Brookfield to provide $5-billion to cash-strapped retailers for stake in business

Open this photo in gallery:

Brookfield Asset Management Inc. plans to spend US$5-billion to prop up retailers hit by the coronavirus pandemic, in an attempt to find investment opportunities in the retail carnage while mitigating the company’s significant exposure to malls.

Under its plan, called the Retail Revitalization Program, Brookfield will provide capital to cash-strapped retailers in exchange for a non-controlling stake in the business. That would throw a lifeline to retailers who are under immense financial stress after governments shuttered non-essential shops and malls to stop the spread of the coronavirus.

Shopping centres were already facing growing competition from e-commerce. Now that trend is accelerating with the pandemic forcing people to stay at home and maintain a distance from each other in public.

“For a mall to thrive it needs to have strong retailers. If you don’t have strong retailers, nothing else matters,” said Alex Arifuzzaman, a retail real estate consultant. “This will flow back to the income of Brookfield if the retailers are strong. If they did nothing, retailers become weaker and you get less revenue. It is an indirect way of supporting their revenue and retailers.”

Under the program, Brookfield said it will focus on retailers that have a minimum of US$250-million in annual revenues and have been in operation for at least two years. The company said it will target those that have operations in its major markets, as it assesses investment opportunities.

Even with some U.S. states starting to reopen their economies, physical-distancing measures and health concerns could keep the public away. As well, the massive loss of jobs means fewer people will have the income to make purchases.

“If they are not open, zero people can come. Once they open, it will be a gradual rebuilding process. There will be less traffic. With unemployment, that will cut back on sales. It’s a triple whammy," Mr. Arifuzzaman said.

Brookfield, which has more than US$500-billion in assets, including real estate and private equity, made a big bet on malls two years ago with its US$15-billion acquisition of GGP’s 125 U.S. shopping centres. It now has more than 170 malls in the United States, as well as shopping centres and retail properties in China, Seoul, Brazil, Britain and Canada.

Like other mall operators, Brookfield is faced with thousands of tenants that are struggling to pay the rent, which is typically the highest fixed cost for a retailer.

Some brands such as J. Crew and luxury department chain Neiman Marcus are filing for bankruptcy protection, which could leave mall operators including Brookfield with big spaces to fill. Brookfield’s malls are home to big tenants – such as Macy’s and JCPenney, as well AMC Theatres – some of which have seen revenue plummet to zero because of the closings.

Brookfield’s retail revitalization program will be led by Ron Bloom, the company’s vice-chairman of private equity who was one of the Obama administration’s point persons on the U.S. government’s auto bailout during the global financial crisis.

“This initiative is being designed to assist medium-sized enterprises in getting back on their feet,” Mr. Bloom said in the press release announcing the program. “We would like to partner with companies and entrepreneurs that can draw on our capital and expertise to stabilize and grow their business.”

Brookfield did not say when the program would be running. The company has a history of buying troubled retailers. Earlier this year, it teamed up with fellow mall owner Simon Property Group and Authentic Brands Group LLC to buy the bankrupt fast-fashion brand Forever 21.

The program will be funded by Brookfield and its institutional partners, the company said, and will help retailers meet their financial obligations.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.