Brookfield Asset Management has captured $2.1 billion in commitments for the first close of its Brookfield Strategic Real Estate Partners, raising more than half of the fund’s $3.5 billion target, according to filings with the US Securities and Exchange Commission. The vehicle, which was launched about one year ago, is the firm’s first global real estate opportunity fund.
Brookfield Property Partners, the spin-off real estate business that Brookfield plans to take public later this year, will be the lead investor in the fund and contributed about half of the capital raised – $1 billion – in the first close. The vast majority of the remaining capital came from US pension funds. The firm, which is not using a placement agent for the fundraising, is expected to hold additional closings later this year, according to sources familiar with the matter. Brookfield declined to comment.
With its latest capital raise, Brookfield offered discounts to the 11 investors in the first close – the first time it has done so for a fund. The discounts were on top of fee breaks that the asset manager previously granted to investors; these fee breaks were offered on a sliding scale and based on the amount of capital an investor committed to the fund, beginning at around the $200 million mark.
More importantly for limited partners, however, is that large investors committing $200 million or more to the fund will receive priority rights for future co-investments, for which Brookfield plans to raise capital on a deal-by-deal basis. With priority rights, such investors are given first choice for participating in co-investment deals, with their proportionate share of the deal based on how much capital they contributed to the overall pool of capital committed by large investors.
Brookfield Strategic Real Estate Partners marks the first significant real estate fundraising for the alternative asset manager since it collected $5.5 billion for its club fund, Real Estate Turnaround Consortium, in 2009. In a letter to shareholders in May 2011, Brookfield chief executive Bruce Flatt said the fund will encompass all of the firm’s new opportunistic real estate investment activities worldwide. In support of this strategy, Barry Blattman, who heads Brookfield’s global opportunistic real estate programme, relocated to London last year to focus on pursuing distressed investments, particularly in large real estate operating companies, in the UK and Europe.
The fund is seeking capital appreciation through investments that “target positions of control or influence in direct properties, real estate companies and distressed loans and securities, with a focus on large, complex, distressed turnarounds and recapitalisations of high-quality assets,” according to sources. The vehicle, which is targeting a gross internal rate of return of 20 percent, has not made any investments to date.