AMERICAS NEWS: Brookfield’s hot new club

Just hours after the 9/11 twin towers attacks in New York, Brookfield Asset Management’schief executive officer Bruce Flatt jumped in a limo from Toronto to Manhattanto assess the damage around the firm’s property holdings in the area.

Bruce Flatt

His assurances to investors that nothing but superficial damage had been sustained were enough to stem a potentially catastrophic share slide. Quick reactions to dealing with negative investor sentiment seems to be a resounding characteristic at the Canadian real estate and infrastructure group. Its announcement last month that it had succeeded in corralling $4 billion in equity commitments for a global opportunistic spending spree  has grabbed the attention of the PERE community, whose members have on the whole failed to attract anything like that that level of interest of late.

What exactly is Brookfield Asset Management,and secondly and perhaps more importantly, why has a firm with no significant reputation for opportunistic fundraising managed to achieve what so many other firms who have not? Of the approximately $38 billion of real estate currently under management at Brookfield Asset Management, only approximately six percent was bought by its opportunity funds platform. The firm manages some $80 billion overall.

Part of the answer lies in the fact that Brookfield Asset Management (formerly Brascan Corporation)has its fingers actively twiddling in many pies. A conversation with one source within the firm said that the firm knows when to quicken the twiddling in one pie and slow down the twiddling in another. That has led Brookfield to be able to bid just as effectively for a port as for a shopping centre. And these pies extend also to the type of structure used to pay for these assets. The firm runs private equity funds, publically traded funds, and can raise money through share issues or through debt.

It's all about the cost of capital. When one way gets too expensive, we have the means to swing the other way.

Source at Brookfield Asset Management

“It’s all about the cost of capital,” the source says. “When one way gets too expensive, we have the means to swing the other way.” The Brookfield Real Estate Turnaround Consortium has inspired investors to set aside $3 billion for a two year investment programme starting now. The other $1 billion has been committed by Brookfield Asset Management and sister company Brookfield Properties Corporation.
The consortium, which was first conceived a year ago, has lured investors by providing options which many co-mingled blind pool funds do not. For example, it will provide first refusal on all investments that fit the consortium’s search criteria. All or some investors can commit to all or some deals.Despite the more investor-empowered structure, there are still elements of Brookfield’s
consortium that mirror that of the more traditional private equity fund.

For one, the consortium is a closed initiative. The firm is understood to be in talks with a small number of additions to boost the consortium’s firepower even further (note that the minimum equity contribution is $300 million), but it is expected to close the doors to new arrivals very shortly. From then it will have a set buying period of two years –a facet not too dissimilar to that of a closed-ended fund.

In addition, Brookfield will also receive a management fee throughout the investment cycle – again similar to the closed-ended fund.

Our source did not say it would cease to raise blind pool real estate opportunity funds. For example, its North America focused Real Estate Opportunity Fund, with $1.8 billion of assets on its books, is still in spending mode with $150 million in dry powder left to employ as of July.

It’s nice to have options, and therefore it’s nice to be Brookfield.