Brookfield Sets Sights on Raising $150 Billion This Year

Brookfield Asset Management sees the best opportunities in more than a decade to buy commercial property at a discount, as strong fundraising for real estate and its other investment strategies helped lift its fee-related earnings in the second quarter.

“We’re in an environment with higher interest rates, higher inflation and tightening lender requirements, all of which create uncertainty and pockets of stress in real-estate markets,” Chief Executive Bruce Flatt said Wednesday during a call with analysts to discuss the firm’s results. The current market, he added, “will lead to the best environment we’ve seen since 2009 to execute on our longstanding investment strategy for real estate.”  

Flatt added that rising interest rates are putting some prized properties in distress, creating bargain-hunting opportunities for the firm.

But Brookfield hasn’t been immune to slumping commercial property values and related investment challenges. The firm’s Brookfield DTLA Fund Office Trust Investor, which owns six office buildings and a retail center in Los Angeles, faced a risk of foreclosure on five of the properties and two of its mortgages were in default, The Wall Street Journal reported in May.

“There is real estate that doesn’t have good fundamentals,” Flatt said on the call, citing “bad retail” and traditional office buildings in certain cities, without naming them. “But 80% of it does have good fundamentals. The situation today is [that], given the increase in interest rates, if people were ill-prepared or unlucky with financing structures, that is where the opportunity is going to come.”

The Toronto-based infrastructure investment specialist majority owned by Brookfield Corp. consolidated its results to include the portion held by its parent. Shares of the asset manager began trading separately in December and rose 1.6% Wednesday to $33.50 in New York after the firm posted its results. 

The firm ended the second quarter with $850 billion in assets under management, up 13% from about $750 billion a year ago. Its strategies range from infrastructure and real estate to renewable energy, and include $141 billion in private equity and $197 billion in credit investments.

Brookfield said it expects to raise a record of roughly $150 billion this year, including $50 billion from an insurance acquisition, despite a challenging fundraising market.

During the just-ended quarter, Brookfield said it collected $17 billion for its funds, including $3.4 billion for its fifth flagship infrastructure vehicle. The firm said it had amassed $27 billion for the pool by the end of June, making it the largest infrastructure fund it has raised so far.

The firm’s separately traded reinsurance unit last month agreed to buy American Equity Investment Life Holding in a deal that valued the business at $4.3 billion, snaring one of the last independent sellers of fixed annuities, The Wall Street Journal reported. The investment by Brookfield, which already owned 20% of American Equity, mirrors moves by other large fund sponsors, such as Apollo Global Management, that have scooped up insurance and annuity businesses to increase their investible assets.

“We are set to benefit in several meaningful ways” from the acquisition of American Equity by the reinsurance unit, Connor Teskey, the firm’s president, said about the deal on the call. He added that Brookfield expects to manage $50 billion in American Equity assets, putting the firm on track to reach a $225 billion target for insurance capital by 2027.

Brookfield’s capital inflows helped lift its fee-related earnings by 6.2% to $548 million, or 34 cents a share, in the quarter from $516 million in the year-earlier period. Distributable earnings, or cash that can be returned to investors, rose 3.1% to $527 million, or 32 cents a share.

But Brookfield’s net income fell 30% to $580 million, or 28 cents a share, from $834 million, or 41 cents a share, in the second quarter of last year. Revenue climbed 6.6% to $985 million from $924 million in the year-earlier period.

Brookfield invested in deals worth about $50 billion during the second quarter, including the roughly $6 billion acquisition of Compass Datacenters. The firm and the Ontario Teachers’ Pension Plan bought the developer from private-equity firm RedBird Capital Partners and real-estate company Azrieli Group.

“Years ago, we recognized that data was the world’s fastest-growing commodity and it would need significant infrastructure to be processed, transported and stored,” Teskey said. “Recent advancements in cloud computing and [artificial intelligence] have only steepened this curve, increasing the demand for data usage.”

In another deal, Brookfield in June agreed to acquire Duke Energy Renewables, a developer of solar, wind and battery projects, in a deal valued at about $2.7 billion. The firm is investing through its renewable-energy strategy.

—Adriano Marchese contributed to this article.

Write to Luis Garcia at [email protected]