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Brookfield confident on Real Estate opportunities amidst challenges

Brookfield Asset Management, a Toronto-based infrastructure investment specialist, has expressed optimism about the current opportunities in the real estate market. The company sees the best chances in over a decade to purchase commercial property at a discount.

Brookfield Asset Management CEO, Bruce Flatt poses in front of the company’s logo in Tokyo, Japan, May 16, 2019. Photo: Hideyuki Sano

CEO Bruce Flatt highlighted that the combination of higher interest rates, inflation, and tightening lender requirements has created uncertainties and stress in real-estate markets. However, he believes that these conditions present the ideal environment to execute their longstanding investment strategy for real estate.

He also mentioned that rising interest rates are causing distress for certain properties, making them potential bargains.

Despite these favorable prospects, Brookfield has faced its own challenges in the commercial property sector. One of its funds, the Brookfield DTLA Fund Office Trust Investor, encountered a risk of foreclosure on five of its properties, while two mortgages fell into default.

However, according to Flatt, 80% of real estate still has strong fundamentals, with only certain segments, such as “bad retail” properties and traditional office buildings in specific cities, experiencing difficulties.

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Brookfield’s assets under management have shown a significant increase, reaching $850 billion in the second quarter of 2021, up from $750 billion the previous year.

The company’s diverse investment strategies span infrastructure, real estate, renewable energy, private equity totaling $141 billion, and credit investments amounting to $197 billion.

Despite the challenging fundraising market, Brookfield expects to raise a record amount of approximately $150 billion this year, including a $50 billion contribution from an insurance acquisition.

During the second quarter, Brookfield successfully collected $17 billion for its funds, including $3.4 billion specifically for its flagship infrastructure vehicle.

These positive inflows contributed to the company’s fee-related earnings, which rose by 6.2% to $548 million, or 34 cents per share. Additionally, Brookfield’s distributable earnings, or cash that can be returned to investors, increased by 3.1% to $527 million, or 32 cents per share.

However, Brookfield’s net income for the second quarter showed a decline of 30%, amounting to $580 million, or 28 cents per share, compared to $834 million, or 41 cents per share, in the same quarter of the previous year.

Nonetheless, the company’s revenue experienced a 6.6% growth, reaching $985 million, up from $924 million during the previous year’s second quarter.

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Brookfield has been actively seeking investment opportunities and made several notable deals during the second quarter. These included the acquisition of Compass Datacenters for approximately $6 billion, as well as the agreement to acquire Duke Energy Renewables, a prominent developer of solar, wind, and battery projects, valued at around $2.7 billion.

These investments align with Brookfield’s focus on renewable energy and its strategy to tap into the increasing demand for data usage driven by advancements in cloud computing and artificial intelligence.

In summary, Brookfield Asset Management is capitalizing on the favorable conditions in the real estate market.

Despite facing challenges with certain properties, the company remains optimistic about its investment strategies and potential bargains. With its strong asset growth and successful fundraising efforts, Brookfield is well-positioned to continue expanding its portfolio and generating returns for its investors.

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