Brookfield Asset Management Inc., the Toronto-based global asset manager, has been going after several big ticket distressed properties to add to its portfolio of private and infrastructure assets worth an approximate $150 billion.
One of its potential targets: Peter Stuyvesant Town and Peter Cooper Village—a project that has come to epitomize distressed real estate. Manhattan-based Tishman Speyer in a joint venture with BlackRock Realty purchased the mammoth apartment complex in October 2006 for $5.4 million. The twin complexes include 56 buildings that total more than 11,000 units, making them Manhattan’s largest single pair of apartment complexes. The property extends over 80 acres of land between east 23rd street and 14th street. The properties’ eastern boundary is FDR Drive, which runs north/south along the edge of the East River.
The deal took place just before the peak of the market. But property values peaked in 2007 and the credit crisis began in late 2008. In addition, the new owners faced difficulties dealing with residents and raising rents to levels necessary to pay off their loans. In late 2009, the loan fell into special servicing.
NREI spoke with Barry Blattman, Brookfield’s senior managing partner, responsible for relations and strategic transactions, about its pursuit of Stuyvesant Town and other strategies.
An edited transcript follows.
NREI: Brookfield has primarily focused on top office buildings in major U.S. cities, but is currently pursuing a very wide variety of big-ticket items—from Stuyvesant Town and Peter Cooper Village to Kerzner International Holdings Ltd.’s Atlantis resort and casino in the Bahamas to retail and hospitality properties. What’s the motivation for this ramp-up in acquisitions and this increased diversification? And why right now?
Barry Blattman: We have a number of specialties at Brookfield Asset Management. We are global investors, with deep operational expertise and a focus on investing our own capital and our clients’ capital, in property, infrastructure, renewable power and private equity. That’s a broader focus than the strategy at Brookfield Office Properties, which is a pure play, NYSE-listed global owner of high-quality office buildings.
At Brookfield Asset Management, we are value investors and we see currently see a number of opportunities to acquire high-quality assets at attractive prices, for example, at far less than their replacement cost. While periods such as these, with an uncertain economic outlook, are challenging for everyone, this type of market favors our style of investing.
We have a proven track record for acquiring these long life assets in complex situations; for example, we acquired what’s now a 40 percent stake in General Growth Properties, the second-largest U.S. shopping mall owner, by working with the company when it filed for creditor protection.
As we consider opportunities, Brookfield Asset Management is fortunate to have a strong balance sheet, with over $150 billion in assets under management, and over $4 billion of cash on our own balance sheet, and an additional $8 billion of capital that we can invest on behalf of our institutional clients.
NREI: The tenants group at Stuyvesant Town chose Brookfield as its preferred investor, and is now talking with loan servicer CW Capital LLC about taking over that property. What’s motivated Brookfield to take over Stuyvesant Town and what does Brookfield have that made the tenants group choose it?
Blattman: We have deep experience in multifamily homes, as Brookfield manages approximately 100,000 multifamily and condominium units and we own in excess of 10,000 units, located in 11 states and one Canadian province.
The board of the Stuyvesant Town Tenants Association worked with professionals at Paul Weiss and Moelis & Company to find a financial partner for the tenants that is both credible in the marketplace and willing to live up to the goals and values of the association. The Tenants Association has stated that Brookfield meets that threshold, and is the best partner for the acquisition of one of New York City's great residential properties.
NREI: How did the 1990s downturn differ from the current one in terms of acquisition opportunities?
Blattman: There are a larger number of investors targeting real estate today than there were 20 years ago, as more institutions earmark capital for alternative assets. Brookfield and its affiliates have been active in past economic downturns, and we certainly see attractive opportunities today.
At Brookfield Office Properties, we were able to take advantage of falling real estate values during the recession of the early 1990s to upgrade and expand the commercial property portfolio. A number of large portfolios were acquired, including a 7 million-sq.-ft. portfolio in Denver, Minneapolis and Toronto that was purchased in 1990 from a Canadian telecom company, and the 14.7 million-sq.-ft. Olympia and York portfolio purchased in 1996. Our strategy is to invest capital into the premier office property business in select, high‐growth, supply‐constrained markets.
NREI: In terms of the Kerzner resorts acquisition, Brookfield will inherit more than $2 billion debt that must be refinanced. How will this be accomplished?
Blattman: We are looking at extending this debt. These are one-of-a-kind destinations—there is nothing in like Atlantis in the Bahamas—and we are excited to own these properties. We have operational experience in this area. The background on this holding is that Brookfield loaned Kerzner International $175 million in 2006, and that debt has now been swapped for equity in the three properties.