The Biggest Checkbook in Home Building | John Burns Real Estate Consulting

The Biggest Checkbook in Home Building



Bruce Flatt, the CEO of Brookfield Asset Management and the keynote speaker at our upcoming client conference in New York in November, has been very busy spending tens of billions of dollars transforming how Americans will live in the future. In this podcast, Adrian Foley, Brookfield Residential’s president and COO (or “Brookfield’s hero” as podcast host Dean Wehrli calls him) shares Brookfield’s very thoughtful view on how America will live in the future.

 

“If time is your friend, you can make really thoughtful decisions.”

-Adrian Foley, President and COO, Brookfield Residential

The Intersection of Demographics and Technology

I have known humorous Adrian Foley for more than 20 years, and I can tell you that Adrian is always learning and is not afraid to take well-researched chances. His research tells him some things you better pay attention to:

  • Fewer kids means higher density. The traditional meat of the market (families) has thinned out, which is one reason that Brookfield recently purchased 162 malls with redevelopment potential. People today want to live close to work, shop and play.
  • A retirement reset. Adults aged 60 and older are surging in numbers and will likely live very differently than prior generations, which is why Brookfield is experimenting with all sorts of age-qualified and age-targeted new home owner and renter designs in urban and suburban locations,
  • More renters. Professionally managed rental homes have recently become a permanent part of the American landscape. Newly built rental homes (both in pods as well as distributed throughout the community) will be a significant part of future development. Having sold both stand-alone rental subdivisions and individual rental homes, Adrian isn’t sure which one he likes better.
  • Tech company partners or…. Having already built homes in partnership with Apple and Amazon, Adrian shares that the jury is still out on what smart home technology consumers will pay for. He believes there is a very good chance that consumers will soon expect most new smart technology to come with the home, and most builders will need to offer smart home technology in order to compete.
  • Tech company competitors? Adrian also warns that we should all stay productively paranoid that home building and land development could change dramatically—and sooner than people think.
“I am really…paranoid that [if] Google and Amazon and Apple…got into the housing business, that might be a nightmare for all of us….They probably will. We have got to stay one step ahead of that.”

-Adrian Foley, President and COO, Brookfield Residential

Massive Mall Redevelopment

Brookfield has recently purchased 162 “retail opportunities” (mall is a dirty word) for mixed-use (I prefer the term surban) development. They now own 168 “malls” with 152 million square feet of well-located retail, surrounded by ~300 million square feet of vacant land currently used for parking. They already have plans to redevelop 12 of them, with another 23 coming soon thereafter. Interestingly, Brookfield decided to focus on the highest performing malls first, rather than the lowest performing malls, hopefully creating a “halo effect” that will pave the way for future successes.

 

Masterplans

With a big and patient checkbook, Brookfield has been gobbling up mature masterplans throughout the country and bringing better design and even experimentation to many of them. They have already built and sold a complete purpose-built detached rental home community and have several more in the works. Brookfield believes that moderate returns over a long term are better than high returns over a short term (since those returns are difficult to replicate every year). He notes that few companies do masterplans well because they don’t have:

  • large amounts of capital
  • the ability to tackle many complex issues
  • a long-term view

Brookfield has been so active buying communities that they already control more than 80% of the lots they need to meet their 5-year business plan.

 

Big Sweeping Changes in the Next 10 Years

I would normally stop here, but Adrian had so much insight to share! Here are a few nuggets:

  • Millennial consumers: Millennials will embrace the disruption of the home building industry, seeking better value, convenience, and transparency. The boomer and Gen-X populations will embrace disruption as well when they realize how much it will save them.
  • Ripe for disruption: The building industry has been pretty well protected from disruption thus far, and Adrian is worried that builders will become the next “yellow taxi company.” He believes the new home market has antiquated habits of hiding information, and that is going to change.
  • Brand new sales process: How someone buys a home in the future, and especially a new home, will be very different. The “Zillows of the world” have already done a phenomenal job changing the resale market. The new home market is next.
  • An option other than owning or renting: In a clear nod toward more co-housing (dorm-like living), Adrian notes that more tenants will start sharing expenses. In fact, today’s for-rent and for-sale choices will have a third “for-something-else” choice. We wrote about this early last year.

I just want to end with a huge thank you to Adrian for sharing his wisdom and to Dean Wehrli for another phenomenal podcast.

 

 

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John Burns If you have any questions, please contact John Burns, CEO at (949) 870-1210 or by email.
Dean Wehrli If you have any questions about our podcast, please contact Dean Wehrli, Senior Vice President at (916) 647-3263 or by email.