The chief executive of Toronto-based Brookfield Asset Management, one of the world's largest real estate owners, said he expects next year to be one of the best in a while for real estate investment based on money flowing into his company's funds.
Bruce Flatt, who has headed the global investment management firm since 2002 and now oversees an empire with US$850 billion in assets under management, said the company sees strong demand for its fifth opportunistic real estate fund and closed on an additional US$2 billion during the quarter.
"Transaction activity is picking up, and 2024 should be one of the best years we have seen in a while for investment," said Flatt, referring specifically to real estate in his quarterly letter to shareholders for the third quarter.
The biggest publicly traded real estate brokerages said in the past week they are expecting the market to start recovering later next year, while Newmark's top executive indicated that it appears that industry demand has hit rock bottom. That low point prediction coincides with Flatt saying money has flowed into Blackstone funds recently in investor anticipation that buying opportunities could begin to emerging more fully at some point in coming quarters.
Brookfield Asset Management provides a different but significant viewpoint on commercial property demand from brokerages because it owns 25% of the asset management business, which is 75% owned by Brookfield Corp. In December 2022, Brookfield Asset Management was spun off into a publicly traded company by Brookfield Corp.
"Private assets continue to show their advantage for investors with stability during these volatile markets. This is contributing to increasing allocations to alternatives. By contrast, the volatility of equities, and publicly traded fixed income — traditionally considered a safe haven — has left many investors searching for these alternative areas of investment," said Flatt in the letter written under the Brookfield Asset Management banner.
Interest Rates
The chief executive said interest rates are peaking, which is a good time for transactions.
"Central banks have made significant progress in lowering headline inflation. Economic activity has been resilient, and labour markets have remained tight, particularly in the United States. This has led to a market expectation that interest rates have created. However, it is worth noting that rates are still low on an absolute basis by historic standards," said Flatt.
"With this backdrop, the market has increased confidence in pricing risk, which has led to liquidity starting to come back to the capital markets. And with record levels of dry powder currently on the sidelines, we expect a very busy period of transaction activity through to the end of 2024. Geopolitics, as is often the case, is an unknown that could lead to heightened volatility in the near term, but we expect that in the fullness of time, this will not impact the long-term outlook for the global economy," he said.
For the quarter that ended Sept. 30, the entire asset management business had a net income of US$494 million compared to US$395 million a year earlier.
Real estate is a significant component of the US$850 billion Brookfield Asset Management has under management, but the company also has divisions in infrastructure, private equity, renewable power, credit and insurance and operates in 30 countries. Brookfield Corp. says it currently has US$271 billion in real estate under management.
Flatt also told investors he expects private credit to provide meaningful opportunities.
"With banks reducing their private lending and traditional capital sources becoming more scarce, alternative managers like us can fill the market demand for these products. Private credit is expected to be the fastest-growing asset class within alternatives, driven by a shortage of liquidity and an increase in demand for capital as significant debt maturities need to be refinanced. Our ability to fund entire deals and facilitate better financing terms for prospective borrowers further aligns with our promise of being a best-in-class partner in business," said Flatt.
Flatt said Brookfield Asset Management has US$3 billion in cash and equivalents with no debt that will be used selectively, potentially for new fund strategies and business lines.