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March 10, 2014 4:56 pm
Ric Clark, head of the global property arm of Canada’s Brookfield Asset Management, shuns the flamboyant persona adopted by property tycoons such as Donald Trump. “Sitting down with you to give an interview like this is not a natural thing,” says the softly spoken chief executive.
Brookfield Property Group is undergoing a transformation, from an entity largely focused on office buildings in New York, London, Sydney and Toronto to one that is also a major owner and operator of global shopping centres, industrial warehouses and apartments.
This strategy, which goes against a typical investor preference for focus, is being keenly watched by property sector analysts, and all eyes are on the 55-year-old publicity-shy Clark.
Measured in his responses, Clark makes his case. “Our strategy comes from a healthy respect for the cyclical nature of real estate and financial markets,” he says.
“We have learned over time that in order to deliver more consistent and reliable returns it is good to have the flexibility to allocate capital to geographies where there are better risk-adjusted returns or to [different] sectors.”
Brookfield Property Group consolidated and spun off most of its commercial property assets last year under a new company based in New York called Brookfield Property Partners.
The aim was to wrap together investments in retail companies General Growth Properties and Rouse Properties – which remain traded on the NYSE – warehouse operator Industrial Developments International and Fairfield, the apartment platform. By the summer it is expected that the publicly traded Brookfield Office Properties will be privatised and also brought under the same umbrella.
Office properties will make up around two-thirds of assets of the soon-to-be $51bn entity. But the company is aggressively expanding across all sectors through acquisitions. It is also targeting growth in Europe and emerging markets such as India, China and Brazil.
“We have been spending a lot of time on both developed and emerging markets,” says Clark. “We are seeing opportunities and we think there will be more transaction flow for us [in the future].”
A “third-generation real estate guy”, Clark grew up largely in Pennsylvania and St Louis in the shadow of his grandfather and father, who were both residential developers.
Clark’s first job after university – where he paid his way as a labourer and handyman – was with Olympia & York, the international property developer behind the Canary Wharf project in London and the World Financial Center, now known as Brookfield Place, in New York City.
From 1984, Clark took on a number of executive posts with Olympia & York and then its successor after bankruptcy, Brookfield Properties. Previously president of subsidiary Brookfield Office Properties’ commercial operations, he rose through the ranks to his current position.
Like other senior executives Clark is well versed in the investment philosophy of its parent company, which has $175bn in assets under management, from property to renewable power, infrastructure and private equity.
“For anything we do, we have access to all the firm’s employees to help us,” says Clark, noting the complicated restructuring of General Growth Properties, which buckled under a mountain of debt and filed for bankruptcy in 2009. Brookfield has roughly a 30 per cent stake in the company.
Brookfield Property Group buys assets directly or via controlling interests in businesses with a combination of equity capital and debt financing, often in conjunction with BAM’s property funds or by partnering with sovereign wealth funds or other large investors.
The Bermuda-based Brookfield Property Partners is a property-operating company for tax reasons but competes head-to-head with leading property investors such as Blackstone Group. At the same time it seeks to rival US real estate investment trusts, including Simon Property Group, Boston Properties, Prologis and Avalon Bay, that have traditionally been go-to options for equity investors in high-quality retail, office, industrial and apartment properties.
Brookfield’s approach, like Clark’s own personal style, is more aligned to a tight-lipped investment group as opposed to a rambunctious property company.
“We don’t need to read our names in the paper,” says Clark, whose coolly analytical approach is at odds with the blustering risk-taking developers who often dominate industry headlines. When asked about his presence on the New York real estate party circuit, he says: “I try to do as little of that as possible.”
Clark is unhesitating when talking about business strategy but terse when speaking about himself. How would he describe his management style? “I have no style.” To provoke a response I ask if he gets angry. “Not often.” What does he do for fun? “I hike and ski when I have time.”
He is most comfortable when he is on message. Brookfield is a “good company, with good assets and a strong balance sheet” and he speaks about the “collaborative, collegial, friendly” work environment.
People who know Clark say aspects of his personality resemble those of his mentor Bruce Flatt, chief executive of Brookfield Asset Management. Known as the “[Warren] Buffett of Canada”, Flatt has a reputation for being modest, smart and a strong leader who has elevated the Brookfield platform to the status of a global heavyweight helped by a handpicked cluster of well-scrubbed executives like Clark.
“Ric and other executives at BAM are very corporate. They are skilful asset managers who put down the shades and do the math. They are not visionary deal makers who have big egos. That is not how they operate,” says James Sullivan, analyst at Cowen and Company, the investment bank.
Even so, Brookfield Property Group has become one of the largest corporate landlords in North America by square footage. Although the company and its parent escaped without significant debt dramas during the credit crisis, it was not completely untouched.
The office property sector has been hampered by cost-conscious corporations, stung by the global financial crisis, downsizing and searching for cheaper office space. Brookfield Place has, in particular, drawn some negative press.
“The sector has been the last to recover from this last economic downturn,” says Clark but adds: “The office sector has begun its recovery. Absorption of office space is increasing in most markets and we are seeing rental rates increase, occupancies go up and vacancies go down.”
But it was on the 8m sq ft World Financial Center project that Clark truly cut his teeth. The fallout of the September 11 terrorist attacks, he says, was “probably the most difficult thing I went through in my career”.
“We owned five properties immediately adjacent to the World Trade Center that had pretty meaningful damage,” says Clark, who lives a short walk away in Tribeca. “The properties were open – you could walk in and out – and the next thing you know, you are thinking about security and how you position your properties differently in this kind of environment.”
Manhattan’s barren west side is the next frontier for Brookfield. It has embarked on a $4.5bn project of office, residential and hotel properties.
But it is not going to be an easy sell. While the company has won over Canadian investors with its talk of diversification, those in the US have yet to be convinced. Brookfield Property Partners’ shares on the New York Stock Exchange, which at the time of writing have declined by 21 per cent from the initial listing price of $25 per unit, now trade at about a 20 per cent discount to Brookfield’s published net asset value. This compares unfavourably with the average US real estate investment trust, which currently trades at parity with NAV, according to estimates by Green Street Advisors, the property analysts.
Clark talks of harnessing the pool of capital, operating prowess and expertise of the BAM parent company to enable the property business to make opportunistic purchases. It remains to be seen whether his steady-as-you-go approach will be enough to convince investors that Brookfield is more than just a safe pair of hands, but also a property group that is able to successfully compete on a world stage amid hungrier, more focused rivals.
Another concern is the company’s external management structure. Most public property companies are internally managed to align the interests of management and shareholders. But sector analysts have questioned whether Brookfield Property Partners is incentivised to pursue growth to maximise fees for BAM – its sponsor, which has a 90 per cent interest in the company – rather than for shareholder value.
Clark says the consequences of chasing growth to boost fees for BAM “will erode the very substantial equity investment we have in here, so we will lose more money than anyone if we make an investment that is not good”. He emphasises that investors were bullish about the new company largely because of BAM’s ties.
In spite of analysts raising a red flag, the company is ploughing on and is at the centre of mergers and acquisitions chatter. Recent investments have included a stake in Shanghai-based property developer Shui On Land. While retail is preferred in China and Brazil, office properties are being targeted in India.
After acquiring the EZW Gazeley industrial platform and Hammerson office portfolio in the past 18 months, Clark says the company is poised for more activity in Europe. Meanwhile, in the US, following the acquisitions of Industrial Developments International and Verde Realty, two industrial property companies, Brookfield is expecting to invest in the sector again.
Few doubt Clarke’s diligence at managing a business that he says “is not quite as complicated as it might seem”. But while he is “excited” about what lies ahead he may need to be more persuasive to get others to buy into the story of Brookfield’s expanding empire.
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