Brookfield CEO seeks to reassure on commercial real estate after mortgage defaults

Problems related to building in Los Angeles and Washington, says Bruce Flatt in letter

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Brookfield Corp. chief executive officer Bruce Flatt sought to quell investor concerns about commercial real estate, saying its properties are soundly financed and that higher interest rates will have little adverse impact.

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The alternative-asset manager defaulted on mortgages on office buildings in Los Angeles and around Washington, but Flatt said the problems are “discrete to those assets” and not material to the Toronto-based firm’s huge real estate business.

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“When you own 7,000 properties, it is impossible not to make a few mistakes,” Flatt said in a letter to investors on May 11 that accompanied first-quarter results. “But we have always prided ourselves on being an extremely responsible borrower, and our reputation in the capital markets sets us apart.”

The company has completed US$12 billion of office financings since March 2020 and has minimal debt maturing this year, he said — and “the rates coming due on mortgages are in many cases similar to those that are expiring.”

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Brookfield is one of the world’s largest owners of prime office properties, with a portfolio that includes New York’s Manhattan West and London’s Canary Wharf. Commercial landlords in major cities worldwide are being squeezed by higher borrowing costs and lower occupancy, as many companies continue to allow employees to work remotely at least part-time.

Brookfield Corp. said first-quarter distributable earnings fell two per cent to US$1.16 billion from a year earlier. Earnings at Brookfield Property Group tumbled 34 per cent to US$145 million, mitigated by a sharp increase in profit from its insurance unit.

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On May 10, Brookfield’s asset-management arm reported a five per cent drop in fee-bearing capital in real estate, to Us$98 billion. Changes in market valuation accounted for US$1.8 billion — or two per cent — of the decline.


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