Brookfield Asset Management is partnering with Hillwood, a Dallas-based real estate investor and developer owned by Ross Perot, Jr., to acquire, develop and manage large value-added warehouses and other industrial properties in the US. With an initial equity commitment of $400 million, the joint venture is expected to deploy up to $1 billion in distressed industrial assets within the first three years. Deals typically will range from $20 million to $60 million in size, with a return target of 13 percent to 16 percent.
“We believe this is an excellent time to selectively build a portfolio of high-quality industrial properties,” said David Arthur, managing partner at Brookfield Asset Management, in a statement. “This initiative expands the scope of our real estate platform in an exciting asset class.”
The venture will be included within Brookfield Property Partners, a publicly-listed entity that is expected to launch later this year as part of a strategy to increase Brookfield Asset Management's fee-bearing assets under management through the formation of publicly-traded flagship companies and corresponding private funds for each of its three major platforms – real estate, renewable energy and infrastructure. The company previously launched Brookfield Infrastructure Partners in 2008 and Renewable Energy Partners last year.
Brookfield Property Partners will encompass all of Brookfield's privately-owned commercial properties, as well as units in the public companies in which it owns a majority interest, such as Brookfield Office Properties and General Growth Properties. In addition, the firm's private real estate funds will come under the Brookfield Property Partners umbrella. Brookfield Asset Management currently has approximately $150 billion in assets under management, including more than $83 billion in real estate in the Americas, Europe and Australia.
“Industrial development slowed during the downturn due to a lack of equity and debt,” said Perot, chairman of Hillwood, in a statement. “Given the liquidity and resources supporting our investment, our joint venture is well-positioned to benefit from renewed demand for industrial space, which will increase as the economy continues to show signs of improvement.”
The partners recently purchased their first property for the venture, a vacant 350,000-square-foot warehouse in San Bernardino, California. Brookfield and Hillwood previously had acquired two other vacant industrial assets together, including a 962,000-square-foot warehouse in Commerce, Georgia last year. In total, Brookfield currently owns about 3 million square feet of industrial real estate.
The partnership represents one of the more significant commitments to US industrial real estate since the financial crisis and is one of several private equity real estate deals targeting the sector in recent months. Earlier this year, The Blackstone Group acquired a 3.5 million-square-foot industrial portfolio in the UK from Prologis for about $335 million, while Oaktree Capital Management bought a majority stake in a portfolio of 26 US industrial properties.
In its commercial real estate outlook for 2012, Cole Real Estate Investments assessed the US industrial property sector as highest in overall attractiveness as compared to office and retail real estate. “The industrial sector offers a compelling mix of healthy fundamentals, attractive pricing and moderate risk,” the investment management firm said in its report. “As the economic recovery unfolds, more goods will circulate in the country, generating demand for warehouse space. Demand also will profit from the rebuilding of inventories, which had been depleted to unsustainable levels; recovering international trade; and a secular consolidation of logistical operations into large, national distribution centres.”
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