Market differentiator

In this month’s issue of PERE, we speak with three of Brookfield’s senior real estate executives about how investing in real estate platforms has changed with the times.

Brookfield Asset Management has long favored platform-level investments as its real estate opportunity of choice. In an excerpt from a conversation for this month’s Blueprint feature, Ric Clark, Barry Blattman and Brian Kingston talk about how such investments have helped to set the firm apart from its competitors, and how the opportunity set has been shifting.

PERE: It seems like platform investments have become a differentiator for Brookfield.  Can you talk about why that’s the case?

Kingston: In those spaces, we find there are very few groups who can marshal large amounts of capital and who can work through very complicated distress situations. For those who are able to do that and navigate those areas, the rewards are very high because you can typically buy very well as opposed to the simpler, more straightforward transactions, where it’s much more competitive on the price buying.  It’s a very deliberate strategy in that we’re typically pursuing very large distressed capital structures as opposed to distressed assets. What we’re really looking for is good assets and bad capital structures, whether that’s bad debt or bad equity. In those spaces, we find there is less competition and, when there is less competition, the rewards are much higher. 

Blattman: We’re able to price an investment based on getting ownership, reflecting the assets at a distressed price. Because it’s a platform, however, there is a lot more reward that comes from the investment than just the recovery in those underlying assets. You can’t have visibility when you make the investment to understand what kind of great additional opportunity is going to come from these platforms, but inevitably it does come from these platforms. 

Clark: There are some things that we do that makes us a little different than others, and it comes from the fact that we’ve been doing this for a long period of time and many of us come from an operating background. So, when an opportunity presents itself to us, we’re able to go in, underwrite it and understand everything about the asset, including how we can add value operationally and, importantly, how we can de-risk the investment. That’s one differentiator. 

The second is we put a substantial amount of money in any fund or transaction that we do. We’re a firm believer that real estate is a cyclical business, so we use prudent capital structures. We’re not using excessive leverage and just completely banking on a turnaround in the economy to make our money.  

PERE: Do you still see a lot of opportunities in platform-level investments?

Blattman: We would love to buy platforms at distressed prices, but so much depends on the market. I was meeting with somebody recently who said that they want to chase distress in developed markets. That’s exactly the same for us. When there was distress in the US, our first choice was to find great platforms. However, in the US right now, we just don’t have that kind of a pipeline. 

Still, we think there will be real cyclicality and volatility, and companies always get themselves in trouble. If we’re talking on a different day, maybe two or three years from now, we would love to invest in platforms in the US. In Europe, we’re really targeting platforms right now.

Clark: Two years ago, we were really active looking at platforms in the US and, at the end of last year, we bought an industrial platform, Verde Realty. That platform was smaller than some of the others that we’ve done, but I’d say the universe of opportunities in the US for platforms right now is smaller than it was two years ago. In Europe, we are seeing more platform opportunities, but two years from now maybe we’ll see them in another market or back in the US. 

To read more on Brookfield, please see the Blueprint feature in this month’s issue of PERE.