Friday Letter Brookfield's blockbuster

In the middle of a real estate depression, how did Brookfield manage to attract $4bn in commitments to an opportunity strategy? Jonathan Brasse explains:

Just hours after the 9/11 twin towers attacks in New York, Brookfield Asset Management’s chief executive officer Bruce Flatt jumped into a limo from his Toronto base to Manhattan to assess the damage to the firm’s property holdings in the area. His assurances to investors that nothing but superficial damage had been sustained were enough to stem a potentially catastrophic share slide.

Lightning-reaction IR seems to be a resounding characteristic at the Canadian real estate and infrastructure group. Its announcement on Wednesday that it had succeeded in corralling $4 billion in equity commitments for a global opportunistic spending spree has grabbed the attention of the international real estate community. But more importantly it has grabbed the attention of the smaller but influential private equity real estate community, whose members are mostly struggling to get LPs to give them an incremental penny.

Why has a firm whose core business lies outside of opportunistic real estate investment managed to achieve what so many other firms who have been operating exclusively in this space for years have not?

Brookfield Asset Management (formerly Brascan Corporation) is a company which has built up an $80 billion global platform of real estate and infrastructure because it has its fingers actively twiddling in many pies. A conversation with one source within the firm revealed that the key to the firm’s business is in knowing when to quicken the twiddling in one pie and slow down the twiddling in another without stopping entirely. That has led Brookfield to be able to bid effectively for, say, a port or water pipeline when the opportunity arises, just as simply as bidding on an office (its forté particularly in North America and Canada) or a shopping centre when that asset class is showing most value.

Its array of capital raising platforms also affords it flexibility given that it manages listed vehciles as well as unlisted.

“It’s all about the cost of capital,” the source told PERE, “When one way gets too expensive, we have the means to swing the other way.”

Brookfield’s adaptability, in this instance, has provided LPs worldwide with an opportunistic vehicle in which they are awarded “flexibility” and more significantly, “a say”.

The vehicle, called The Brookfield Real Estate Turnaround Consortium, first conceived a year ago, has lured LPs by providing options which many blind pool funds do not. For example, it will provide first refusal on all investments that fit the consortium’s search criteria. For another example, all or some investors can commit to all or some deals.

Our source did not say Brookfield would cease to raise blind pool real estate opportunity funds. Its North America focused Real Estate Opportunity Fund, with $1.8 billion of assets on its books, for instance, is still in spending mode with $150 million in dry powder left to employ as of July. The thing is, it doesn’t matter because if, say, in nine months time blind pool investing is back in vogue, the firm already has a platform up and running to meet investor demand once again.