Think Differently About Commercial Property Commercial property might be the most hated sector on the planet. After all, city centers are dead. Office rents are plunging. The office sector is a dead man walking. Bruce Flatt, CEO of the Canadian investment group Brookfield Asset Management (NYSE: BAM), disagrees. Since joining Brookfield in 1990, Flatt has seen many ups and downs. Today, he believes investors are underestimating the speed and extent to which people will return to work in offices. Why is he so confident? First, he understands that this is not the first time real estate has endured a bust. And it won't be the last. Amid a lockdown, it's easy to believe that people will abandon offices forever. But if you want a glimpse of the future, look no further than Shanghai, Dubai and Australia. There, the pandemic is under control. And most workers have happily returned to work at their offices. There's little reason to think that their counterparts in New York and London won't do the same. Second, the demand for office space may grow in unexpected ways. Brookfield Asset Management has been back in its New York office since June. Surprisingly, Brookfield even took an additional floor and a half of office space. Why? Pre-pandemic, up to a third of Brookfield's staff was always away, traveling on business. Today, they need to work in the office more than ever. Third, Flatt understands the importance of office culture and water-cooler conversations. As he puts it... In business and life, there are always problems and having a personal connection with others helps you work through those situations. That's why office spaces are important.
Set out this way, all the above seems like common sense. Alas, most investors disagree. Today, Brookfield's vast real estate portfolio is trading at a discount to its tangible value. That means investors are paying a fraction of the value of the underlying real estate. And they are largely ignoring the income generated by it. As a result, Flatt intends to delist Brookfield's property arm from the stock market. Flighty public shareholders will be replaced by private investors with a longer-term horizon. Once the market rebounds, Brookfield will then sell the very same properties back to stock market investors at a tidy profit. Think Differently About Investing Why is it so hard to think like Flatt, Steinhardt or Munger in practice? The price of a stock reflects the collective psychology of the market. Excess enthusiasm blows financial bubbles with sky-high valuations. Excess pessimism causes "inverse bubbles" that turn valuable assets into investment pariahs. The lesson for investors is clear. Whether you call it "variant perception" or "inversion," always think differently. And bet against the extremes. Good investing, Nicholas | 
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