[MUSIC PLAYING]
BRUCE FLATT: Thank you, Pranesh.
And thank you everyone
for joining today.
I was given the task
of trying to give
an overview of the investment
principles for real asset
investing that we follow
within Brookfield.
And I would just say
that over the years,
we didn't have any secret sauce.
And we had no strategy.
Really, when we
started, I would say
it was based on a value thesis.
And over the years we've
tried to learn and develop
a strategy that worked for us.
And maybe the number
one thing that I
would say to anyone
that is investing
is that there's never
a right strategy.
It's whatever
strategy fits yourself
and what you want to do.
So I'd start off with that.
For us, though, we
generally have always
operated in a methodology
where we're trying
to walk away from the cliff.
And we keep this
slide in the office,
in many of the
offices in the world,
to really indicate and
remind all of our people
that one should always
look for opportunity away
from where the crowd is going
and not go with the crowd.
And in real asset
investing, that's
a very important
lesson to learn.
15 or 20 years ago, we wrote
down the investment guidelines
that we had for the company.
Ever so slightly over the
years, those have changed.
But largely, they are the same.
The first one is
to identify places
where we have a
competitive advantage
and invest in those areas.
Second, always try to
invest on a value basis.
So go away from where the people
are going and invest where
other capital is not .
And we found that's very
important to investing
in real assets.
Third, what we're
looking to do is
to buy assets or
find assets that have
cash flow inherent in them.
Or we can build the cash
flows within the business.
So they may not have
cash flow day 1.
You may have an office
building and you may just
have a piece of land,
but inherently it's
in a good place where you can
build it to generate cash flow.
And it's similar to many
things in the world.
And lastly, I guess we've always
tried to adhere to the strategy
that being contrarian and
not being where the crowd is
going is hard to do, but the
most lucrative if accomplished.
Measuring your success
is always important.
And there's, I guess,
four things that we've
tried to do to measure success.
We always look at success
on a total capital
basis over the long term.
And really that gets you staying
away from short-term objectives
within a company, which is often
where companies make mistakes.
Second, we always try to
encourage all of our people
to take calculated risks,
but compare that risk
with the return that one might
get out of the investment.
Third, we always look for the
return over the longer term,
as opposed to the short term.
And we'll sacrifice
short-term returns
to achieve long-term success.
And lastly, and I'll come to
this later in the presentation,
but we seek profitability
rather than growth,
because growth doesn't
necessarily in what we do
add value.
Sometimes it does, but it
doesn't necessarily add value.
And as to business
philosophy, we've
tried to build the business
across everything that we do
and the relationships we
have based on integrity,
because if you're
going to endure over
very long periods
of time, you need
to have strong relationships,
both outside the company
and within the people
within your business.
And we try to make everyone
within the business
think and act like owners.
And there's many, many
ways you can do that,
but we try to accomplish
everyone thinking and acting
like your owners.
And often that comes with
the incentive programs
you have in place, but
there are many other ways
to do that out there.
And lastly, I guess the
ethos within the company
is to treat everyone's
money like it's your own.
And we try to
accomplish that again
in many ways across the company.
But the business
model of our company
and what we've tried
to do with the business
is try to make it very simple.
And it really just boils
down to five things.
We try to use the global
reach we have to acquire
real assets on a value basis.
Once we buy them,
these are assets
that can be easily financed with
long-term capital that doesn't
participate in the equity.
And therefore, the leverage
to return to the common equity
owner is significant, as
long as you do it properly.
Third, we then try
to take the people
that we have in the business
and enhance the cash flows
through using all those
people in the operating
platforms we have to grow them.
The equity we find, we get from
our institutional and other
clients globally.
And we look to continue
to grow and buy
real estate and infrastructure
assets with that capital.
And then we just do this
over and over again and.
Generally , we're very long term
in nature and often own assets
much longer than other people.
But all the assets
we own and buy
are of similar cash
flow characteristics.
But we try to use the advantages
that we have in everything
that we do.
And there's really four that
I'd like to highlight to you.
And when you think about
real estate or infrastructure
investing, these are
really four characteristics
we think can be very helpful.
As I said, size
does not necessarily
generate profitability.
But given the
scale that we have,
we've been able to use
size as a differentiator.
And today, given the
size of the organization
that we have and
the size of capital
that we have to
put to work, there
are often only one or two
other people in the world
that someone can bring
a transaction to.
That gives us a
competitive advantage.
And if we can use the
other advantages we have,
it differentiates our
money versus others.
Second, over the last 20 years
we built a global business.
Very few other investors
like us have as large
of global business as we have.
And that's allowed us to move
capital to where we can best
find the opportunities.
Two years ago,
that was in Brazil.
Recently, it's been in India.
In 2009, as Pranesh
mentioned earlier,
it was in the United States.
But that global platform allows
us to take ideas and turn them
into actionable opportunities.
If you don't have a global
platform, you can't do that.
Three, most of the
capital we have
has limited restrictions on it.
Therefore, we can invest--
we're agnostic to
the opportunity
type, the form of investment.
Whether it's a public
company, a private investment,
or some other convertible
debenture or common equity,
we're agnostic to that.
Often people have restrictions
on the way they invest.
And if you can be
more agnostic to that,
it's helpful to the
long-term returns.
And lastly, our
operating businesses
give us a strategic advantage
to be able to run the businesses
and operate the things
once we're there.
This generally enables one
to find value investments
no matter what the
environment is.
And often in
countries, for example,
in the United States
today, stock markets
are at their high, bond
markets are at their high.
And often one would say, it's
tough to find opportunity
within that environment.
And to some degree that's true.
But if you can use
your advantages
to be able to find opportunities
within that sector,
you should be able to continue
invest despite the environment
in a country.
And there's a few
reasons for that.
Often our investments
are longer term
and are more
illiquid than others.
So our advantage is that we're
willing to be longer-term
investor, and we're
willing to have
something that's illiquid
versus what others might accept.
Often they're larger
in size, and that's not
attainable by others.
Often they're not
easily acquired--
it's tough work to do it--
syndicated or
operated by people.
We bought a pipeline in
Brazil 2 and 1/2 years ago.
That pipeline is a major
infrastructure asset
in the country.
Not everyone can run a
large pipeline in Brazil.
Often these investments
are seen as risky
if you're not
intimately involved
in them, which is a
strategic advantage if you
do operate the type of assets.
They require skilled
people to operate them.
And most of the time, when
we're making investments,
it's not fashionable.
Most investors follow fashion.
If you cannot follow
fashion and follow value,
the returns will be much
greater over the longer term.
It helps, though,
for our business
that we've been in the
front of a strong trend
in the institutional
market over the years
because, sometimes
you can have capital
and you think it's
a good opportunity.
If you can't find equity
to be able to invest,
it's often difficult to do.
And the biggest part of that
is that these real assets,
being real estate
and infrastructure,
have a strong return profile
for people to invest into.
And there's just a
few reasons for that.
One, they generally earn
good cash on cash yields,
or ultimately will
once a program for them
is put into place.
Two, they generally can be
contracted for long duration.
So you have security
task flow and often it
increases over time.
Sometimes that's by
inflation and sometimes it's
by other means.
Fourth, often these
assets are scarce.
And as many of you know
from living in cities,
the world is urbanizing.
And what it means is the value
of real estate in city centers
is getting more
valuable every day.
And that means assets
appreciate in value.
The private nature of
them for pension plans,
institutional investors, allows
the volatility to be low.
So they're not looking
at the stock market
return in their portfolio
going up and down every day.
And the returns are generally
far greater than other options
available to investors.
And I'll cover that in a second.
This slide just shows
the institutional capital
in the world.
And it's growing exponentially.
Back in 2008, it
was $23 trillion.
Today, it's estimated in the
range of-- the last number that
we had was 2016--
is estimated just
over $40 trillion.
And it should be over
$80 trillion by 2025.
So there's very substantial
amounts of money
that's going into
these sovereign plans.
And for us and
who we invest for,
the most important
things that are happening
is that the
institutional plans are
putting more of that $23
trillion, $43 trillion,
$80 trillion into real assets,
real estate and infrastructure
and alternatives.
And if you look back
to 2000, the percentage
in their portfolios
in general was 5%.
Today, it's 25%.
And we think that number
will be 40% by 2030.
And what's happening with
that there's this therefore
an exponential increase
of money being taken out
of equities and bonds going
into these type of real assets,
really because they fit the
profile of their portfolio.
And it simply comes
down to this one simple
mathematical exercise.
Bonds yield 1% to 3%.
If you're in Japan, it's
0 if you're 0 to 30 years.
If you're in Germany, it's
40 basis points at 10 years.
It's negative 60 basis
points on the cash rate.
And in the United States,
we're pushing 3% today.
Equities generally if
you buy an index fund,
you probably will earn 6% to
8% over the next 10 to 20 years
if you stayed in
and didn't trade.
And real asset yields
can offer 6% to 20%.
So if you buy real
estate or infrastructure
and you do it right,
you can earn 6% or 20%,
depending on that type of
thing you do, where you do it,
how you do it, and
those type of things.
And that's really why
significant capital
is moving into these sectors.
And we think that
will stay because we
think that we're in a continued
range of low-ish interest
rates.
And that doesn't
mean they're going
to be 3% on a 10-year
treasury in the US.
But what is happening is that
global rates are very low.
And that's continued to keep
the 10-year rate in the United
States low despite the
cash rate being pushed up.
And if you take all
of that, I guess
we've tried to operate with some
guiding principles of what you
should do when you're
investing in real estate
and infrastructure.
And we tried to use those as
guiding principles for how
you invest into these type
of assets for all our people.
And when we started the
business 30 years ago--
and it was very small--
you could to a few
people in the office.
But today, with 1,600 people
in our investment manager
and 75,000 people
in the company,
it's important to have
those guiding principles.
And we have eight, and I'll
go through those principles
and a few examples
as I'll talk through.
The first one is, if we
can find great assets,
we should always
buy great assets.
And if one has to pay a
little more for great assets,
that's OK.
But make sure you buy quality.
Now, don't do it at any
price, because price is always
important.
As I stated earlier,
go away from the trend
and try to buy value.
But if you can buy
great assets, especially
during distressed
times, buy great things.
Just a short example, in 1996,
we bought an office building
on Park Avenue.
We paid $432 million for it.
We've been through
four cycles since then
of which included 9/11 and the
financial collapse of 2008.
We sold this asset for
$2.2 billion last year.
So we held it for 21 years.
For 10 years, we've
had no money in it.
Meaning we financed
all our capital out.
In the end, we had a $900
million mortgage on it.
So we had financed out
our original investment
plus another $500 million.
But this was an asset
on Park Avenue, which
was in the center of Manhattan.
And no matter what was
happening in the world,
as long as in the
fullness of time, as long
as you kept that great asset,
it was going to be worth more.
And there were times when
it was tough to own it
and cash flows
didn't look so good.
But a great asset
in a city could
be paid up for a little
bit during a period
of stress, which we bought
it during a period of stress
in 1996.
Second, we try to invest
assuming that we're going
to own the assets forever.
Now that last asset I showed
you, we owned for 21 years.
In most people's investing
principles, that is forever.
But we try to buy everything
that we'll own it forever.
And the most
important point there
is if you're buying it and
going to own it forever,
you look at it with the
long-term fundamentals
involved.
Not what's going to
happen to it next month
or whether it will trade
up in the stock market,
it's that you may have
to own it forever,
and even though we may
not own it forever.
An example, we bought this--
incredible picture actually--
it's a pump storage facility.
So we own water.
We run it down.
We generate electricity.
And at nighttime with
electricity costs lower,
we pump the water back
up to the top of the hill
and put it in this bathtub.
And it's an incredible asset.
And when we looked at it, we
bought it from a bankruptcy
in 2004.
And we didn't know what we
were going to be able to do it,
what we'd be able to
do with the asset.
It had no income on it.
But we knew it is a great
asset, and we underwrote it
that we would be able
to hold it forever.
Three, in the
things that we do--
and this isn't relevant to every
business-- but in the things
that we do in real estate
and infrastructure,
the number one thing that drives
value within an investment
is up front if you can invest
in something in a great spot
and if you can buy it at
less than replacement cost.
And if you can, it most
often indicates value
because the competitive
product that will ultimately
compete against you will
cost more than what you paid.
So you should be able to
either earn a higher return
or out price your competition
during the investment.
And that's probably
the number one thing,
which is why in our business
what you're always trying to do
is to move your capital to the
places where others are not.
We bought this company called
Terraform Power in 2017.
It's a solar and wind business.
It has a large business
in the United States.
We had never been within
the solar business
before, largely because
everyone was building it,
and the stock
markets were trading
at above replacement cost.
But it got into
financial trouble,
and we were able to buy it at
60% or 70% of replacement cost.
And with that, we think
the returns going forward
will be significant.
In 2014, we bought a number
of office parks in India
after having been in
India for a lot of years
observing what went on and
not making any investments.
And these office parks we
bought probably at 40% to 50%
of replacement cost,
which only because
of the structure and the
scarcity of capital that
was in the country at
that point in time.
Fourth, the greatest
mistakes, as opposed
to the greatest
opportunities, the greatest
mistakes in real
asset investing,
in particular in real
estate and infrastructure
have been made by those
misfinanced their assets.
Leverage is a phenomenal thing,
because these type of assets
are easily financed with
2/3 of the capital, which
means you have 100% of
an asset working for you
and only 33% or 40% of
the equity invested.
That's an amazing--
there are very few
things in the world
that you can leverage
in that fashion prudently.
But one must do it prudently
with term financing
and ensure that you can
survive the market downturns.
Many, many people
bought great assets
and lost them due to that, which
I'll give you an example here.
We bought General Growth
Properties in 2009
out of bankruptcy.
We bought some more in 2014.
And we just are in
the midst of hoping
to take it private next month.
The instructive point here
is that in 2009 this company
was one of the great retail
mall companies in America.
And it misfinanced.
And the only reason the
opportunity was available to us
to buy it at that point in time
is because the former owners
misfinanced the business.
It otherwise would never
have been available.
And in fact, no other
company in the US
had been available
before that for 15 years
and probably won't be
now for another 15 years.
The greatest thing that
indicates to us its the time
to buy assets that we buy is
that when capital is scarce
it generally indicates
it's the right time to buy.
So we look around
the world trying
to find the opportunities
where capital is scarce,
capital has runaway, and we
have people that can enable us
to action opportunities.
In 2016, we bought a
graphite electrode company
in the United States
out of bankruptcy.
It has plants all
over the world.
And this company
provides the consumable
to melt steel in
the United States.
And at that time,
the steel market
was incredibly under stress.
But we were able to purchase
it, and it was really only
because there was nobody
else in the market that
would put capital into the steel
industry at that point in time.
Subsequent to this, we
reorganized the business.
We've now taken it public at
eight times the price that we
paid.
And it trades-- it's
listed on New York today.
We try with all of
this never to be
too positive or too negative.
And I would just say the
news media and stories always
project in our view information
to the positive too positive
and to the negative
too negative.
So when one reads those
papers and the information
on the internet, you have
to be able to distill that.
And what we try
to do is never be
too positive or too negative.
And I'll just use
a small example.
We bought this metallurgical
coal facility in 2009
in a bankruptcy.
It's an amazing facility.
It's shipped 85
million tons, which
I think is the largest
facility in the world
of metallurgical coal for steel
making to Korea, Japan, India,
China.
It's in Northeast Australia.
And two years
before, the company
that owned it before we
bought it paid 1 and 1/2
times its replacement cost.
We bought it for 0.75
replacement cost.
The fact is the only
thing that changed
is that they were too positive
at the time they bought it
about what was going on.
And we were able to buy
it because we weren't
too negative about
what was happening
when we made the investment.
So that's always what we're
trying to balance when
we're looking at investments.
And lastly, I just say that
what the rest is just execution,
execution, and execution.
And these are difficult
businesses to operate.
But generally, if you work hard,
you can earn decent returns.
We just bought a
business in the United
States out of a bankruptcy
called Westinghouse.
It services nuclear
plants around the world.
And the whole story
here will be how
do we remake the business over
the next three to five years.
And it will be about execution.
So often we get asked-- that
sounds like a positive story--
what about what's hard?
And I would just say
we make many mistakes.
It's not possible in investing
not to make mistakes.
So everyone at Google should
remember that every mistake,
you just have to
keep making them.
So we try to limit the
amount of mistakes--
or we try to not limit
the amount of mistakes,
we try to limit the effect of
what the mistakes we make are.
And some of those things are
we've done that are wrong,
sometimes we have got seduced
by a bad business cheaply.
That's a mistake in what we do.
Sometimes we started too large
in a new business or a market.
Sometimes we got the
compensation incentive
plans wrong.
Sometimes we weren't as strict
on the financial covenants
in an up market, because
what happens in an up market
and the things that
we do is everyone
wants to lend you money.
And they'll lend it
to with covenants,
which are freely available.
And you need to be
very careful with that.
And lastly,
sometimes we've taken
on an undue development
risk in new jurisdictions
or unstable ones.
And I'd just say those are the
things we've made our mistakes.
None of them have been
damaging enough to the company.
And we try to learn
from those all the time.
And I'd say the world in what
we do is always changing,
as it is for everyone here.
And I like to use this slide.
This is Dubai in 1991,
which I did happen to go to.
And it looked like that.
And this is Dubai, as
you all know, in 2018.
And the little slide
in the bottom right
is ICD Brookfield Place.
So we're actually building a
large office complex there,
an amazing office complex.
But it's amazing what
changes in the world.
And I like to look at those two
slides every once in a while.
And it just tells
you that the world
continues to grow and evolve.
And what we like to focus on is
that change brings opportunity.
And I'll mention four
related to our business.
There are significant,
we believe, retail
real estate opportunities
and the integration
with retail and the internet.
And because of that, it's one
of the most hated industries
today.
And we think that there will
be a significant opportunity
over the next 10, 15
years because of that.
Second, we're a participant
in the renewable power
industry with scaling up
our production capacity.
The industry has
changed dramatically
over the past 10 years.
And we think as one
of the leading players
in the industry
we can capitalize
on that in a significant way.
Third, natural gas because
of technology and fracking
became very cheap, in
particular in North America.
And as a result of that, it
has totally changed industries.
It's brought chemicals
back to America.
It has reversed
pipelines that used
to go-- we reversed a pipeline
that went from south to north
is now going north to south.
And it's changed industries
across North America,
and that's going to
continue globally.
And lastly, we think
there are a number of--
and you're experts
at this here--
but we think there's a number
of real asset technologies
that we can deploy within
our economy of Brookfield
to be able to make operational
improvements and enhancements
within the business.
So to sum up, I'll leave you
with six points of just where
we're thinking as a summary.
But we think generally,
as you and as you put this
into your thinking
on investing, we
think that interest
rates are going
to stay in a low-ish band.
That doesn't mean
they're staying the same.
It means they're staying
in a low-ish band of rates.
Two, we think that institutional
funds will continue to grow
and that that capital
will be available
for further privatizations
in the stock market
and investing globally.
And that will continue to
drive business investments
around the world.
These capitals are heading
to north of $80 trillion,
which is very, very
sizable amounts of money.
Our suggestion to
anybody that's investing
is to invest long term and
try to capitalize on the fact
that most people
don't invest long term
and often want liquidity
within their assets
that they invest in.
And there should be a premium
for that if you can capture it.
Fifth, opportunity
clearly lies in our view
where the sheep are not going.
So try to be where
others are not.
And it doesn't feel
good often, sometimes
for long periods of time.
But in the end, it's
often extremely lucrative.
And the last, the
wealth that can
be generated through compounding
of returns is significant.
And I'm going to end on this
slide for the presentation.
And I just say the
most amazing thing
that the investment world has
is the compounding of return.
And when I say that
it's arithmetically
the compounding of
interest returns
is what everyone understands.
But the compounding of
returns with businesses,
if you can do it exponential
numbers or at larger numbers,
the numbers go exponential, as
all you mathematicians know.
It's amazing what
it accomplishes
if you can not make mistakes--
too many mistakes or lose
capital on the way through--
and you just keep
compounding a return.
And it really is
an amazing concept
in the world of investing.
And not that many people
pay attention to it.
So I would suggest
for you is to continue
to buy great investments
and hold them and compound.
Don't pay taxes by selling them.
And don't look for fashion
when you make them.
So with that I would
be pleased to take
any questions if there are any.
[APPLAUSE]
PRANESH SRINIVASA: Thank you.
Thank you, Bruce, for
that wonderful, wonderful
presentation.
So I had a few people email
me in questions who are
in different parts of Google.
And I thought we could
run through some of these
and then take questions
from the audience.
The first one is really
about your journey.
I think we've heard Mr. Bruce
Flatt, CEO of Brookfield
but what about Mr.
Bruce Flatt the person?
So you started off as an
accountant from Manitoba.
And "Forbes" recently called
you the toll collector
of the 21st century.
So from your personal
viewpoint, what
are some events that have
shaped your career, first
at Brascan and then
later at Brookfield?
BRUCE FLATT: Look, I would
just say you either get lucky
or you make your own
luck during your life.
I got lucky in that I met
some people at the predecessor
to Brookfield.
We had a small company.
We started the business.
And 30 years later, we've
been doing exactly what
we started 30 years ago.
And so I think if you can find--
I think the greatest
success with people
is if you can find
something that you
do which you're passionate
about, you will be successful.
And I was passionate about
building the business
we had at Brookfield.
And therefore, we've been
relatively successful
over the 30 years, and we've
had a lot of fun doing it.
So I would just--
this is to talk
about how you invest
in the strategy for investing,
and I think probably the number
one is just do things that
you're passionate about
and find businesses
you're passionate about.
And so that's really
been my story.
PRANESH SRINIVASA: So
if we could go back
from when you joined
Brookfield, say in 1990
as Brascan, and
with what you know
today what is one
mistake, just one,
that you wish you could go
back and correct or fix,
if there is one?
BRUCE FLATT: There's many.
There isn't just one.
I would say, look, we are
sitting here at Google
and after having spent
the morning with you
and your colleagues, I
think 25, 30 years ago,
we probably should have
paid more attention to what
was going on in technology.
And not because we're--
look, we think the business
we have is phenomenal.
But I think we could
have been more aware
and built other things
within the business
if we were more
aware of technology.
If we would had more
businesses in San Francisco--
probably, you know,
our office business
is very broad across
the United States--
we would have been here and
we would have done more.
And we're doing it today
and we're learning.
But I'd say that's the one thing
we probably should have been
more aware of 30 years ago.
Now, maybe lots of
people say that.
But we had the capacity
to do it and didn't do it.
PRANESH SRINIVASA: So I
think in your presentation
there were three
themes that shown.
One was value and buying value.
The other was incentives.
And the last was patience.
And I think I want to just focus
on that last part a little bit.
Your investment team
is over 1,000 people.
And you've had
offices in countries
where you've not done a
single deal for over a decade.
How do you inculcate
and incentivize
patients in your investment
managers across the world?
And how do you think
about it personally?
BRUCE FLATT: Yes, so,
look, it's difficult.
The most difficult thing about
all businesses is people.
And the second thing
is about people.
And getting compensation
and incentives right
are a very important
thing out of all of that.
And it doesn't mean, everything.
In fact, it's not everything.
If you don't have a
great company to work at
and people aren't passionate
about what they do
and where the company is
going, compensation generally
doesn't matter.
Having said that, if you
get compensation not done
correctly, then it
can be a problem.
And so we try to
make sure that if we
have new regions that people
are compensated across a broader
organization so that they're
not forced to do transactions.
And in general, that's how we
operate our whole business.
And we have four main sectors;
property, infrastructure,
renewables, private equity.
But there are 10
businesses or 15 businesses
within those entities.
And we're in 30
different countries.
So you can move capital
different places.
And you have to make
we have to make sure
that people aren't
incented to do dumb things,
because they were
compensated that way.
So we spent a lot
of time to make
sure we get the
alignment correctly.
PRANESH SRINIVASA:
Another write-in question
that I had from a few
people was about what advice
you would have for them in
residential or multi-family
or small real
estate, real estate
that individuals could go
purchase, maybe with some debt.
And broadly, the
questions are all along
themes of where are places
you would recommend currently
in the US?
What kind of debt
financing would you
be looking at if you're
doing this individually?
And the third is, what
does forever mean?
BRUCE FLATT: OK, those
are tough questions.
So here's what I would say.
There's one thing-- and I'll
make just a broad observation--
the one thing that we see
everywhere in the world,
and it covers most of the
things you just mentioned--
is that there's a massive
50-year urbanization going on
in the planet.
And we're seeing it everywhere.
And this is not just
happening in China and India.
It's happening
everywhere in the world.
Vacancy in downtown
Sydney is 1% today.
And the reason it's 1% is
because any tertiary class
b bad hotel or office
building is being torn down
and being built as residential.
So the vacancy is
1% in office space
because people are
coming downtown.
Young people don't want
to live in the suburbs.
They want to live downtown.
So what's happening is there's
this massive urbanization going
on.
So I would just say
that for people buying
residential real estate,
go back to the principles
of real asset investing.
Buy great real estate
in cities which
are going to be part of the
21st century, 22nd century,
and will grow over
time and where
young people want to live.
And if you do that, over
the fullness of time,
I don't think you can go wrong.
To your question on
patience, often people
are buying and selling things.
And the problem with real
estate and the problem
with real assets is that these
things don't go like this.
They go like this.
And often when it's
time to buy and people
get excited about buying,
it's the wrong time to buy.
It will be fine in
the fullness of time,
because if you're in
downtown San Francisco,
I'm quite positive
that 10 years from now,
20 years from now, 30 years from
now, those values are going up.
But there may be periods of
time where you have to sell.
And on the financing
point, I'd just
say make sure that whatever
financing you put in place
can be serviced so
that you're never
forced to be able to sell
that property at the time
when you don't want to sell it.
Other than that,
leverage, debt financing
is a phenomenal thing.
And leverage is these type
of assets and leverages
it prudently.
There are very few assets
you can go to a bank
and get 2/3 financed on.
It's not easily done with
many other things, especially
individuals.
Just make sure that people
don't get themselves
into trouble that way.
PRANESH SRINIVASA: And
before I open it up
for the audience,
one final question
that we ask all our guests,
what advice would you
give the young person
who is probably listening
to this right here today
in the room or on YouTube
across the world to get
the magic of compounding
working for them?
BRUCE FLATT: Brookfield's
ticker symbol is a BAM.
Look, I would just say that
the miracle of compounding
can be found almost in any--
it can be found in index funds.
You're not going to compound
to the highest return
if you buy an index fund.
But if you buy an
index fund, you're
just buying the stock
market of America.
You will earn 7%
over the longer term.
The problem is most
people invest this month.
And then they decide, well,
it went down, I should sell.
And if it went up, normally
they say, wow, this is exciting.
I made some money.
And they keep it.
And they sell at
the wrong times.
So the miracle of compounding
is just sticking with it.
It's almost like
anything in life.
It's like business.
It's like your
individual relationships.
It's like anything.
You just have to stick with it.
And it's patience and
sticking with things.
So I would just--
you know, I really
think that's probably the
most important thing of making
sure compounding works.
PRANESH SRINIVASA: Thank
you so much, Mr. Flatt.
Questions from the audience?
You can line up in
front of the yellow mic.
AUDIENCE: I have a question
on buying properties.
I mean, when you
buy a property, you
intend to operate in
a manner that's better
than the original owner, right?
So if you're buying property
from a mom and pop shop,
then obviously you can bring
a lot of expertise in there.
But if you buy something from--
let's say you acquire GGP,
what kind of value can you
bring to the properties that GGP
cannot do it today?
BRUCE FLATT: So our
general strategy
is to either buy for value
when other people aren't
going to that investment.
And I'd say the number one
thing today with respect
to retail is that retail
is one of the more
heated sectors in investing
today in the world.
Everyone thinks that
everything will be sold online
and street retail
won't be the place.
So one of the reasons
we're buying it is that.
Second, we often try to operate
things better than others.
With respect to GGP, I'm
not sure that's the case.
They have a first class
operating platform.
In fact, we'll be
adopting that platform.
But the real value
that we see in that
is something that can't be done
within a retail real estate
company.
And that's that these are--
what it owns is a
125 100-acre parcels
of land in the middle of each
of the cities in the United
States, in major cities
in the United States.
And those acreages
can be developed
into many, many other things.
And we have the skills
to be able to add
multi-family apartments and
condominiums and storage
and industrial and other
uses to those sites, which
couldn't be done within GGP.
And we do all
those other things.
So that's really with
a value add that will
bring to this acquisition.
AUDIENCE: Thank you, Bruce.
Thanks for the insightful
discussion today.
I work for Google's
data centers.
And I wanted to congratulate
you for the AT&T data center
deal a few weeks back.
My question is, over the past
two years, what we have seen
is data centers have really
become an asset class in itself
within the TMD space.
But Brookfield is a little
late to the party, I believe.
What do you think is the
hypothesis for data centers
being an asset class in itself?
And what would be
some of the risks
that you think in acquiring a
data center like an AT&T data
center.
BRUCE FLATT: OK,
so first, this is
an amateur talking to an
expert about data centers.
So I'm not sure what
advice I can give you.
But I would say back to the
question on what mistakes
did we have over the years,
not getting into technology.
We're the largest real
estate owner in the planet.
We don't own data centers.
And we probably should have
been in data centers before.
And if we had focused
more on technology,
we would have been there.
Look, I guess what
I would say broadly
is we think the sector of
delivery of data infrastructure
to people is we're not late.
This is going to be-- the growth
of the data infrastructure
sector over the next 15,
20 years as more and more
data is delivered is going
to be very significant.
And between fiber to
the home, data centers,
and all of that,
that whole sector,
we think there's enormous
amounts of capital that
need to be deployed in there.
And so we're just we're getting
smarter within those sectors.
AUDIENCE: Hi.
I'm Nata.
Thank you for the talk.
What are your views on
investing in Bitcoin?
BRUCE FLATT: So I don't really
have any comments on it.
I don't understand it.
And we would never invest in it.
And I actually don't
think it's an investment.
I think it's a product
that delivers money
from one place to another.
It's an alternative to cash.
Some people may want to use it.
It doesn't fit in our
realm of investing.
It wouldn't be considered
an investable asset.
But good luck to those
who are investing into it.
Thank you.
AUDIENCE: How's it going?
What's are thesis with
regards to active management
of your acquisitions, be it
real estate or businesses?
BRUCE FLATT: To the
asset management of it?
AUDIENCE: Yes, so like when
you purchase general growth
or build a mall,
are you coming in
and kind of taking a very active
approach to the management
of those assets?
What's your thought
process within that?
BRUCE FLATT: Yes, so
our businesses, we
have 1,500 investment people.
But then there's 75,000,
80,000 people down
below that operate the assets.
So most of the things we
do we actively operate.
And we're doing things
with all those people
once we buy an asset.
Sometimes we adopt the people,
and we're integrating them
into our business.
Once in a while we're
just a financial investor
into something because
somebody brought us in
and the reason for us to come in
was that we could provide them
capital.
But most things we
do are quite active.
And we think the lion's
share of the return we get
isn't from a
financial return, it's
from an asset intensive return
by operating assets better.
AUDIENCE: Yeah, my question
is regarding the real estate
opportunities here in
the Silicon Valley area
where are we have a huge
demand of residential
and not as much
investment I think.
What do you see as
future opportunities?
BRUCE FLATT: Going back to my
comment on general residential,
I would say this is the center
of technology, Silicon Valley.
And as a result of
that, this market,
I think in the longer term,
will be extremely good.
There may be times--
2009 would have
been the better time
to buy a house in
California than it is today.
That's not to say that values
won't be a lot higher 10 years
from now.
Now, there are
always ups and downs.
And this time, I don't
think real estate is going
to cause the next recession.
Therefore, I don't
think we're going
to see the same mess
in housing in America
that we saw last
cycle, 2008-2009.
That's not to say that housing
can't go down in every market.
What this micro market
has going for it
is a lot of
well-paying jobs, which
will be an underpinning
of the residential market
for a long period of time.
And I don't think
they're going anywhere.
PRANESH SRINIVASA: What
a delightful talking
presentation.
Thank you so much, Mr. Flatt.
Thank you.
[APPLAUSE]
