Cheap oil threatens Brookfield Property Partners

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Brookfield leaders Clark and FriedrichUpdate July 31, 2015- The low oil is impacting the cities where the oil companies preside, which is also where Brookfield Properties has most of their assets (see below). The oil companies are now laying off workers, which will mean vacancies in Brookfield office buildings rented by the oil companies.

This week, all of the oil companies announced massive layoffs. The WSJ reports, “Shell’s job reductions came as Chevron Corp. on Wednesday said it would cut 1,500 jobs, while U.K. utility Centrica PLC on Thursday said it would slash 6,000 positions and work to shrink its oil-and-gas production division. Even deeper cuts have emerged this week at oil services firms, which big energy companies are squeezing for savings; Saipem SpA of Italy, for instance, said it would slash 8,800 jobs in the next two years.

The moves demonstrate how energy companies are moving to slash further to cope with a sustained oil price collapse that they now see lasting for a longer time. Shell, BP PLC, France’s Total SA and Eni SpA of Italy have all outlined plans in their second quarter results to deepen spending cuts that began earlier this year when oil prices reached lows below $50 a barrel, down from highs of $114 a barrel last year.”

March 27, 2015- Brookfield Property Partners L.P. (Ticker BPY), owner of Brookfield Place, presented before a Wall Street meeting on March 3rd. An interesting topic came up. Investors wanted to know whether the crash in oil prices will hurt Brookfield because they have large office building assets in the biggest oil-dependent cities, such as Calgary and Houston. Lower oil profits lead to rent vacancies, typically.

The new CEO, Ric Clark, quelled investors’ concern. He stated, “Net net, lower oil prices are a positive for us.”. How he concluded that is unknown. He claimed that even at $50 per barrel of oil, the oil companies are still making money.

There was no mention on this call of attempts to sell Brookfield Place. Last November, it was their plan to sell Brookfield Place at the peak of the real estate bubble. Of note, the Brookfield Place World Financial asset comprises 10% of total Brookfield assets, they estimated on the call.

Regarding the convoluted confusing business structure of the numerous “Brookfield” companies, the CEO explained that Brookfield Property Partners L.P. is, “A new entity…we have only been around a year and a half.”.

The market-cap of Brookfield Property Partners L.P. is only $6 Billion. That is small in the corporate world. Twitter (TWTR) is five-times as big at $31 Billion, for example.

In summary, Brookfield Property Partners L.P. is a yet another new Canadian organization under the Brookfield umbrella (they are not a REIT, for tax purposes) struggling with global challenges, such as the crash in oil prices and soon-to-rise interest rates that will deflate the real estate bubble. They seem to have been unable to find a buyer for Brookfield Place, and are developing the 7-Million-sq-ft “Manhattan West” in Hudson Yards instead.

Why should residents of BPC care? Brookfield is by far the biggest tax payer to the BPCA. Therefore, the company has tremendous clout. They were able to evict the beloved Mike Fortenbaugh from the marina, for example, only to sit on a now-empty marina, taking away the sailing school from the community. Governor Cuomo receives large campaign donations from Brookfield, and the pay-to-play machine rolls on.

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