Value investors often tout the fundamental goal of the value based approach to investing: attempting to a purchase a dollar of intrinsic value for substantially less than a dollar. By doing so, you maximize returns by adhering to a risk-averse strategy. While most investment approaches push higher risk as the only way to attain higher returns, the value investor understands that such a belief is inherently flawed. After all, the less one pays for a quality asset, greater downside protection is attained while increasing the likelihood of a stronger return. In the business world, real estate firm Brookfield Properties (NYSE:BPO) is doing just that.

IN PICTURES: 8 Ways To Survive A Market Downturn

A History of Opportunistic Buying
Brookfield Properties is a real estate firm devoted to the ownership, development and management of commercial properties in the United States and Canada. Over the years, the company has demonstrated a strict discipline to opportunistic buying during down markets. BPO owns some of the most iconic real estate properties in the United States.

In the 1990s, Brookfield capitalized on a slumping property market by taking over the U.S. operations of now defunct real estate firm Olympia and York. This deal gave Brookfield ownership of three of the four towers of the World Financial Center in Manhattan at a bargain price. These towers are occupied by the strongest tenants and include names like Bank of America (NYSE:BAC) and American Express (NYSE:AXP).

At It Again
With a strong balance sheet and ample buying power as a result of a timely capital raise, Brookfield is back doing what it does best: buying prime commercial real estate during the bottom of the cycle. The company has acquired enough debt off a defaulted loan that includes a collection of 20 prime buildings in Washington DC. While Brookfield has not officially attained ownership, the debt purchases are clearly a sign of the company's intent. Such a move illustrates the brilliant capital allocation skill of Brookfield's management at buying quality assets at a fraction of cost. (For more, see Add Some Real Estate To Your Portfolio.)

Trading at $15 a share, the stock is up nearly threefold from its lows reached last year. Trading at 1.6 times book value also does not inspire the bargain hunter. Indeed while Brookfield's shares may not be as cheap as the deals the company is making, shares commanded nearly $25 before the real estate market crashed. And when the market does eventually turn, Brookfield will be a company with more quality assets bought at bargain prices. In addition, investors are also collecting a 4% yield while they team up with a first rate team of opportunistic real estate investors.

It Runs in the Family
Brookfield Properties should not be confused with its major shareholder Brookfield Asset Management (NYSE:BAM). In addition to commercial real estate, BAM also develops residential real estate, has an infrastructure arm, and provides lending. BAM is also currently involved in deal to provide credit to mall operator General Growth Properties (NYSE:GGP) as it works to emerge out of bankruptcy. However, BAM may lose that chance as rival mall operator Simon Property Group (NYSE:SPG) is in the process of making a higher bid in its efforts to obtain control of GGP.

In end, BPO looks more intriguing from a valuation and operational standpoint. Its core focus is in commercial real estate and while that market appears headed for tough times, BPO will prosper from its aggressive and opportunistic deal making. (For more, see Can Real Estate Stabilize Your Portfolio?)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: WisdomTree SmallCap Earnings

    Discover the WisdomTree Small Cap Earnings ETF, a fund with a special focus on small-cap and micro-cap stocks with positive earnings.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Regional Banks

    Obtain information and analysis of the iShares US Regional Banks ETF for investors seeking particular exposure to regional bank stocks.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
RELATED FAQS
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!