At the same time as the firm was expanding its third-party money management business, Brookfield also continued to grow its own balance sheet, which is about $270 billion, and is a large real estate owner particularly in office and retail, Kingston said.
"We continue to own a lot of office" but over the past decade, most of it was on the balance sheet and very little in the firm's funds, which make opportunistic investments, he said.
Most of Brookfield's office holdings are newer buildings that today perform well, Kingston said.
"We're signing leases at record rents," he said.
However, the rest of the existing properties are not performing well because there is an oversupply of older office buildings at a time when demand is shrinking, Kingston said. Brookfield executives expect that over the next decade, offices will comprise less than 10% of new investments for the funds because it is hard to make opportunistic returns in office assets, he said. Funds have 10-year lives made up of three years making investments, execution of a five-year business plan and then exiting. P&I data shows that 22% of Brookfield's current U.S. institutional tax-exempt real estate portfolio is invested in offices, which is down 1 percentage point from the prior year.
Offices are very capital intensive and for that reason, an investor would have to get the timing right, Kingston said, whereas the balance sheet owns assets for 50 years and "you need to think far, far down the road," he said.
So, a property like Brookfield Place, which is a shopping center and office building complex in Manhattan, is good for very long-term ownership because occupancy is always high and the investment is a steady earner, Kingston said.
"You don't get so fussed over mark to market if you own an asset for 50 years," he said. "It does matter for funds because at some point you need to sell."
Self-storage is a growing area in Brookfield's funds because self-storage properties require very minimal capital expenditures and so the revenues get converted to cash, which is always good in a high-interest-rate environment, he said. The challenge is that it is hard to make large enough investments because the self-storage sector is very fragmented with many smaller owners, Kingston said.