Brookfield closes on $9bn RE fund – Exclusive

The Toronto-based alternative asset manager had been raising the largest global opportunistic real estate fund in market.

Brookfield Asset Management has held a final close of $9 billion on its global opportunistic real estate fund, Brookfield Strategic Real Estate Partners (BSREP) II, blasting its original $7 billion target. The fund does not have a hard cap, according to a February memorandum from Pennsylvania Public Schools Employees' Retirement System (PSERS).

The capital raise for BSREP II was more than double that of the predecessor fund, BSREP I, which collected a total of $4.4 billion in 2013. BSREP II also attracted approximately 110 limited partners, about double that of the prior vehicle. The Toronto-based alternative asset manager contributed $2.3 billion to the $9 billion equity haul.

Brookfield launched BSREP II in 2014 and held a first close in April 2015, according to a filing with the US Securities and Exchange Commission. Limited partners included the New York State Common Retirement Fund, which committed $400 million, and PSERS and the Teacher Retirement System of Texas, both of which earmarked up to $200 million, according to PERE Research & Analytics.

Nearly all of the investors in BSREP I made follow-on commitments to the new fund and in many cases increased the size of their investments. The new investors in BSREP II came from primarily two areas: US pension plans and Asian investors.

“We've really made a conscious effort to deepen our relationships with US public pension funds as we've become more established in the US,” said Brian Kingston, senior managing partner and chief executive officer at Brookfield Property Group. Meanwhile, “Asian investors look at it as a good way to establish a relationship with us. Certainly, some have expressed interest in doing more than investing in a fund with us.”

One factor behind BSREP's massive equity haul was the trend of large investors allocating capital to a smaller number of managers, but often making larger commitments to those firms, Kingston said. Another key factor was the strong performance of BSREP I, which was generating a 17 percent net internal rate of return and a 1.8x net investment multiple as of September 30, according to marketing materials obtained by PERE.

Similar to its predecessor, BSREP II will focus on large, complex distressed turnarounds or recapitalizations, with approximately 70 percent of the fund's capital to be invested in large-scale platform investments with an average equity size of $700 million and the remainder in mid-cap real estate transactions with an average equity size of $50 million, according to a memorandum from consulting firm NEPC. BSREP II's portfolio is projected to include 30 to 45 investments, with six to seven deals in the $700 million equity range and 20 to 40 deals in the $50 million equity range.

To date, Brookfield has committed $4 billion, or approximately 45 percent of the fund's capital, across 10 investments. BSREP II deals include the $1.75 billion acquisition of Associated Estates Realty last August; the purchase of a stake in an office portfolio from BR Properties for R$2.08 billion (€530.45 million, $590.68 million); and the $657 million proposed takeover of US mall real estate investment trust Rouse Properties.

Geographically, 50 percent of the fund's capital will be allocated to North America while the remainder will deployed in the rest of the world, according to the NEPC documents. However, no more than 20 percent of BSREP II capital will be invested in assets located outside of North America, Europe, Brazil and Australia.

BSREP II is the largest real estate fund raised since The Blackstone Group's $15.8 billion capital raise for Blackstone Real Estate Partners VIII last year, according to PERE Research & Analytics.