Brookfield gets serious about building London portfolio

Canadian investor has “significant war chest” ready for UK opportunities, writes Jane Roberts

Brookfield Asset Management could be a new force in the central London office market if its plans to assemble a portfolio of 4m-5m sq ft come off.

The Canadian investor and asset manager will also target distressed debt and corporate deals in Europe when it closes its next global property fund, Brookfield Strategic Real Estate Partners.

The company, which has US$69bn of property under management, held a rare briefing for UK journalists last week to outline its ambitions. Martin Jepson, senior vice-president of development and investment, said Brookfield Office Properties – which manages 20m sq ft of space in New York and 87m sq ft in cities across North America and Australia – wanted to build “a comparative estate” in London. The rationale is “to leverage off our significant tenant base” to expand into London and potentially later into European office markets.

London the missing link

Jepson, who quit Hammerson to join Brookfield last October, said Brookfield’s powerful “bedrock” relationship with international office occupiers had attracted him to the Toronto- and New York-based company. “London is the missing link for our tenants,” he said. “Canary Wharf are the only people in the UK to play those North American tenant relationships and they are very good at it.”

Brookfield’s office tenant base comprises 40% financial services companies, 40% technology, media and telecoms and 20% government occupiers. The company will be looking for a combination of income and medium-term refurbishment and development opportunities “of scale”, primarily in the City but also in other central London locations – although short-term income deals they had looked at so far were still too expensive, he said.

Brookfield Office Properties, which is listed on the Toronto and New York stock exchanges, has a strong balance sheet and a “significant war chest for the right opportunities”, Jepson said. The company expanded in North America via very large portfolio acquisitions from Olympia & York in 2002 and 2005 – including the World Financial Center in Manhattan – and Trizec in 2006.

Regarding European expansion, however, the company has been here before, as Jepson acknowledged. In 2003, Brookfield came out of a battle to take over Canary Wharf the loser, though with 22% of its listed majority owner, Songbird Estates; but that stake is an uncharacteristically passive ownership.

In 2007, Brookfield acquired Australian contractor/developer Multiplex, which had a London business that the Canadians attempted unsuccessfully to build up. Although Multiplex expanded Brookfield’s influence in Australia, it has almost sold out of the UK positions it had acquired through the deal just as the market crashed.

“It has been a bit of a frustration in the business that we have been here since 2007 and we haven’t moved on,” Jepson said.

Other signs that the American management are now serious are the recent relocation of the firm’s senior managing partner, Barry Blattman, to London and the assembly of a private fundraising team for Europe, also based in Hanover Square.

Brookfield does already have one development in the City, via its 50% stake with Great Portland Estates in 100 Bishopsgate, a proposed 900,000 sq ft office tower, where Brookfield is the development manager.

It is also the contractor for The Pinnacle, the even taller City tower backed by Middle Eastern investors and managed by Arab Investments and a scheme in which he said he was “pleased we have no equity”.

So Jepson is well aware of the present weakness of the City occupancy market he gave his presentation the day after it emerged that law firm CMS Cameron Mckenna had ended talks to prelet 200,000 sq ft of Hammerson’s Principal Place scheme, citing “uncertainties in the financial market”.

The jv will not start construction of 100 Bishopsgate without a prelet of at least 30-40% of the space and Q1 2016 is the earliest possible completion date. “But there are a known number of lease events,” he added, “and once occupiers form a view about where the economy is going, there will be movement.”

$3bn fund now close

Brookfield Asset Management is believed to be just weeks away from a first close for its latest global real estate fund, slated for perhaps $3bn at final close. This time, the fund will have Europe in its sights for opportunistic deals and the North American group has been heavily targeting European investors: Julian Schiller, previously head of private funds at Jones Lang Lasalle is the latest recruit to the team.

Brookfield senior partner Barry Blattman, now based in London, heads the real estate global opportunistic programme; in 2009 Brookfield raised the $5.5bn Real Estate Turnaround Consortium, which rescued US mall giant General Growth Properties.