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Brookfield’s New Venture-Capital Unit Eyes Real-Estate Tech Startups
Brookfield Asset Management BAM -0.08% is the latest global landlord to form a venture-capital unit to plow money into the growing number of potentially disruptive technologies in the real-estate business.
Toronto-based Brookfield, which has $285 billion in assets under management, plans to invest $200 million to $300 million over the next three years in startups in its four business lines: real estate, infrastructure, power and private equity, according to Stewart Upson, a Brookfield managing partner. Brookfield also plans to raise third-party capital to invest together with the firm’s money, he said.
“We’re going to get access to deals that others wouldn’t get access to, and we’re going to be able to add value to things that others wouldn’t be able to add value to,” Mr. Upson said.
The new unit, Brookfield Ventures, has just made its first deal, a $15 million investment in BuildingConnected, a networking and preconstruction management site for owners, general contractors and subcontractors. The deal increases to $53 million the total funding the five-year old firm has raised, according to Dustin DeVan, BuildingConnected’s chief executive.
Mr. Devan said the firm wasn’t in a fundraising mode when it started talking to Brookfield. But “it made sense to bring in more industry expertise,” he said.
For a long time, the real-estate industry was slow to adopt new technology. But businesses like WeWork Cos. and Airbnb Inc. demonstrated the vulnerability of traditional property types such as office space and hotels to technology disruption.
Meanwhile, startups increasingly are making changes in the way buildings are sold, built, leased, designed, marketed and managed. Many of the new entrants have valuations in the hundreds of millions of dollars.
Brookfield isn’t the only big player using its holdings of office towers, malls and other commercial real estate to get a front seat in the new technology world. Several giants have set up separate investment units, including home builder Lennar Corp. and mall giants Simon Property Group Inc. and Westfield Corp.
Private-equity titan Blackstone LP, the world’s largest private real-estate owner, has invested in such startups as VTS, a leading commercial property leasing and management service, and Entic, which helps owners cut energy and water costs. Last year, Blackstone acquired a majority interest in the Office Group, a competitor to WeWork in the co-working and flexible office space business.
Other big real-estate companies are investing in venture-capital firms that focus on the industry. For example, Fifth Wall Ventures’ investors include the owners and managers of 13,000 properties such asPrologis Inc., Rudin Management and Host Hotels & Resorts Inc.
These backers enable Fifth Wall to offer “game changing” expertise and business to startups, along with capital, said Fifth Wall co-founder Brad Greiwe in an email. “It’s the time, resources and insights that come from cross-pollinating with the largest real estate organizations on earth. That’s what’s valuable.”
For years, Brookfield executives felt insulated as they watched technology disrupt other businesses, like music and publishing.
“It didn’t have a real impact on us,” said Mr. Upson. More recently, though, “the new wave of technology disruption is getting much closer to our businesses,” Mr. Upson said.
Before it created Brookfield Ventures, the company made a few technology investments such as buying a stake in Convene, a provider of meeting space and flexible workspace. But initially Brookfield mostly approached new technology defensively, Mr. Upson said.
“Every time we made an investment we asked ourselves ‘How will this be impacted by technology?’” he said.
The thinking behind creating Brookfield Ventures was different. “Instead of being concerned, we said, ‘Why don’t we leverage what we have and use our unique position to gain a competitive advantage?’” Mr. Upson said.
To run the unit, Brookfield hired Josh Raffaelli, who has been working in the venture business for about 14 years for such firms as Silver Lake and DFJ. Brookfield opted against recruiting from within because senior management believed people with careers in real-estate investment approach the world differently from those in venture capital.
“We were self-aware enough to realize our real asset approach to investment was very much focused on downside protection and cash flow,” he said. “That wouldn’t necessarily make us successful in the venture industry.”
Mr. Raffaelli has set up a team of five investment professionals in San Francisco. He said they are looking at a wide range of possible investments in such areas as co-working and distribution facilities in e-commerce supply chains.
Brookfield made headlines earlier this year when its Brookfield Property Partners LP arm announced plans to buy the 66% stake in mall giant GGP Inc. it didn’t already own. Mr. Raffaelli declined to comment on that pending deal. But he said that Brookfield Ventures was considering investing in a startup that provides electric-car-charging services in shopping-center parking lots.
“At the same time it also sets up digital billboards next to that charging infrastructure,” he said. “It’s a distributed media network.”
Mr. Upson said when he first got involved in Brookfield Ventures he thought the firm’s huge balance sheet would interest startup entrepreneurs. “I soon found out that wasn’t helpful at all in the venture industry, he said. “Everybody has got money.”
Brookfield decided to focus instead on its expertise in real estate.
“We needed to market our core advantages as a reason why both entrepreneurs and other venture groups would want to have us in their deals,” Mr. Upson said.
Write to Peter Grant at peter.grant@wsj.com
