland, Ohio-based real estate investment trust with a portfolio valued at $8.2 billion, PERE has learned.

The Toronto-based asset manager is in talks to buy Forest City Realty Trust for an undisclosed price. The REIT’s portfolio comprises 32 retail centers, 36 office buildings and 115 apartment properties in seven core US markets, including Boston, New York and San Francisco, according to its website.

The deal was first reported by Bloomberg. A spokeswoman for Brookfield declined to comment, and the REIT could not be reached.

Brookfield joins at least one other bidder for the REIT, which has been exploring a sale and other strategic alternatives since September after facing pressure from activist shareholders. In November, Equity Commonwealth, a Chicago-based REIT chaired by real estate magnate Sam Zell, approached Forest City about a merger.

Newport Beach, California-based Green Street Advisors wrote in a research note that Forest City, founded by the Ratner family in 1920, has myriad problems for a potential buyer to consider.

Forest City “has a poor long-term total return track record, hurt by a host of governance, balance sheet and capital allocation challenges,” Green Street wrote, noting that the REIT “has made strides in addressing some of those issues.” However, activists continue to cite “concerns about nepotistic governance [the founding Ratner family dominates the board and many management posts], poor operating results and bloated overhead.”

One real estate executive familiar with both Forest City and Brookfield echoed Green Street’s comments, telling PERE it was “no secret” the REIT was challenged.

“They’re spread too thin: they’re in too many businesses and the public market doesn’t like that. I don’t believe Forest City is an expert in any one thing,” the executive said. “Brookfield basically has buckets for all of the Forest City assets. They’re a very logical buyer. They have a habit of buying big, big things.”

Brookfield’s pursuit of Forest City is its second bid for a REIT in three months. In November, the asset manager made a $14.8 billion offer to take retail REIT GGP private, buying the outstanding shares it does not already own, PERE reported. GGP owns 126 retail properties in 40 states, according to its website.

GGP rejected the deal, but talks would continue, Brookfield chief executive Bruce Flatt said in December.

“There will be lots of stories between now and when the process ends. I think they’ll see it as a fair offer,” he said on Bloomberg Television. “These are long, long processes… if they want to do something different, they’ll do something different, but I think at the end of the day it all makes sense.”

Brookfield oversees $265 billion in assets, including $152 billion in real estate, according to its website.