Brookfield, Hillwood Join Forces to Invest Up to $1B in Industrial Sector

Brookfield Asset Management and Hillwood, a Dallas/Fort Worth-based real estate investor and developer, have formed a joint venture to acquire, develop and manage industrial property, principally large warehouses, across the United States.

With an equity commitment of $400 million, the partnership is expected to deploy up to $1 billion within the first three years. Hillwood will locate industrial property investments with potential for value creation.

For Brookfield, the fund will complement its existing investments in the infrastructure sector. Through a separate fund, it owns ports, shipping terminals, transmission lines and warehouses.

“With global trade and internet fulfillment operations expanding, we feel this is an exciting part of the investment market,” says David Arthur, managing partner at Brookfield Asset Management. “We believe there is a definite place in the investment market for industrial product. It is sought after by investors and the returns on a historical basis compared to other categories have been very favorable.”

Arthur says that Brookfield and Hillwood had been in discussions for the past year before announcing the venture. The fund will seek value-add opportunities and seek to acquire existing properties that are in need of leasing or an infusion of capital to boost cash flows and returns.

Overall, the fund is targeting returns in the 13 percent to 16 percent range. The average investment size will be between $20 million and $60 million. And Arthur expects the fund will hold assets three to five years after repositioning them.

“The partnership between Brookfield and Hillwood is not only the right fit, it’s happening at the right time,” Hillwood Chairman Ross Perot Jr. said in a statement. “Industrial development slowed during the downturn due to a lack of equity and debt. Given the liquidity and resources supporting our investment, our joint venture is well-positioned to benefit from renewed demand for industrial space which will increase as the economy continues to show signs of improvement.”

Jack Fraker, a vice chairman of investment properties with CBRE based in Dallas, says the industrial sector remains a good bet for investors.

“The lack of new supply and the fact that fundamentals didn’t take too much of a hit during the recession … has created great opportunities to acquire existing industrial real estate,” Fraker says. “The segments that are seeing the most interest are core buildings—100 percent leased, class-A facilities in primary markets. But we are also seeing a lot of activity in the value-add segment.”

Looking forward, with corporations becoming more active in modernizing their supply chains, the continued rise of Internet shopping that require large fulfillment centers and some recovery in manufacturing, the outlook for industrial properties remains strong, according to Fraker. In select markets, single-family housing is also reviving, which boosts warehouse activity because of increased demand for carpets, furniture, appliances and other goods. “All of that is positive for industrial real estate,” Fraker says.

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