The biggest asset management company in the world, Brookfield, made headlines last week because they announced in a shareholder letter that they’re considering spinning off their real estate holdings from their management business. This comes on the heels of their decision in July of last year to buy out investors in their Brookfield Property Partners portfolio.
This move would represent a big change in the organization of the company, which has invested aggressively in real estate in the past decade. It would give them a chance to untether the value of their management business for that of their real estate. According to CEO Bruce Flatt, this is a way to appease the investment. “Our view today is that is creating the asset-light manager listing part of it is the way to go,” he said during an earnings call.
As important as investors’ interest in “asset-light” businesses might be, the strategy is also a reaction to the public market’s perception of real estate value. In the letter that accompanies the earnings report the company said:
“The tone in the market for commercial property assets is very negative at the moment. Real estate stocks have been trading as though no company will ever occupy an office again, no person will ever set foot in a store and nobody will ever travel again, for either business or leisure. We do not believe that any of these will be the case, and so we are investing accordingly.”
By separating the real estate portfolio Brookfield could create an attractive offer for investors that, like them, believe in the recovery of real estate. For investors that don’t see a full real estate recovery and are likely expecting economic troubles, they will now also have a good option in Brookfield’s lucrative and relatively stable management business.
