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“We underwrite every investment like we’re going to hit a recession”: Brookfield CEO

At its Q4 earnings call, Brookfield Asset Management’s Bruce Flatt said the private equity giant bakes in a potential downturn to every deal; it remains in growth mode

One of the world’s largest commercial landlords isn’t troubled by predictions about a global economic decline, in fact, its CEO said the company bakes that possibility into every deal.

Speaking at its fourth quarter earnings call on Thursday, Brookfield Asset Management CEO Bruce Flatt said the private equity giant always factors in a down market.

“All investments slow with an economic decline, for a time,” he said. “But then private equity funds will have very positive investment opportunities. We underwrite every investment like we’re going to hit a recession.”

Brookfield posted $5.3 billion in net income for full year 2019, down from its record $7.5 billion in 2018. For the quarter, the firm posted net income of $1.6 billion, down from $3 billion over the same three months in 2018. Quarterly revenue was up, from $16 billion in 2018, to $17.8 billion last year.

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Flatt said the biggest risk to alternative asset managers such as Brookfield is a change to the current low interest-rate environment that he said investors have enjoyed for the last decade.

Brookfield’s earnings come a week after it teamed up with a group of investors to purchase Forever 21 for $81 million, after the fast-fashion retailer filed for bankruptcy in September. Landlords Brookfield and Simon Property Group were the brand’s two largest unsecured creditors.

Over the last two years, Brookfield has raised about $50 billion from investors for its private funds. Brookfield Strategic Real Estate Partners III closed at $15 billion, while its private equity fund Brookfield Capital Partners V closed at $9 billion. The firm is hunting for opportunities to deploy just over half of its real estate, infrastructure and private equity funds.

The company has been firmly in growth mode and also has not avoided controversy. One of those deals included buying the ground lease for Kushner Companies’ 666 Fifth Avenue tower in Manhattan, a property Brookfield has rebranded as 660 Fifth. This week, Brookfield Properties chairman Rick Clark defended the deal during a talk at the University Club in New York. In late 2018, Brookfield Asset Management closed on its $6.8 billion acquisition of Forest City Realty Trust, making the Toronto-based firm the largest commercial landlord in New York City.

That same year, it acquired mall REIT GGP for $15 billion, and said it wants to turn many of the properties into mixed-use “mini cities,” an investment it has continued to defend amid skepticism from analysts.

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