Brookfield closes $15bn fund with surge of HNW support

The alternative asset manager saw about 10% of Brookfield Strategic Real Estate Partners III’s capital come from a retail channel.

Brookfield Asset Management has entered the double-digit billion-dollar club, having closed its largest-ever real estate fund on $15 billion, PERE has learned.

The capital raise for Brookfield Strategic Real Estate Partners III, which was launched in 2017, came in 50 percent above its $10 billion target. BSREP III is the biggest real estate fund to close in 2019 and is second only to Blackstone’s $15.8 billion Blackstone Real Estate Partners VIII, the largest-ever property fund to have closed, according to PERE data.

It will soon be the third biggest, however, with Blackstone reportedly expected to close imminently on $20 billion for the fund’s successor, BREP IX. Aside from Blackstone, Brookfield is the only firm to have raised a closed-ended real estate fund exceeding $10 billion.

The Toronto-based alternative asset manager held an initial close on $7 billion for BSREP III in February 2018 and brought the total to $9 billion a month later. BSREP III was backed by more than 150 institutional investors, 55 percent of which were repeat investors. Approximately 65 percent of the investor base was from North America, 25 percent from the Middle East & Europe and 10 percent from Asia-Pacific.

The investor base included public and private pension plans, sovereign wealth funds, financial institutions, endowments and foundations, family offices and private wealth investors. Among the biggest check writers were US pension plans New York State Common Retirement Fund, which earmarked $400 million, and Teacher Retirement System of Texas and Pennsylvania Public School Employees’ Retirement System, both of which allocated $300 million, according to PERE data.

Brookfield and its publicly traded real estate platform, Brookfield Property Partners, also committed an aggregate of $3.75 billion to the fund – the larger than typical co-investment in its funds one of the hallmarks of Brookfield’s fund model.

Brian Kingston

A notable difference between BSREP III and its predecessor was the significant increase in high-net-worth capital that was raised for the latest fund via its newly launched private wealth channel, which comprised both broker/dealers and registered investment advisors. PERE understands that $1.5 billion, or 10 percent, of BSREP III’s capital came from high-net-worth investors, compared with several hundred million in BSREP II.

“Over the last three years, we made a concerted effort to reach out to wealth management groups,” Brian Kingston, chief executive at Brookfield Property Group, told PERE. “We deliberately spent a lot of time prior to launching BSREP III meeting with wealth management groups, explaining to them who we are and what we do, so when we did launch, they put us on their platforms because of the ground work we did leading up to that.”

The bulk of the institutional investor fundraising was completed by early in the third quarter, but the high-net-worth capital took through this month to close. “Each [wealth management group] needs to have a marketing window, so we had them staggered,” Kingston said.

Similar to the prior funds in the opportunistic series, BSREP III will focus on acquiring positions of control or influence in real estate assets, portfolios and corporate entities primarily in North America, Europe, Australia, Brazil and India, according to documents from PSERS. About 70 percent of the fund’s capital is expected to be allocated to large-scale or corporate acquisitions, with the balance going into asset-level acquisitions. The fund will target a 20 percent gross and 16 percent net return and a 2.0x gross and 1.7x net multiple.

To date, approximately one-third, or $5 billion, of the fund’s capital has been invested in 10 investments. The largest of these transactions are the acquisition of listed property company Forest City Realty Trust in December and the purchase of a 100 percent leasehold interest in 666 Fifth Avenue in New York in August.

“We think it’s important to have scale,” Kingston said of BSREP III, which did not have a defined hard-cap. “One of the advantages of scale is the ability to do large transactions – like Forest City.”

Despite the fact BSREP III is significantly larger than its target, the firm still anticipates all of fund’s capital will be deployed over its four-year investment period.

While the buying power of BSREP III will be boosted by leverage, which will be capped at 70 percent, the equity alone is expected to extend significantly beyond the $15 billion, Kingston said. “A lot of our investors would love to have co-investments, in addition to the deals that go into the fund,” he said.

With the Forest City transaction, for example, nearly $1.5 billion of the equity for the deal came from co-investment capital. “So in addition to the $15 billion, there’s a lot of additional capital that we could tap into, this shadow capital.”

With its flagship real estate fund series, Brookfield has rapidly expanded to become of the industry’s heavyweights in less than a decade. The firm’s debut global real estate fund, BSREP I, collected $4.4 billion in August 2013, while BSREP II, which attracted $9 billion in April 2016, was more than double the size of its successor. As of December 31, BSREP II was generating a net IRR of 12.8 percent and multiple on capital of 1.1x, while BSREP I was producing a net IRR of 21.7 percent and a 1.8x multiple, according to PSERS documents.