Brookfield targets US$15B for real estate fund despite woes
Brookfield Asset Management Ltd. is aiming to raise US$15 billion for its fifth flagship real estate fund, less than its previous version, according to people familiar with the matter, as the global property market is roiled by rising borrowing costs.
Brookfield, one of the world’s largest owners of prime office properties, started raising money earlier this year for the new vehicle just months after closing its fourth fund at US$17 billion. A spokesperson for the Toronto-based asset manager declined to comment.
The firm is seeing attractive value entry points, Brookfield Asset President Connor Teskey told shareholders last month, adding that investors “believe that this could be a tremendous vintage for us, and therefore, there is lots of interest.” Only a small percentage of the equity in the firm’s current flagship real estate funds is invested in office properties.
Office landlords around the world are being squeezed by higher interest costs, falling property prices and low occupancy rates as employees continue working from home. Fee-bearing capital in Brookfield Asset’s real estate business dipped to US$98 billion in March from US$103 billion at the end of last year.
Brookfield focuses on top-quality office real estate, which will produce better returns over the long run, Chief Executive Officer Bruce Flatt told investors last month.
“We have always focused on owning premier real estate in the best locations, which is why 95 per cent of our office portfolio is either trophy or Class A office space that continues to vastly outperform the broader market,” he said in a letter to shareholders of Brookfield Corp., Brookfield Asset’s parent company. The group also invests in other property asset classes, including hotels, malls, logistics and housing.
Brookfield has defaulted on mortgages covering more than a dozen office buildings, mostly in Los Angeles and around Washington, DC. Recently it handed a receiver control of EY Plaza, a 41-floor tower in Los Angeles, where the downtown office vacancy rate has reached 30 per cent.
Flatt told investors the problems are isolated to those assets and aren’t material to the firm’s sprawling real estate business, which includes New York’s Manhattan West and London’s Canary Wharf. Brookfield has “always prided ourselves on being an extremely responsible borrower, and our reputation in the capital markets sets us apart,” he said.
Brookfield has more than US$825 billion in assets under management, with US$270 billion in real estate holdings under management as of March.