For two years EG has been hounding Ric Clark for an interview. But then for two years the chairman of Brookfield Property Group has had a fairly busy schedule.
In the UK alone, the world’s largest real estate company completed its £2.6bn Canary Wharf Group takeover alongside QIA and bought Center Parcs for £2.4bn. It has also raised $9bn (£7.2bn) for an opportunistic real estate fund and bought the Seoul IFC for $2.7bn, among other things.
With such a long intervening period there was always going to be plenty to talk about. But then, on the morning of the interview something extra is added to the agenda.
Neil Thompson, the former executive director of Great Portland Estates, has been named as the new chief executive of Brookfield Office Properties in the UK, starting in May, and tasked with overseeing its prized central London portfolio that sits separately to Canary Wharf. Martin Jepson, president and chief operating officer of its UK office division since 2011, has “decided to leave Brookfield to pursue other opportunities”.
■ SEE ALSO: Thompson takes the helm at Brookfield Office Properties
It is a dramatic change, considering Thompson’s stature as one of the biggest names in the London development market. And the fact that Jepson’s departure had not previously been telegraphed.
Given his position and experience, it is little surprise that Clark is exceedingly polished and professional in manner. Not cold or dull, but instead certain in his outlook and opinion while being focused on the company’s success and direction.
This is typified by his handling of the Thompson/Jepson situation.
“We have known Neil for a long time, since we were discussing 100 Bishopsgate [EC3] with Great Portland [which had been owned in a joint venture], so I have a lot of respect for him and his capabilities. When we knew he was available and that Martin had chosen to pursue other opportunities it was a no-brainer for us.
“Neil is an experienced developer. He is really good at site assembly and acquisition and knows a lot about the West End [where Brookfield does not yet own any assets] and has got public company experience, so I think he’s going to be a good addition and a good leader for our business here,” Clark explains.
Stepping up a gear
His description of the change is somewhat understated. Having become the most active developer in the City of London since its £518m purchase of Hammerson’s development portfolio in 2012, after a little probing, Brookfield is ready to step things up a gear once more.
Much of Brookfield’s central London portfolio is now built out and leased and the company wants to bolster its pipeline at a point in the cycle at which many are running scared of development. Given that the market is softening it may be getting its timing just right once more, as it did five years ago. With Thompson lined up Brookfield has a man to put this plan into action.
Aside from being ready to dip back into the London market, Clark wants Brookfield to build a UK presence in PRS, sees the future of Canary Wharf driven by tech as much as by financial services and envisages landlords will have to become far more flexible with forward-thinking tenants in order to be successful.
“Brexit has thrown some uncertainty in the market and that creates buying opportunities. We are a very counter-cyclical type of investor, a value investor. So in such moments we tend to invest more money as opposed to taking money off the table,” says Clark.
Many of Brookfield’s major projects, such as the 950,000 sq ft 100 Bishopsgate, EC3, and the 490,000 sq ft London Wall Place, EC2, have been de-risked, having been majority let prior to completion. And at its 621,000 sq ft Principal Place, EC2, Brookfield sold a 50% stake to ENPAM for £381.5m.
“As an organisation we have a healthy respect for the cyclical nature of real estate markets and financial markets, and for political uncertainty, so we always manage our business as if things will change tomorrow. Our operating properties are fully leased and our attitude towards development is to acquire sites, position them for development and then be the first out of the gate when the market starts to improve and get them leased up.”
The pipeline is not completely empty, though, by any means. At 1 Leadenhall Street, EC3, Amazon’s current City base until staff transfer to Principal Place, Brookfield has designs for a 37-storey, 500,000 sq ft development. At the 134,000 sq ft 39-45 Finsbury Square, EC2, a comprehensive refurbishment is planned after Bloomberg departs later this year.
In Canary Wharf the development opportunity is also huge. New District, previously known as Wood Wharf, is to include 3,200 flats, 2m sq ft of offices and 335,000 sq ft of retail and leisure.
“The millennials that are driving the world’s economy are all looking for an exciting, live-work-play kind of environment and I think the next phase of Canary Wharf feeds right into that desire, with the focus on residential development and retail development,” Clark says.
“I do think tech companies could become as prominent as financial services firms there because of the placemaking that is going on. [Sir] George [Iacobescu, chairman and chief executive of Canary Wharf Group] and his team are creating environments that attract, retain and motivate employees in a world where competition for top talent is fierce.”
Brookfield’s battle to take control of Canary Wharf went on for more than a decade following a failed takeover attempt in 2004. It was eventually successful after teaming up with QIA. Clark says that despite Brookfield being a value-add investor and QIA being predominantly a long-term core investor, the two are happy bedfellows.
There are no plans to do so at present but if Brookfield wanted to sell down some of its ownership it could do so at a later date independently in order to see a return while retaining its management responsibilities.
“Our strategy has always been to invest money in projects, create value through development or redevelopment, and then take some of the money off the table to invest into the next thing. We typically stay in the asset with a meaningful stake, and continue to manage and direct it. We don’t see any change in that strategy,” Clark says.
One business that Brookfield is likely to recycle cash out of in the next 12 months is the European arm of logistics firm IDI Gazeley, which is thought to be valued at close to €1.5bn (£1.3bn). Clark insists that there is no express need to dispose of the company, which sits in Brookfield’s $4.4bn Strategic Real Estate Partners fund that closed in 2012 with a 10-year life.
“There’s a rapid change in distribution channels going on and we think there’s lots more upside in that business. Gazeley’s in a great position to capitalise on that change as it’s a development-focused business and a lot of businesses don’t have those development capabilities.”
The beast that is Brookfield
Brookfield Asset Management is a Toronto-based company with around $250bn of assets under management.
Listed in both Toronto and New York, it invests in private equity, renewable power, infrastructure and real estate. Real estate is its biggest sector area with $148bn under management.
Brookfield Property Group is Brookfield Asset Management’s real estate business. Within Brookfield Property Group sits Brookfield Property Partners and Brookfield Asset Management’s real estate private funds business for third party investors.
Brookfield Property Partners is a spin-off company from Brookfield Asset Management and is also listed in Toronto and New York. It is the primary vehicle for Brookfield Asset Management’s property interests and is 62% owned by Brookfield Asset Management.
Brookfield Office Properties, which specialises in the office sector is a wholly owned subsidiary of Brookfield Property Partners.
Preparing for PRS
Brookfield tends to concentrate on assets with an operational element where it can add value through managing the assets. This has been true of its investment in the UK student accommodation sector and it is similarly preparing to enter the PRS market.
“The dynamics for the student housing sector in the UK are phenomenal. I think the sector is a little fragmented, I think there are some quality issues in general and as with anything that we buy we are always looking for an operational angle to add value. We think we can upgrade the housing, make it better and just provide a better consumer experience which at the end of the day will yield higher profitability.
“There are many similarities with what we have been doing in the US in the B-apartment sector where we will aggregate and spend $6,000 to $10,000 per door to just upgrade the apartment and make the experience better.”
It is yet to complete its first PRS deal in the UK but this is expected to not be far away.
“When I first started spending time here I always scratched my head as to why there wasn’t a more formal multi-family business here. It seemed people would build condominiums and then private investors, sometimes institutions, would gobble up a bunch in the building, but nobody really owned the whole building, and again with the consumer experience I think there’s a little bit lacking when you have a bunch of fragmented owners just in as far as the level and consistency of service.”
© Manni Mason’s Pictures/REX/Shutterstock
Brookfield’s enthusiasm for enhancing the consumer experience stretches to the leisure sector, most notably in the UK in 2015 with its £2.4bn purchase of Center Parcs from Blackstone.
While New York-based Clark admits he is yet to take his children to Center Parcs himself, the business benefits from barriers to entry as Brookfield looks to add value by developing a 375-acre destination in Longford Forest in Ireland, which is set to open in 2019.
“It’s a business that’s almost impossible to replicate. Land is a bit scarce and it’s a naturally attractive vacation destination. We’re always looking for a way to improve performance through renovating rooms and public areas and upgrading food and beverage offerings and working in new technologies for revenue management. These things have really helped us to boost EBITDA and performance and it’s almost always full leased.”
As the world’s largest owner of real estate, there is not much that Brookfield or Clark does not see. Its recruitment of Thompson emphasises its bullish outlook on London and the Square Mile in particular post-Brexit. Given how right it called it last time, when it makes its next big splash, its confidence is likely to be read by the market as a sign that others should be doing the same.
Clark’s vision for offices
Brookfield is one of the world’s biggest landlords. And according to Ric Clark, relationships with tenants must become more dynamic in order to be successful.
“I had a tenant come to me recently and say, ‘80% of my workforce population is fixed but 20% is project-related. It would be great if you were able to provide some element of flexible workspace so that I don’t have to warehouse all this extra space over the course of my very long-term lease’.
“I think that’s a void that co-working fills. Large landlords such as ourselves are thinking through this. Do we sign a lease with someone that provides this kind of co-working space, do we set up our own businesses? We are working through that.
“So far we have signed leases with firms that provide co-working space but I also had a tenant call me up, saying: ‘I’m planning out my space, I’m sitting here with my architect and we’re creating this boardroom that we are literally going to use once a quarter and it is a tremendous waste of space, I would rather have a productive space where I could put desks. It would be great if you provided some kind of solution so that I could rent a boardroom once a quarter.’
“So we ended up finding this business called Convene, making a capital investment in them and Convene does exactly that; it provides these great spaces that provide meeting centres.
“Those landlords that are doing these kinds of solutions for tenants will likely be more successful and that will be proven through operating performance over time.”
Main image: Will Bremridge
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