The FT’s investigation of Brookfield
Canada’s Brookfield Corporation is synonymous with hulking office towers that dot skylines from New York to London and all over the world. It is the owner of Brookfield Place in Manhattan and Canary Wharf in London and hundreds of millions of square feet in other commercial space.
In recent years, billions of dollars' worth of stakes in the properties owned by one of Wall Street’s most powerful investors have found a home in less glamorous locales such as the portfolios of the savings held by retirees at two insurers, one in Texas and one in Iowa.
But as the FT reports in an investigation into the sprawling $1tn in assets empire built by billionaire chief Bruce Flatt and his partners, the assets haven’t really left Brookfield at all.
In a Big Read, we examine how Brookfield has sold billions of dollars in property from its estate operations to the portfolios of insurers it recently acquired, American National of Texas and American Equity of Iowa.
The transactions have come as Brookfield’s property unit, weighed by years of challenges such as the rise of ecommerce, a pandemic and the speedy interest rate rises that followed, have struggled to cover the dividend it pays to its parent.
Last year, Brookfield’s property business upstreamed hundreds of millions in dividends, but then the corporation returned $2.8bn to the property business, half coming from proceeds from the sales of properties between Brookfield and its insurers.
It has led to criticism of the circularity of cash flows inside Brookfield’s labyrinthian operations and questions of whether the earnings streams of its properties are overestimated by its shareholders.
Brookfield denies this and says “we disclose all relevant information on a transparent basis in our reporting . . . and that our real estate business is prudently managed for the long term”. The FT offers an account of both the criticisms levelled against Brookfield and its responses.
In some ways, the tensions raised only scratch the surface. They get to the heart of what could be a potentially massive insurance operation managed by Brookfield. Private capital giants like it, with Apollo, KKR and Blackstone having turbocharged their growth managing the assets of once sleepy insurers.
Some backers of Brookfield believe the insurers it owns will increasingly become a vehicle for its expansive investment operations, which span not only property bets, but credit investments, infrastructure deals and private equity takeovers.
These insurers, they believe, will not just buy its property, but also the debt financing Brookfield’s deals. Filings are already beginning to show the transformation.
Its Texas insurer has purchased pieces of Brookfield deals like from its acquisition of Primary Wave, the reported purchaser of a stake in deceased rapper The Notorious BIG’s catalogue. It also has bought Brookfield’s own debts, like over $500mn in liabilities from its property unit.