The real deal

Brookfield's success with its Real Estate Turnaround Consortium has given the Toronto-based firm the confidence to target $4 billion for its new global opportunity fund.

After testing the waters with its $5.5 billion Real Estate Turnaround Consortium in 2009, Brookfield Asset Management has taken the next step in its fundraising evolution by announcing plans to raise $4 billion in equity for a traditional global real estate opportunity fund. Though it wouldn't be fair to call the Toronto-based asset manager's previous capital-raising effort a “dry run,” its current offering appears to be the real deal.

In its first quarter report and letter to shareholders, both released on Wednesday, Brookfield revealed fundraising plans for the multi-billion dollar global real estate fund, one of seven fundraising initiatives the firm is working on over the next two years. In total, these fundraising campaigns are expected to raise more than $7 billion in equity through a mix of opportunistic, value-added and private equity strategies.

Brookfield's $4 billion opportunity fund would be one of the largest of its kind since the global economic crisis and would mark the first significant capital raising since the firm attracted $5.5 billion from a small club of large investors in 2009.

Naturally, Brookfield has good reason to feel confident about its current effort. The firm’s Turnaround Consortium, raised during the nadir of the fundraising market in the wake of the global financial crisis, has been a success, managing to exceed its original $4 billion target by $1.5 billion. In addition, the consortium’s investment in General Growth Properties was widely seen as a success as well, garnering the firm honors for North America Deal of the Year in the 2010 Global PERE Awards.

Despite the success of its feat of creative structuring, Brookfield knew all along that someday it would return to its traditional fundraising roots. Indeed, at last year's PERE Forum: Europe, chief executive Bruce Flatt told delegates that the firm's follow-up effort would likely take the form of a traditional private equity real estate fund.

Further bolstering Brookfield’s confidence in its current effort is that fact that the firm obviously isn't alone in its assessment of the fundraising market. The Blackstone Group started fundraising for a $10 billion global real estate fund in April, and the Rockpoint Group launched a $2.5 billion opportunity fund in March. Meanwhile, Lone Star Funds already has proven what determination can accomplish, closing its latest fund on $4.2 billion at the end of April – including an estimated $3.5 billion raised in the last 12 months of the campaign.

This level of mega-fund activity was unheard of just 12 months ago, when many firm still were licking their wounds from the global financial crisis. Some sought to exit the private equity game altogether in the face of such an inhospitable environment, while those that dared venture into the fundraising arena did so with smaller, more targeted funds. Even Blackstone president and chief operating officer Tony James admitted as recently as February that it was “a tough fundraising environment” and acknowledged that some investors will not able to do the size they were once able to do. 

So, how will Brookfield fare?

It may be too early to tell if Brookfield’s effort represents excessive opportunity within the market, or excessive optimism from the company. Still, given the success of its previous fundraising activity and strong quarterly earnings, it's unlikely the firm is simply being naively optimistic. Details are still vague, but the real litmus test will be whether this fund has discretion, something the firm’s Turnaround Consortium lacked.