The fundamentals for commercial real estate have never been better at this stage of a downturn, according to Brookfield Asset Management Chief Executive Officer Bruce Flatt.
(Bloomberg) — The fundamentals for commercial real estate have never been better at this stage of a downturn, according to Brookfield Asset Management Chief Executive Officer Bruce Flatt.
Demand for the best space is strong and vacancy is low, leading to outsize rents for top office properties in New York, London and Dubai, Flatt said in an interview with Bloomberg Television. Insatiable demand for information storage is also supporting the company’s investments in digital infrastructure such as data centers and towers, he said.
“There is a real tale of two cities,” Flatt said, dismissing recent loan defaults on Brookfield-owned properties in Los Angeles as insignificant. “High quality space is very sought after as companies want to bring people back and have engaging space.”
Rising interest rates are washing through real estate markets globally, ending the cheap money era that saw asset values inflated to record levels. Still, relatively modest levels of borrowing by landlords and constrained supply make the current rates-driven correction distinct from previous downturns, when excess credit or construction have led to a crash.
Brookfield raised about $100 billion last year and the company will likely raise similar sums this year, Flatt said. Investors continue to allocate capital to infrastructure assets that are “positively disposed to inflation,” even as once-hot sectors like venture capital-backed technology investments suffer.
The 57-year-old, who has led Toronto-based Brookfield since 2002, sees the impending recession as likely to be mild, with the rate hiking cycle nearing its peak. “We have seen the worst of it, it hasn’t all transferred through the economy yet, but the worst of the medicine has been doled out,” he said.
Still, the correction in public markets makes selling companies through initial public offerings unattractive at the moment. That means Brookfield-owned businesses like UK holiday park operator Center Parcs are more likely to be sold privately when the company is ready to exit, Flatt said.
The fallout from the Adani crisis in India means there is less investor interest and lower competition for deals, he added. And while some of Brookfield’s clients have decided to pull back from China as an investment destination, Brookfield is still deploying capital there on behalf of other investors that remain committed to the country.
“Returns going forward will be better,” Flatt said of the overall investing environment. “Risk is less, prices have fallen, it is a good market to invest in.”
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