Brookfield Corporation’s Bruce Flatt may as well have attached a motivational poster to his recent investors letter, saying “Keep calm and carry on.”
The chief executive officer of the alternate asset manager tried to reassure stressed investors about the state of the commercial real estate market in his first quarter letter, the Financial Times reported. The letter came as Brookfield showed some of its own distress, particularly in the office market.
In the letter, Flatt wrote the concerns surrounding commercial real estate — which are being shouted loudly and regularly — are overblown. He noted much of the distress already seen revolves around old properties or ones that had already been struggling.
Flatt added that many “parts of the real estate market are doing very well today —including hotels, industrial properties, high-quality retail, premier office and multifamily residential.”
Doing “very well” might be overstating the case as rising interest rates cut into deals and financing, affecting commercial property values across the board. But it is true that the demand for class A office space has adversely affected older properties in B and C classes.
Flatt has spent months trying to assuage players in the office market, saying in a February interview that “negative things get exaggerated.” Those comments came after Brookfield defaulted on $784 million in loans tied to two trophy office towers in Downtown Los Angeles.
At the time, Flatt said the defaults were minimal and irrelevant to the firm’s overall business. Since then, Brookfield has also defaulted on a $161.4 million mortgage tied to a dozen office properties, mostly around Washington, D.C. A company spokesperson said the default represented “a very small percentage of our portfolio.”
Flatt echoed the spokesperson in his investor letter, saying the defaults were “not material to our overall real estate business.” He added it was “impossible not to make a few mistakes” when a company owns thousands of properties, according to Bloomberg.
The CEO made sure to point out why he feels Brookfield is distinguished from other struggling real estate players. He referenced that the company is a “responsible borrower” and has a strong reputation in the capital markets.
— Holden Walter-Warner
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