There are no major office buildings under construction in New York City and few in London, a rare event that Brookfield Asset Management CEO Bruce Flatt takes as a sign it’s a good time to be investing in real estate.

“What that means is in the next five years rents are going through the roof,” he said at the alternative asset manager’s annual investor conference in New York on Wednesday. “It’s about supply, demand, interest rates and financing and it’s all coming back.”

Flatt predicted that interest rates in the United States will be ratcheted down by 100 basis points over the next 12 to 18 months, with financings already getting easier.

“Transaction activity has come back. Doesn’t mean everything’s there, but you can now finance virtually everything in real estate across the world, and real estate lives on financing,” he said.

Flatt said the fundamentals of real estate have been good despite a downturn in certain segments, including office and retail.

 

“The issue has been in the capital structures (as) interest rates went up fast. People had to adjust their capital structures to it, and those things are sorting out in the marketplace,” Flatt said. “The real estate fundamentals have turned dramatically in the last 12 months.”

The U.S. is lagging other markets because rates began to recede faster in other markets, including Canada.

 

“Most other markets have already turned … but in the U.S., it’s really just waiting for interest rates, and you will see some of that come and drive the recovery even further,” he said.

Brookfield stuck with real estate when others pulled back over the past few years, putting that division in good shape now and positioning the company to capitalize on the growth of artificial intelligence and the infrastructure that supports it, Flatt said.

AI is “a $7-trillion opportunity,” he told the audience of investors and prospective investors, adding that if done right it could represent the largest business at Brookfield within 10 years.

“We’re ideally suited because of … our adjacencies, our computer infrastructure, (and) our real estate businesses to participate in this,” he added.

Flatt said Brookfield is already investing in AI and the opportunity could span decades.

“We have a number of AI factories that we’re working on, which is around a $200-billion investment project over the next while,” he said, adding that this is a real estate investment even if it sounds more complicated.

 

And this is just the start, he said, predicting more opportunities in infrastructure in the years ahead.

“We’re going to build backbone artificial intelligence to drive productivity in businesses that’s being led by the technology companies and we’re helping them do that,” he said.

“It’s going to change every single business in the world. It’s incredible what’s going to happen, and we need to be at the at the forefront. If we’re not … five years from now, we’ll look back and we’ll be behind.”

Another segment of alternative investments where Brookfield hopes to make a big impact is the movement to allow retail investors in the United States to invest in alternative investment products including real estate and private equity.

On Aug. 7, U.S. President Donald Trump signed an executive order to make it easier for more than 90 million Americans who participate in employer-sponsored defined-contribution plans to access “the potential growth and diversification opportunities associated with alternative asset investments” including cryptocurrencies.

Brookfield executives said it will probably take a couple of years for the broadening of access to make a meaningful contribution to the business, but Flatt said the opportunity is large, with the potential to double the size of the private markets industry.

In the U.S., outstanding 401(k) retirement accounts and retail annuities sit at around US$20 trillion, already on par with the size of Brookfield’s bread-and-butter defined benefit pensions and sovereign wealth funds.

“The retirement landscape is undergoing a fundamental shift. Aging populations need savings,” Flatt said. “Once they open up in the U.S., they’re going to open up globally, and there’s a structural need for wealth solutions. The shift is very powerful.”

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