My understanding from the news is that Brookfield defaulted on some buildings recently. Given the significant tightening of interest rates, the collapse of a 6th bank, and the increased reluctance for institutions to lend and drop in liquidity, how do you feel about the safety of levered companies involved in realestate and commercial realestate?
Have you looked at what obligations Brookfield has that might face mark-to-market losses? Are people confident that the assets and therefore the equity are properly valued?
The building defaults seem like a "canary in the coal mine," don't they? Developers walk away from the building because it costs more to finish it than the building is worth, right?
Thanks!
There is a lot of confusion on this as it relates to Brookfield. BAM manages some real estate funds, and has decided to let a couple of buildings default. It is not a great scenario as of course fees decline, but this is significantly different than BAM defaulting on buildings it owns 100%. Think of it like a portfolio of stocks and one or two go bankrupt. Never a good thing, but it does not take down the whole portfolio, nor the asset management company. Brookfield warned as far back in November that this was an option for it. Its total real estate exposure is in the 15% range, and much less than that for commercial, at least at the parent company level. Now 20% vacancies in office is certainly a concern, but BAM is actually probably more likely to be a buyer of distressed assets from over-levered sellers. We need to watch if exposure grows, but having massive amounts of capital available in a weak market is typically pretty good for long term buyers such as BAM. We are not saying it WILL increase exposure, but it has the capacity to do so if it wants to. It has made many deals this year, but most real estate transactions have been for industrial and logistics properties, which we think are far less vulnerable.