Mizner Park, Boca Raton

Brookfield Asset Management Inc. is betting against the retail apocalypse with its takeover of GGP Inc., slated to close Tuesday.

The Toronto-based firm is paying about $15 billion for the second-largest mall owner in the U.S. as investors — and shoppers — shun brick-and-mortar retail. Brookfield, which already owned a third of GGP, was the only bidder that showed up when the company put itself on the block last year.

Brookfield's top real estate executive wasn't surprised.

“We look for places where people are running away from,” said Brian Kingston, chief executive of Brookfield Property Partners LP, the asset manager's publicly traded real estate arm. “Ultimately we're value investors. So that means many times it leads you to being contrarian.”

That willingness to zig while others zag helped make Brookfield the top real estate dealmaker in North America this year by total transaction value, surpassing traditional powerhouse Blackstone Group LP, according to data compiled by Bloomberg. Brookfield has announced about $23 billion worth of transactions this year.

Other high-profile deals include Brookfield Asset Management's agreement in July to pay $6.8 billion for Forest City Realty Trust Inc., which owns office and apartment buildings in Boston, Chicago and Dallas.

This month, Brookfield took a 99-year-lease on 666 Fifth Ave., the Manhattan skyscraper owned by Kushner Cos., the family business of presidential son-in-law Jared Kushner. Brookfield intends to update the aging property to attract new tenants willing to pay more, as it did with 5 Manhattan West. The firm has been able to raise rents to about $100 per square foot from $30 at that building after giving it a $350 million facelift.

The Crown

GGP is the main reason Brookfield has taken the property M&A crown this year.

The deal is the third largest real estate investment trust takeover ever, behind Unibail-Rodamco SE's $16 billion acquisition of Westfield Corp. and Blackstone's $20 billion purchase of Equity Office Properties Trust, according to data compiled by Bloomberg.

GGP may also be the biggest test yet of what Kingston describes as Brookfield's “counter-cyclical” investment strategy.

Regional malls have come under increasing pressure from Amazon.com Inc.and other online retailers. The Bloomberg REIT Regional Mall Index has fallen about 23 percent from its peak in July 2016. GGP's shares are down about 27 percent over the same period, according to data compiled by Bloomberg.

That slide enabled Brookfield Property Partners to buy the rest of the Chicago-based company that it didn't already own.

It was the only bidder because few fund managers can match its size, redevelopment expertise and optimism around the retail sector, according to Kingston.

“What is unique, and I don't think is fully appreciated by the market, is that these are really great malls,” he said. “Yes, there's trouble with retailers but not in the Class A shopping centers.”

GGP has about 125 malls in the U.S., including Ala Moana Center in Honolulu, Glendale Galleria in Los Angeles and Water Tower Place in Chicago.

Turnaround Plan

Brookfield's plan for GGP is similar to what it has done with Rouse Properties Inc., another REIT it acquired in 2016.

It's about redevelopment. Brookfield is building apartments at one Rouse mall outside of San Francisco, where housing is scarce. That could make the land 10 times more valuable than it is today, Kingston said.

Brookfield sees opportunities at about 100 of GGP's malls. In same cases, that could mean replacing a big box store with a movie theater; in others, leveling half a mall and building apartments.

There is immense value locked up in GGP's land and Brookfield is banking on its ability to free it. It's better to overhaul GGP as a private company because of the amount of capital it will require, Kingston said.

The company — which is changing its name to Brookfield Property REIT Inc. — will add to Brookfield's $160 billion real estate portfolio. The asset manager is showing no signs of slowing down.

The firm has raised $11 billion for its latest flagship real estate fund, after raising $9 billion for its predecessor fund in 2016, according to its second quarter report.

The firm has benefited as institutional investors shift from equities to alternatives, according to Neil Downey, an analyst with Royal Bank of Canada.

Brookfield's good track record is also enabling it to raise more, he said.

“The size and the scale of what they can to do today is completely different than what Brookfield could contemplate five and 10 years ago,” Downey said. “This has been a 20-plus year success story in the making.”

Scott Deveau reports for Bloomberg News.