Brookfield Corp. Chief Executive Officer Bruce Flatt sought to quell investor concerns about commercial real estate, saying its properties are soundly financed and that higher interest rates will have little adverse impact.
(Bloomberg) — Brookfield Corp. Chief Executive Officer Bruce Flatt sought to quell investor concerns about commercial real estate, saying its properties are soundly financed and that higher interest rates will have little adverse impact.
The alternative-asset manager defaulted on mortgages on office buildings in Los Angeles and around Washington, but Flatt said the problems are “discrete to those assets” and not material to the Toronto-based firm’s huge real estate business.
“When you own 7,000 properties, it is impossible not to make a few mistakes,” Flatt said in a letter to investors Thursday that accompanied first-quarter results. “But we have always prided ourselves on being an extremely responsible borrower, and our reputation in the capital markets sets us apart.”
The company has completed $12 billion of office financings since March 2020 and has minimal debt maturing this year, he said — and “the rates coming due on mortgages are in many cases similar to those that are expiring.”
Brookfield is one of the world’s largest owners of prime office properties, with a portfolio that includes New York’s Manhattan West and London’s Canary Wharf. Commercial landlords in major cities worldwide are being squeezed by higher borrowing costs and lower occupancy, as many companies continue to allow employees to work remotely at least part-time.
Brookfield Corp. said first-quarter distributable earnings fell 2% to $1.16 billion from a year earlier. Earnings at Brookfield Property Group tumbled 34% to $145 million, mitigated a sharp increase in profit from its insurance unit.
On Wednesday, Brookfield’s asset-management arm reported a 5% drop in fee-bearing capital in real estate, to $98 billion. Changes in market valuation accounted for $1.8 billion — or 2% — of the decline.
Buying Loans
The turmoil in US regional banks may create opportunities for Brookfield to buy real estate debt at attractive prices, Brian Kingston, head of the real estate business, told investors on a conference call. Such deals may result in Brookfield taking ownership of the asset or “it may just be acquiring debt and earning a good risk-adjusted return,” he said.
Interest rate hikes have driven unrealized losses on securities for US banks, and concern about the health of the commercial real estate sector has only added to the pain. But in many cases, the property loans are performing and there’s nothing wrong with the underlying collateral, Kingston said. “The distress is with the current owner of that loan and that’s what’s creating the pricing opportunity.”
(Adds remarks from the investor call)
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