Good afternoon and welcome, everyone. We will get started. I think it's almost 12:30, or it is 12:30. If people are a little bit late, I can't believe that four hours from now they won't be happy they're a little late. Welcome to our seventh annual Investor Day. We appreciate a lot, you all coming here to listen to the presentation. We do this for you, and therefore, I guess we try to make it as informational as possible. Sometimes we can't hit everything, and if there are things throughout the presentation, we're going to have seven people speak today. If you have questions after each presentation, we will take some questions, and at the end, we'll sum up with others if people have them. Please, if you do have anything to ask, ask away, and we will try to answer it for you.
Of the eight people, or the seven people we have speaking today, one of them, Sandeep Mathrani, who's the new CEO of GGP, I guess new, he's been there a year. We're excited to have him here today. We thought it would be a special feature to let him talk about GGP to you and to tell you about the story about it. We're very excited about GGP and the retail business and what he's doing with it, and therefore, he's going to talk about that. In addition to myself, Brian Lawson will cover our financial matters. Ric Clark will cover our global property business. As I said, Sandeep will talk about our general growth investment. Sam will talk about infrastructure. Richard Legault about power.
Cyrus will sum up, talking a little bit about just how we invest globally around the world and talk about our private equity and distressed investing, and then we'll take any questions at the end if there are any. All these slides are in your books, so we'll go through the slides and try to use them as materials that can just help out with trying to tell our story. Starting off, I guess we're not big on macroeconomics, but I guess I would just say to you that what we see today is that the U.S. economy's, I guess we'd call it shaky. It's not in spectacular shape, but we don't see tremendous sliding of the U.S. economy in all our businesses.
I guess things have been worse over the last three months than they were three months ago, but we still see generally us coming out of the economic situation. In the rest of the world, particularly in Brazil and some of the emerging markets that we work in, things are still extremely good. Europe, I'd say our view is it's unstable. Maybe that's an understatement of the day. Clearly, as you all know, stock, interest rate, currency markets are extremely volatile. The credit crunch, I would say, which for many happened in 2008, I'd say exists in Europe for a number of different people, but not really in America. I think our characterization would be that capital is freely available to good companies who have good opportunities and don't overlever their balance sheets.
For more extreme things, money isn't there today, and that actually, in our view, is probably a positive thing to the world at large and to investing. I guess we'd say there's a more competitive environment for capital. If you look at the numbers of capital raised in private equity funds, infrastructure funds, real estate funds globally from institutions, the numbers are substantially down from 2006, 2007. I'd say it is definitely much more competitive, which means that the good players are getting capital, the marginal players are not. If you take those macro issues that are out there, we think about and just contrast or compare it to the way we think about the world, number one, we feel well-capitalized and we have significant investment capital around to take advantage of opportunities if they're there.
Number two, our returns, and I'll show some of them to you in a minute, are pretty good on all of our strategies, and therefore, we continue to have increasing client capital into the business for our different strategies. The business itself and all of our balance sheet assets and proprietary capital we have continues to generate significant cash flows into the business. As Brian will show you after, those are very stable cash flows that support the operations. Our operating capabilities we have within the businesses give us, we believe, a significant competitive advantage towards putting capital to work in places.
We do have a global footprint which allows us to, and probably the most important thing we think about is it allows us to pick the places where you should put your capital as opposed to be forced to put it where capital might be plenty or there's a lot of it around. We think that is maybe the most important thing of diversifying on a global basis. As I said, our track record is pretty good through the last four years, and we'll talk about that through the presentation. I generally say these markets, no one ever has the perfect investment skills for any market, and you're always questioning what's being done and where the market in the world will go. I'd say these markets which are tougher to see through generally favor the type of investing that we do.
Therefore, I'd say in that regard, it's generally been good for us. On the operations side, on slide six in the presentation, our core operations are generally performing well, and Brian will talk about that. We have a number of investment products for our clients. A lot of them offer income to clients. I'm going to talk about that a little later. Today, as you know, with fixed income at extreme lows, if you own bonds, a lot of the products we have are supplements to that and are very attractive to institutional clients. This continues to allow us to expand our institutional relationships globally. I guess we see a lot of opportunities, and we often get asked, you know, are there enough opportunities for you to invest your capital? The bottom line is there are endless opportunities out there.
The real decision is whether you can find the right ones. We think there are a lot to be able to capitalize on, and we'll have to see where we get to. Probably one of those things that allows us to be in that situation is that we are in a number of businesses and we're in a number of geographic locations, and that does give us a competitive advantage over allocating capital than others. Just to give reference, and most of you probably know this, we have about 100 offices around the world. It's 500 investment people throughout the business, almost 20,000 operating employees, a lot more if you count them a different way. Very substantial operations in North America, most of that in the United States, a big business in South America, largely Brazil, but including Chile.
A very large operation in Australia, an office in Hong Kong and Mumbai, but very small operations to date. Traditionally, we've not had a big business in Europe, but we do think like 2008, there will be a lot of opportunities to assist people recapitalize balance sheets and do other things. Sam will talk a little bit about that afterwards related to infrastructure. On the global nature of our operations, I guess we're here to try to answer your questions. We often get asked questions about whether we can operate our business internationally and continue to keep it in control and invest in places. We try to be very selective about where we go. We believe that over time, if you build up expertise in a country and in a market, you should keep investing.
Therefore, we try to pick places where we can invest in multiple products, and we can be there a long period of time. We went to Australia six years ago, and we think Australia is a phenomenal place to invest. It has great rule of law. It has tremendous opportunities. It takes 22 hours to fly there, so not too many people actually go. Therefore, it gives us a huge opportunity to deploy capital. That is what we like to do when we see a market. We generally want to go where capital is not, and we try to reallocate capital to the places where there is not capital. In addition, it gives us a much broader range of institutional investors because there are many investors that target their capital to regions of the world.
While we might have a global fund, there often are niche strategies or places where certain types of investors want to put capital. An example would be U.S. pension funds. While they do invest in global funds in private equity or real estate or infrastructure, generally, their allocations are U.S. dollar denominated. As a result of that, having U.S. dollar funds for them is an important thing, and that exists around the world. We are better able to meet the needs of our clients, and it obviously diversifies our cash flows as we can do it and does not expose us to any one market. On the client capital side, we have evolved our business over the past 10 years as we have continued to grow the company. We are essentially executing a dual strategy of publicly listed funds and private institutional capital.
The reason for this is because we believe that when we have progressed the full strategy, we will have one of the greatest accesses to capital of any institutional manager and equity manager out there. The reason for that is if we have access to the equity markets and we have access to private capital in a significant way, there are times when one or the other is larger or smaller. Having access to both is an important thing. You likely will have seen, and if not, Richard Legault will tell you about it later, but we're merging together all our power operations into one flagship entity, which will be called Brookfield Renewable Energy Partners. It's an income-oriented entity. We think it will be one of the great renewable companies in the world, and we intend to grow it very significantly.
On the public side, that's where we will continue to go. We still are making major inroads in institutional clients, and while I think we've done well, we have a long way to go to achieve excellence in that regard. I think there's an enormous amount of capital that we can still manage for institutional clients as the alternative space continues to grow. We're positioned to grow within this. Most of the reason for that is that our performance for those clients has been, I guess we rate it as good to excellent. Generally, the funds have performed pretty well. If you look on this slide on page 10 in your presentations, this is an amalgamation of all of our funds. Some are better and some are worse, but we categorize them into five different areas in the core plus strategy. People try to earn relatively low risk, constant returns.
In real estate, infrastructure, and timber, you can see the returns. In the opportunistic strategies, for example, in real estate between 2006 and 2009, the funds of $7 billion of capital have earned 32%, and in private equity, we've earned 26%. They're pretty good returns when we put these in front of people. Remember, this includes the vintages of 2006 and 2007, which are the years which caused tremendous distress within many funds within the alternative asset management space. I guess we're quite proud of that. We don't spend a lot of time looking at the things that get awarded to us as managers, but just to say that as we build the business, we continue to penetrate more institutional clients, and that does get recognized in various different things around the world. Bottom line, our goal is that we are always looking to increase capital within the business..
I'm on page 12. We continue to bring more assets under management into fee-bearing entities within the business. I think often I've been asked at these presentations to investors of when different things will happen in the business, and all I can tell you is it never happens overnight, and it takes a long time to do most of these things. We generally get them done over the longer term. Each of our core operations, if we have our long-term goal in the next 10 years, is to have one major flagship entity that will trade in the public markets and one flagship fund which will be for private institutional clients on a global basis. We think that will give us major penetration of capital within global institutions. On occasion, we create niche funds which have a specific strategy or a specific country in mind for some specific investors.
On the listed side, we have two which we hope by the end of the year will be in place, which is infrastructure partners, which Sam will talk about, and renewable energy partners, which Richard will speak of. If you just look overall at the business on slide 13, essentially, we look at the business in four parts. The first one is our infrastructure business. The second is our renewable energy business, which we will own 73% of the listed entity afterwards. Both of those invest as a partner or utilize our private fund, which is called the Brookfield Americas Infrastructure Fund. Deals are done in conjunction with that private fund. Our real estate business is privately owned today, although it has some public companies underneath it. It invests alongside our opportunity funds.
Our private equity group, which is private equity distressed and special situation funds, is 100% owned, and it has no public entities within it. That type of investing generally doesn't accord to the capital markets because of the volatility of the returns within the business. Just a snapshot of what I guess our view on the institutional fundraising environment is. Probably the number one point I would make is in bold at the bottom of the page on slide 14, and that's that institutions earn 1% on short bonds and almost 1% on long bonds. If you think of institutional client money, you cannot survive at 1% in this world, which means you have to put money into something else. We continue to see that real asset strategies are appealing to institutional clients, both in fact on the institutional side, but also on the retail side.
I'm sure many of you have clients which are just looking for low-risk income returns in the marketplace, and they say to you, "Look, I don't want to earn 25% anymore." We continue to hear that often just because of the markets that we've been through. As a result of that, we think much more money will continue to be dedicated to the alternatives business, specifically the real asset business, and that if you have performance in the area, and I guess we have a head start in a number of the segments, we think that'll be a positive. I guess we're seen as one of the group out there that can manage these assets for different types of clients. Part of that is our looking back and just to reflect on, I guess, the last six years.
We had 13 funds in 2005, or 13 investors in our funds in 2005. We have just over 100 investors today. The third-party capital was $2 billion in 2005, it's $53 billion today. We had five funds in 2005. Today, it's 21. The average commitment is about consistent at around $150 million. We've chosen so far to be very selective about the people that we market to. This is a very niche strategy of institutional client money as opposed to broad retail distributions. We continue to build this business up geographically. On slide 16, you can see it's in across the world. Money originally came to us from the U.S. and Canada. We've diversified out of that into Asia and other places, but it's sovereign funds, institutional clients, insurance companies, and other endowments and foundations.
I guess on the private fund side, while we continue to put emphasis on the public market side, we think private funds are very important for us for the more opportunistic strategies as opposed to income-oriented strategies. We think our opportunity funds are much more suited to private versus public. The fee economics are better. They allow us to have relationships with global institutions, which actually often bring us transactions to do with them, and we can help them in many other ways. As a result of that, our flagship private funds as well as niche strategies fit along beside the funds that we have. The last slide just on client money, it's about $24 billion committed to the private funds we have. There's about $8 billion of committed but uninvested capital within those funds. There are seven funds that we're fundraising today.
There's about $7 billion of capital within those funds. Our fundraising group is about 30 people globally that carry a Brookfield card and market these funds for us. Two other things I thought I'd just cover, and then I'll turn it over to Brian. The first one on slide 20 is just about value and what we do within our business. I guess the first thing I'd say is often people think to us, "When will the next General Growth show up?" I think in here I say that we'd love to find another General Growth, but the really important thing for our business isn't major $30 billion investments.
It's actually every day grinding it out and making money with what we have and dealing with what we have in the business because we have some amazing franchises within the company that putting capital to work within those businesses is almost more important than finding opportunities outside. While we're not against and we always are looking for other great businesses, a lot of the things we do within the business sometimes are actually more important but unnoticed by people. I'd refer to four of those, which I'll just try to give you some highlights on. Number one is operational improvements. I guess we spend a lot of time within our businesses trying to improve the businesses that we have. There are a number of examples on here, but we're leasing office space every day, and it's really important to squeeze the last dollar out of a lease.
There are tremendous opportunities within our power operations to continue to maximize the value within the contracts that we have on the plants or the water that we receive within our systems. In retail in Brazil, for example, there are enormous step-ups coming in leases that we have because retail sales in the Brazilian market are going up at a rapid, rapid pace. What you see in cash flows today is almost irrelevant to the future when retail sales are growing at 13% to 15%. Those are just examples of it. On the port side, we're investing in doubling up capacity with very small amounts of capital relative to the investment. Therefore, the returns are very, very high on incremental capital. Across all of our businesses, we continue to have an enormous number of opportunities to put money to work within the businesses at very high returns.
I'm sure Sandeep or others will talk about some of that. The second thing we do is that often we have expansions within the businesses where we just find other things besides the operations or other things where we can grow the operations. Some of those would be the rail contracts, which Sam will talk about within our infrastructure business, a number of our hydro and wind developments. We're building transmission lines. We have a big renewable development pipeline. We're redeveloping malls within the retail company. We're building an office building for BHP Billiton in Perth, for example, which will be the signature building in Perth. There are many things within the business which we can expand. Third, we incrementally every week, month, year within different businesses acquire assets which really often get very little mention because every one of them is relatively small to the global franchise of Brookfield.
To each business, they're extremely important. Often they come up from the operating groups. This is the land lease under this building. It doesn't have one, but it could. It just happens to be owned by some family. They phone us up one day and say, "I'd like to get out of my land lease," and we can buy it from them, or whatever it is across the business. There are a number of those things. We just bought some toll roads in Chile. We're developing hydro plants in Brazil. On the office side, we bought a building in Australia or a couple of buildings. We bought a building here in Manhattan recently. In GGP, we bought a mall which was in a city, so we now own the two best malls. We're doing acquisitions in Brazil in our agricultural fund.
Often there are many things that just come along with the business. Lastly, and this is probably something that doesn't exist in other environments, every time you strip a financing that was done more than two years ago off your property, there is substantial value to the bottom line if you can refinance it. We thought 5% financing used to be great. I think we just did a win financing for 20 years at 3.75% this week. It's amazing when you think about financing assets for 20 years at 3.75%. What we don't do is actually take short money. It would even be better because you get it at 1.5%. The bottom line is 3.5% is an amazing thing if you can strip those financings off. It's tremendously additive to the franchise as we continue to do that.
As you can see on slide 24, there's been a lot, and there are a lot of opportunities to do that. The last thing I'd cover and then turn over to Brian, I thought of just covering some of our views on the investment environment. When we think of it, we think of our investment environment as something where we should either be cautionary, worried, or excited. Green, yellow, and red. In 2007, we were very worried. I think I said this last year at the presentation. We were extremely worried about the markets. I think part of our success of living through the bottom of the market in okay shape was that we actually prepared a year early for what was coming. Largely, that was because we saw the credit markets evaporating in the United States mid-2007.
Other than if companies are in Europe and they have banking and other credit needs, I guess we don't see that in the world today. We have open access to the capital markets virtually in all of our businesses in every country. Therefore, we're not, in general, I'd say our investing tone right now is green to yellow. It's one that we are a little bit cautious just because we're worried about the macroeconomic environment, but we think this is a wonderful time to be putting money to work in opportunities. In fact, I would say over the past three months specifically, compared to in the last three months, three months ago, people were getting overzealous on the selling side. They thought they were going to get much higher prices. What's happened in the last three months is that's toned down a little bit.
Therefore, a number of opportunities have been coming back to us that people might not have otherwise transacted on. I'd say generally, the last three months has been a healthy environment to bring people back into realistic ranges of where they might transact. Just flipping a little bit through the countries, as you know, we have a big investment in Australia. It's a resource-driven economy. Our focus has been on real estate and infrastructure. We have a number of fantastic opportunities there from building out our rail lines to expanding a coal terminal to building office and other properties. We have a very significant construction company there. I think the numbers are in the close to $100 billion of capital being spent to bring resource investments on in the country. There's an enormous number of opportunities there.
Specifically to us, we continue to complete tuck-in acquisitions, I'll call it, within our different businesses. There may be the opportunity to do something of larger nature, but I suspect the probability is lower than what it was years ago just because some of the assets have traded at more premium valuations in the market. While some stocks trade at discounts in the market, if you tried to buy them, they would quickly be a premium. For investors that buy small amounts of shares, it may be a great opportunity. For those that buy large amounts, there's not as much. We're quite positive on Australia and continuing to invest there. Flipping to slide 28, in Brazil and Chile, I'd say the same factors exist in Brazil that exist in Australia. Specifically, they're benefiting from an enormous investment that's going on into infrastructure and the commodities businesses.
The one business there that is an amazing opportunity is the agricultural story as that plays out. While you might decide that infrastructure, if it changes in China and you're not going to spend that much more money, copper prices will go down. People continue to get more into the advanced economies, and as a result of that, they continue to consume more protein. Therefore, the agricultural story continues to play out in a very significant way. Our areas of interest are we continue to grow our hydroelectric business. We continue to buy agricultural lands in a very significant way in Brazil. We have a timber business and a private equity business down there that we've always had. Our residential operations are growing enormously. Residential sales to both the middle class and upper class are very significant.
We sell 15,000 -1 8,000 units a year of residential condominiums, and you sell them 100% before you build them. It's quite an opportunity. On the retail sale side, as I said, retail sales continue to grow very significantly. In Canada, it's where we started as a corporation. The opportunities are less just because the country is smaller. It does benefit from some amazing opportunities as a country because the banks are in good fiscal shape or financial shape. The country is in relatively good shape, even though it's very tied to the United States, but a lot of it's being driven by the oil sands and other infrastructure developments. As a result of that, leasing markets are very good. I think vacancies in Toronto, which would be the biggest market for leasing in Canada, are sub 6%, and you don't see many places in the world.
The energy business continues to drive Alberta, and we have a big residential business there which continues to do extremely well. We have a number of hydroelectric and wind developments going on in the country. There's a lot of opportunities for renewables. Canada, like Brazil, has a big renewable base in the base of energy. There are a lot of opportunities around that we're taking advantage of. I would just say that while we don't see this as the biggest place for us to put capital because of our presence in the country, we find a lot of niche opportunities that come to us just because of our presence there. In the U.S., I would say we're positive about it because while slower growth, it is an amazing economy.
While people sell America short today, it's a $14 trillion economy, and we still feel it's one of the great places to invest in the world. It is a slower growth market. That will favor the strongest assets. As you know, what we do with most things is we buy a portfolio, we sell the marginal assets, and we keep the best. Since we own the best, that favors slower economy places. Housing, I'd have to say, is extremely weak. It will turn sometime, and there will be a lot of money made in it. It's not readily apparent that there's a lot of opportunities out there at the moment, but at some point in time, there's going to be a lot of money made in it. Capital access is constrained for the marginal players in the U.S., but it's freely available to others.
Wind and property development deals, I'd say, on the value investing side are good because there was a lot of excess that happened in 2006 and 2007, and it's been unwinding through the markets over the last number of years. Interest rates are, as you know, extremely low, and you can finance things for very long periods of time at low interest rates. That's a huge benefit to buying assets like we have. We're focused on two things, I guess, on great assets that have very transparent cash flows. We're selling them to people that need to buy those assets to match liabilities or want to earn a 5% or a 6% yield. What we're buying is complicated things that it isn't readily apparent what the cash flows are, that it will take us three to five years to turn them into a stream of cash.
You can earn very high returns doing that because there's less capital for that today. On infrastructure, we plan on continuing to take our business that we have, which is more or less a non-U.S. business, and establishing it in the United States as the governments continue to put more infrastructure into the marketplace. We'd love to find an opportunity to invest in a major way in the U.S. in a distressed value situation. We're not sure we will find one, but we hope to be able to find one. In Europe, which is the last one I'll talk about, as many of you know, we spent the last three years putting a lot of resources, spending a lot of time, putting a lot of people in Europe where we had very little presence before.
We think there's going to be a lot of opportunity to assist people work out their troubles. We have been waiting for the right opportunity, and frankly, I guess we're all glad we have been waiting. The ongoing crisis has clearly developed into where owners of assets, many of them, need to be able to facilitate transactions, and we hope to be able to help a number of them. We're particularly focused on owners that have assets that are outside of Europe, and they go back to their core within Europe. That's probably the ideal thing, but we're also looking at a number of recapitalizations in the country and our ability to therefore buy on a basis which we have a margin of safety is much more readily apparent because of that.
Clearly, the number one risk with this is that if you do buy assets in Europe, you take the risk of a euro situation or a breakup where you end up with long-tailed assets with revenue streams coming out in some other form. We're working through that, and we're spending a lot of time thinking through how to protect against that. You may not be able to protect against it, which just means you need a greater margin of error going into the transactions. I'm going to turn it over to Brian. I guess I would sum up by saying four things. Number one, the business stands still, and Brian will talk about just the cash flows it produces. Maybe more importantly to the future is that we continue to find organic growth opportunities within the business to add.
Number two, we're adding a lot of capital from institutional clients beside us, which gives us the ability to expand the company. As we find opportunities, often it either just expands the business we have or it gives us a new business which is adjunct to the one we have, and that is very exciting. Lastly, there's a lot of development opportunities we have within the current asset base that should we not find opportunities outside, a lot of capital can be plowed into the opportunities we have within the asset base at very attractive returns. With that, I guess I'll take if there were three or four questions. I think I went five minutes over, but if there's three or four questions, I'd take them, and then we'll go on afterwards. Thank you for the question. I think I did one thing wrong.
I was supposed to say that if you're going to ask a question, because we do have this on recording, if you could take a mic. I was supposed to do that, right, Tracy? I'll repeat that question, which basically, I'll actually phrase it in my own terms. It'd be better. The question is, Brookfield, if it has public market investments and they're externally managed, we could have a conflict with the public downstream shareholders in a company because we have differences of view as to what's going on. There have been some cases where that's occurred in the past, and what's my view on that? Is that fair enough? Brookfield Infrastructure Partners is a perfect, I guess I'd use as the example. We spun that out. We have access to a different source of capital by doing it.
People that are in that entity, I think, will earn a great cash-on-cash yield, and hopefully over time we can grow the business and make them a lot of money. The success of people like Kinder Morgan or Energy Transfer Partners and some of the great companies that have used general partner LP structures, many of them in the pipeline business, has been that they've earned a targeted group of investors a very good return for the risk that they took. The success of the general partner has only been because they've earned the people down below in the partnership a lot of money. Kinder Morgan, I think, earned 14% over its life. I take my hats off to them in the pipeline business. They've done some amazing things. I'd say firstly, everyone has to make money, and we recognize that.
I think, and not to take anyone else's strategy and compare it, but we recognized long ago that we needed to have an alignment of interests with every client that we have. We've put very substantial amounts of Brookfield Asset Management capital beside all of our clients, whether they're private clients being institutional clients or whether they're public market clients. There's nothing that we do within the business where we don't have substantial capital beside them. I think that is the differentiation in mindset to our people. The things you refer to and that have happened in the past, if I look at them, I guess we've never invented everything. We've just tried to emulate the best things that are out there.
All I can say is that we've tried to look at them and learn from the mistakes that others have made and try to adapt the model such that we can build a best-in-class business that will last for the next 50 years. Having an alignment of capital that we have money right beside our clients, whether they be public market clients and Brookfield Infrastructure, we own 30% of the capital. We have 30% of the money in that business. Whatever fee comes out of it for us doing it, just like with our institutional clients, if we don't make money for them, we're going to lose a lot more from the capital that we have. I think that's very important.
I should identify myself, Michael Goldberg, Desjardins Securities. Bruce, I won't ask you when, but do you see a way clear to transform your office property entity that isn't fee-bearing now into a fee-bearing entity at some point in the future? Do you see a way clear to do that? Is it consistent with the ambitious development objectives that they talked about yesterday?
The first thing is I try never to get pinned down on anything. I always say in the next five years, and look, the long-term goal of this business is to have our major amounts of capital we have on behalf of our shareholders invested beside clients. It's not to have public companies widely traded in the market. Someday, I think we'll be able to figure out how our 100% owned property business is in the form of one of the other entities that we have.
I don't know when that is, and we'll have to figure out how we do it. It may not be possible. It may be that it's a historical thing and there's too many complications to do it. It may not be possible, but I think over time, I think we can probably figure it out. As to development, while Ric, Sandeep, others in the real estate operations have a number of very exciting development opportunities, if you look at it in comparison to the total capital at large, it isn't that much. Because we often bring partners into it and there's financing on it. If you look at it in comparison to the total business, it's actually not that much money. While on the margin, it can be very additive to the franchise. One other question.
Bruce, in your shareholder letter, you mentioned that good companies are often not fairly valued in the market. In my opinion, Brookfield, along with a lot of other good companies, is not trading at fair value now, probably because of the state of the market. I just wondered if there are any specifics that you folks have in mind to get the share price up. Two other things related: one is, have you considered or thought about raising the dividend to make Brookfield more attractive to institutional investors in particular? The other thing is, there are so many things that you have going now that can consume capital. Is there some point at which you're going to say the opportunities don't seem to be there, now you're going to try to take some capital out and increase the share price based on the shareholders, etc.?
Thank you for that question. I guess I'd just say every management team of a business has all of those things in mind when they think about their company. Specific to the share price, the bottom line is we'd rather have our shareholders have the true value of the company reflected in the capital markets at all times because then they can choose to be invested or not be invested at a point in time, and they can freely sell their shares. When it trades at a discount or at a premium, it's not ideal because someone's either paying too much or they're not getting enough when they sell their shares. Despite that, we don't really think a lot about the share price and doing things to cause the share price to go up or down.
The reason for that is because I think our share price will, over time, I guess we think over time the share price will reflect the true value of the business. There are times when it won't, and that's partly due to the things that we do or mistakes we make from time to time. It's often due to capital market factors that we have no control over. As a result of that, we've just found over time you can try to do things, but it doesn't really help that much. I think we can try to talk to analysts, try to tell our story better. We try to do all the things that you should do, and we do do them. I hope we try to do them for you, but there's not much you can do about it.
Specific to buybacks, we weigh every day a buyback, meaning it's much easier on a daily basis. You don't have to fly somewhere and do a deal with somebody to find an asset. It's a lot of work. Buying a share back, if it's cheaper and you can get a great return on it, it's a lot easier. We weigh all of that, although I think probably the most important thing that you said is that we have some amazing franchises and places to put money in the company. Over time, it can be extremely additive if you can expand those businesses. That's truly what doesn't get valued in most great businesses, the future value that can be compounded. I'd say that's the thing that most people miss.
Related to current value, I guess the one thing you can do is increase dividends, as you mentioned, which was the third part of your question. I guess we believe that we're creating these vehicles down below that will have high payouts. If people want to invest with us and have high payout entities, we offer those vehicles for them in the capital markets with Brookfield Asset Management. Unless lots of our investors came to us and said, "We'd really like a high payout because we don't think you have the opportunities," we'd rather keep the money in the business, buy back shares when they're undervalued, or expand into opportunities. That is sort of the way that we think about those three things and how they intermingle. With that, I think we should move on. Brian's going to talk about our financial affairs.
If there's anything else at the end, I'd be happy to answer other questions.
Thanks, Bruce. Good afternoon. I'm going to cover off four items here, just a few broad key themes. I'll go over the financial profile of the business, you know, more to, I'll say, set the right context for some of the presentations that will follow from my partners here. Also, as Bruce mentioned, to highlight some of the characteristics of the stability, particularly in the core operations, give a bit of an update on asset management and how that's influencing the business and the finances. Then just a quick summary on where we see some of the growth in those areas from a financial perspective coming. Just on the key themes, the operations Bruce mentioned, I would characterize as performing well, but below full potential. Core assets are providing stability, and they have great downside protection. There are some very favorable growth prospects.
You're going to hear from Ric about leasing. You're going to hear from Richard about what can happen on the power side. As we continue to take advantage of price increases in those contracts, that will increase the cash flow that we generate off of those businesses substantially. In addition, we have the opportunity to rotate capital within and put more capital to work in those businesses to compound the returns up. On the shorter cycle businesses, and I guess one of the areas we're getting at here is on the U.S. housing side of it, eventually we'll benefit from the U.S. recovery. We just can't be going on for an extended period of time at 400,000 units or whatever the latest figures are. Obviously, calling that from a timing perspective is challenging, to say the least.
There are other businesses as well that are more sensitive to the economy that are, for us, not generating much at all in the way of contributions. We are looking for increases in contributions there. Bruce mentioned what we can be doing and what we are doing on the financing rates. That continues to be a major focus within the firm. Extending out the term of the financings as well is important, not just locking in those low financing rates. The liquidity profile continues to be high, and we are very pleased with that because we do see a number of acquisition and development opportunities. My partners will talk further about that throughout the course of the afternoon.
Lastly, the asset management, just with everything that's been happening in terms of securing new client relationships, building out the funds under management, and then progressing through the life of the funds and creating value in the funds gives us the opportunity to reap the returns from the contracts that we have in place there. That's the base management fees plus the performance returns, carried interests, and incentive distributions. Just a brief word on the capitalization and liquidity side of things. Really, the point there is that we are continuing to be very well positioned to withstand any shocks that might happen in the system, but more importantly, to capitalize on those opportunities. You've heard these numbers from us in the past. We're maintaining the same kind of profile. Corporate debt to cap of 14%.
If you could look across the board on a proportionate basis, it's around 44% eight-year average term at the corporate level. There's not much at all in the way of refinancing needs, which is actually, in some ways, something we'd actually rather be able to be replacing at some of that more aggressively at today's levels. We are doing a lot of things to extend the term and lock in the lower rates. Liquidity continues to be strong. Pro forma for the renewable power transaction, we will have $20 billion of the invested capital at the Brookfield level in the form of listed securities, which gives us tremendous flexibility to be able to rotate capital, redeploy capital. Within our funds, we have over $8 billion of so-called dry powder to invest.
Stepping back for a second and how we think about the various components of the business and just a bit of a snapshot of the values and the cash flow. That's just the cash flow, not the fair value changes. It's really the FFO. We have the manager, which is us as the asset manager. It's the value of the contracts, the cash flow that we generate from having the $53 billion of client capital under management. Over an LTM basis, that was roughly a quarter of a billion dollars of cash flow for us of revenues. Principal capital, which is the invested capital that we have put in place alongside our clients in our operating platforms in our various funds, whether they be listed or private. $25 billion and about $1.4 billion of cash flow on an LTM basis.
Services, that's the construction services, the corporate relocations, and a number of other service-oriented businesses, smaller amount of capital, smaller amount of cash flow, but a good, good, healthy return as well. They work well with the other aspects of the business. There is a total of $33 billion of what we describe as intrinsic value. That's the $29 billion of invested capital, including that principal capital, and $4 billion for the value that we have published more recently in our annual reports for the asset management side of the business. The chart at the bottom gives you the diversification or the distribution of that. Just focusing for a minute on the manager, obviously, we put in place a number of private funds, LTM basis. Got the statistics here that's over on slide 38, I believe.
One thing to note there is the performance income. There is a substantial amount of unrecognized performance income. We don't book the carried interests until the clawback periods are completely expired, which means that we don't record that, which is different than some of our asset managers. We don't record those until much later in the life of a fund. We'll report to you how we're making progress in that regard in our reports, but it won't show up in our financial statements or our reported results. The objective here is to create, and where the value creation comes as we continue to increase the capital under management is the opportunity to earn more base fees. I'll talk later on about just the duration of that invested capital. Obviously, it means that these are very sticky, reliable sources of cash flow.
The performance income by getting the kind of performance that Bruce outlined in the funds will enable us to earn substantial income through the carry interest. Principal capital, this is just a highlight of where the sources of cash will come from that. I'll talk about the value in a second. A couple of observations on this one is the retail that really only reflects six months. It's principally General Growth. In the last couple of quarters, it's been about $50 million a quarter. The infrastructure today represents about 17% of the billion dollars that's coming from that part of the business. As you'll see, we've got a lot of prospects for growth in that business. It's grown substantially, and we continue to see it grow nicely as well. Just in terms of the financial profile. The first column there is where we have our $29 billion of invested capital.
The $25 billion subtotal, that's the principal capital I referred to. There's $53 billion of client capital, both in the form of public securities, private funds, and the listed funds. There's a total capital across the system of about $78 billion, $82 billion to include our services and corporate, and about $150 billion of total assets in the overall operations. The chart at the bottom gives you the layout of that. I think of note there, around 70% of that is invested in the lower volatility core operations, infrastructure, retail, office, renewable power. As I mentioned, I was going to take a couple of moments just to talk about the stability of some of those businesses. This slide here, and we have this information in our reports, and we'll continue to produce it.
We take the net operating income, this is on a same store basis, and normalize for constant currency exchange rates because there has been volatility in currencies. I think sometimes that tends to distort or conceal the actual stability that we have in the results. You'll see that on the office side, it's increased quite nicely. We've always benefited from high occupancy levels, long-term leases, and rents that tend to be at healthy discounts to markets. On the power side of it, this is the revenues on the power side. Again, normalize for constant currency exchange rates. This also normalizes for hydrology fluctuations, which can, again, create noise in any given period of time. Again, you'll see very stable when you look at it on this basis.
One of the things that's important over the past number of years is we've continued to make good progress in increasing the proportion of that power that's subject to long-term contracts. It's a very important part of our strategy. We've taken it from south of 50% to more than 70%. You'll also see that the contract price has increased significantly. This is consistent with what we've observed across the market in what utilities and governments will support in terms of pricing for long-term renewable contracts. Rashad is going to talk a bit more about that as well. Also of note is the fact that, while yes, there is volatility in the short-term pricing, and yes, short-term prices are below where they were a few years ago, the impact of even a 10% variance in the short-term price is a pretty modest impact on our revenue streams.
On the infrastructure side, it's, as you would expect, utilities, rock solid, very steady. On the transport energy side, a little bit more variability because there is some variability from volumes and pricing. You'll hear from Sam about the efforts and the steps they're taking to increase the stability in the form of take or pay contracts, particularly with the new rail development. That's on the principal capital side and the cash flows there. I just wanted to turn to the client capital side for a few minutes and just give you, again, a bit of the landscape. That $53 billion is made up principally of the private funds, $18 billion, listed issuers, $6 billion. That would be things like the renewable energy, Brookfield Infrastructure Partners, public securities, which are the fixed income and equity securities that we manage for our clients.
Then we have some other listed entities that are not fee-bearing. For example, the residential public listed entities, for one. I'm going to talk a bit more about the impact on the fee economics and the capital management on the private funds and the listed issuers. The typical fee structure, and we've put these numbers out here in the past, but on the private funds, it tends to be around 125 - 150 basis points on the base management fees. Then we get a carried interest, assuming that we achieve a certain return hurdle. Then we have the listed issuers, and this is obviously going to be somewhat more meaningful for us now when Brookfield Renewable Energy Partners is in place. The typical metric there, both on BEP and BREP, to use the acronyms, base fees are 125 basis points.
On the renewable energy side, it'll start off at $20 million of the existing capitalization. The performance income or the carried interest per se is in the incentive distribution. We get 15% - 25% of distribution increases beyond a predetermined level, which is typically 15% and 25% respectively over the starting point for the distributions. Over time, that will generate good returns for Brookfield in terms of our efforts as the manager and good alignment with our clients or our partners in those firms as well, because we only earn those if we've increased the distributions or the value for our co-investors. On the base management fees, what you've seen and what you saw on the slide earlier, we're now clocking away at about $190 million a year. That has grown over the years as the amount of capital in place grows, which is what you would expect.
The performance revenue streams, we've built up those amounts, and we would look to continue to increase the amount of accrued but unrecognized performance income as we continue to create values in the funds. I mentioned the $8 billion of uninvested capital allocations. That gives us a lot of liquidity to work with or firepower to work with as we pursue a number of these opportunities. Obviously, the objective here is to deploy that capital, raise follow-on capital, and continue to build the amount of capital under management and earning attractive profits for our clients and ourselves. One point, and this is one of the attractive elements of the business, the average remaining duration of the invested capital in our private funds is around nine years, which means that we're going to be earning those base management fees on the existing funds over the nine years.
Plus, that's the window of opportunity to earn the carried interest on those funds as well. Also of note is a significant amount of that capital is under a very long-term lockup. It's either greater than 10 years or it's permanent. Some of our private funds, but importantly, those listed issuers are permanent capital, which is very important for us, particularly if you think about the nature of the assets that we own and our typical approach to how we create value in those assets, which is over a very long period of time. Just stepping back quickly in terms of the outlook for growth in the areas, we've got the core assets, which that $25 billion, around $20 billion of it is in the core, what we call core, but it's the office, the retail, infrastructure, and power.
I mentioned the great opportunities to increase the contract prices there, rotating capital, private equity, and development, the residential. We should see some pickup there as the economy ultimately recovers. We do have some pretty significant embedded gains in a number of our investments within the portfolios that we would expect to be able to realize and monetize. The services and the corporate will continue to grow those. We've generated a pretty good record of achieving good returns in that part of the business as well. The asset management, that manager part of it, I think one of the key observations here in the context of this business, it's very highly scalable. We've often tossed around numbers about what it could possibly be down the road in terms of capital under management. There arguably are very few limits to growing that amount significantly.
We also have the unrecognized performance income that will continue to build up over time. There is, as a result, very significant leverage to increases in client capital that we're able to achieve. Just to give a bit of an idea of this, this is just a mechanical calculation, but just why we're focused on it. If you took a very, this is a very simple example, you took, say, $50 billion of client capital under management, this would be in private funds and listed funds, and we're able to generate 150 basis point gross margin of that after the direct expenses. You put a 15 x multiple on it, it's $11.25 billion. You think about that relative to the values in the other parts of the business, that's obviously something that we think is well worth shooting for.
We think we're well on the way to achieving some pretty substantial growth in the client capitals, increasing the returns and the performance fees and the base fees along the way. With that, I think probably a time for a couple of questions. Obviously, we'll be here afterwards. There'll be a Q&A session at the end, and we'll be back as well. Andrew?
If you look at the duration of some of your funds and we look out a few more years, they come to end of life. If you could just talk about your strategies on the end of life of some of the funds on a private side, especially if you're going to grow that business with the private capital.
Sure. You know, I guess at one level, we have nine years on average year run with a lot of the funds. That's, you know, I think Bruce hit on that point with a couple of the comments he had on listed funds and private funds. The listed funds are going to be tremendous ownership entities for the long-life assets. The private funds are probably a bit better suited for things that are going to get monetized. This is all in, [Brendan], you raised the concept of conflicts and things like that, but we do think that there could be some very productive ways for the listed funds and the unlisted funds to work together over time, both in the form of providing exits for private fund investors, or in terms of transferring the ownership, launching them into the listed funds.
You could also have t his situation where private funds in effect get recapitalized and renewed in the form of either existing shareholders continuing on in the ownership of them, or a subset of those existing investors, or perhaps in a successor fund that may move from more of an opportunistic investment mandate and return profile into something that's more of a core, I'll call it core continued value-add type strategy. There are a number of ways that this could roll out over time. I'd say if anything, this increases our strategy, increases our flexibility to be able to offer the right kinds of solutions to our clients across the board.
Yeah. Just two questions, Kumar from [McLean Burntran]. Page 40, the difference between $82 billion and $154 billion, it's a leverage in your portfolio.
Some of it is leverage, but I'd say the $150 billion would include things like receivables and things like that. We don't include, I'll say, the networking capital balances when we talk about the $82 billion. It's not just leverage, although there is 44% leverage across the board in the system.
Right. My question is whether that [44 could be 54 or 64], or how do you see it going forward? That's the first question. The next one is page 35. You talked about your businesses operating below potential. Can you just outline what those are and where it could be?
In terms of the below potential, you're talking about the core. Yeah, right. Okay.
Thanks.
On the first part of your question, the [44, 54, 64], we're pretty committed to that, I should say very committed, the existing financing strategy, which really calls for investment-grade levels of debt. It has served us extremely well and our clients extremely well during the events of 2008, 2009. We don't see any reason of straying off of that. We are big believers in match funding, long-term assets with long-term liabilities on an investment-grade basis. For us, I don't think you should expect to see any meaningful uptick in the leverage. We do want to make sure that they're leveraged effectively and efficiently for both us and our clients, but not to the extent that it starts to put in undue risk into the organization.
On your second comment, I think I'm actually going to punt on that one and leave that one for my colleagues to cover in their various sections. I think those were the two questions, and I will hand it over to Ric. Thank you very much.
Thank you, Brian. Good afternoon, everyone. For today, what I thought I'd do is cover, just give you a brief overview of our global real estate holdings and the environment in which we're operating around the world. Talk a little bit about the things that we think will drive our growth over the next year and a half or so, and then just review quickly a couple of our recent growth initiatives. Before I get started, as Bruce did a while ago, I'd like to welcome Sandeep to the real estate operating group. We're very fortunate to be able to get such an experienced veteran. Great things have been happening at General Growth Properties, and he's going to talk about all of those.
When it comes to more specific details about some of the things we're doing on the operating end, I'm going to stick mostly with the office segment, and Sandeep will cover the retail. Moving on, this slide up here now, you've seen lots of global slides when it comes to Brookfield presentations, and I don't really mean to be duplicative, but I think the important thing to note from this is that real estate in our view is very much a local business. I think part of our success on the property side, we attribute to the fact that we have local operating folks on the ground and platforms around the world. We look to make investment decisions really with a ground-up approach, and I think that's helped lead to our success in this area.
We have nearly 15,000 people involved in the real estate initiative around the world, working out of 30 offices and close to 250 investment professionals involved in decisions like acquisitions, development, and leasing. The bulk of our investment, just shy of $90 billion of assets under management, so about 2/3 of it or $60 billion, is in the U.S. We have pretty comparably sized platforms and investments in Canada, Australia, and Brazil between $8 billion , $9 billion. Finally, in Europe, which is an area we're paying a lot of attention to these days, we have about $1.6 billion invested. In general, I'd say across our markets and also across the sectors, we saw a very nice recovery so far in 2011, certainly the first seven months of the year.
Beginning in August, in most of the markets and most of the sectors, and Sandeep may have a different view on retail, which he'll share with you, we saw a bit of a pause when it came to fundamentals in our business. We attribute a lot of that to lack of confidence in local governments having made all of the right decisions or full decisions as it comes to straighten out the economic mess. That has impacted both consumer and business confidence. On the office side, this has led to a bit of a pause when it comes to demand. Basically, advice that brokers are giving tenants is if you can wait, there's really no downside to waiting to make a leasing decision. That is what we're seeing on smaller transactions.
Larger transactions, which are typically motivated by reasons of economic efficiency or a looming lease expiry deadline, are still on track and moving along fine. As an organization, you all know that we are big believers in the cyclical nature of real estate and financial markets. Our operating platforms, as usual, I think are in good shape for this pause, and we don't really have any concern. In a perverse way, though, we're a bit happy about it because on the acquisition side, we've been a little frustrated at the prices that assets have been trading at. The confusion in the current environment we think is going to lead to opportunities for us. Just going around the horn for a minute, in North America, supply and demand fundamentals remain sound, particularly in our core markets.
Office leasing activity, as I said, was really strong for the first part of the year. I'll tell you more in a minute about what that means for us specifically. Distressed assets, we still think that there's going to be some entities that are going to require recapitalization, given debt maturities that are still coming over the next little while, and we think there'll be opportunities there. Perhaps the area where we're most excited is Europe. Sovereign debt issues are obviously putting big pressure on the macro conditions in capital markets. In light of this, we've sent my partner Barry Blattman, who's in the audience somewhere here, over to Europe to help us get to the bottom of the opportunities there and also help organize our investment activities. Fourth bank divestitures we think could add up just shy of EUR 400 billion in the U.K., Spain, Germany, and Ireland.
There's a big debt funding gap throughout Europe. You know, also sort of new regulations looming, which we think will impact lending, direct holdings, and, in some cases, make some investment vehicles less attractive to investors. We are expecting good opportunities in Europe over the next little while. Australia, as a market, is a bit like Canada. Like the U.S., fundamentals are in good shape. Leasing activity has remained consistent in Australia, as well as Canada, and capital markets on prime assets are still trading at robust levels. We think opportunities that we may see in Australia, although we're not expecting as much as other geographies, could be where publicly listed entities are trading at a discount to underlying NAV. We may find some corporate transactions occur, and also, as corporations are trying to clean up and streamline their operations and become pure plays.
We may see those kinds of things in Australia. Brazil, the market has been great for us and continues to be. The emerging middle class and social migration continues. Half the population is middle class, and that's been great for us. Credit availability has been increasing. Consumer defaults are down, and housing demand and mortgage availability have been driving a bunch of new projects, many of which we're participating in. This next slide here just shows how we think about our overall property operations. As I mentioned, we have close to $90 billion of assets under management in the real estate sector. On the right, you'll see a couple of boxes showing our residential and construction services businesses. These are more short-term in nature. In other words, on a construction service contract, you enter into a contract, you get your fees in short order.
The residential land development business is very similar. Hopefully, you're buying land, entitling it, and selling it in short order. On the left is more our longer-term businesses, our office, retail, multifamily, industrial portfolios, as well as our opportunistic investing. You'll see at the moment, office and retail at $37 billion and $34 billion of assets under management are our largest platforms. Within this group, which we refer to as Brookfield Property Partners, we think this is a great little group of enterprises in total, just shy of $80 billion of assets under management. The equity capital within it is about $12 billion. There's no corporate debt. We have close to $3 billion of uninvested capital commitments from opportunistic and other funds, and further permanent capital of $20 billion. 88 million sq ft of office space, 165 million sq ft of retail, and a growing multifamily and industrial platform.
These businesses are scalable, operating around the globe. Entering into new geographies is possible, but obviously, it's something we intend to do on a measured basis when the time is right to do. The things that we're looking at and focusing on for 2012 are, you know, it won't be of a surprise to you, you know, capitalizing on historically low interest rates. I would have thought a year ago, we would have been a little bit worried about interest rates starting to creep up. I think we have no current concern about that. We think rates will stay low for a couple of years as governments try to keep things under control. We've been working to recycle capital from mature or non-strategic assets into more creative and growth opportunities.
Also, I think both Bruce and Brian mentioned it a little bit, capitalize on this supply-demand imbalance by advancing our development and redevelopments once we've been able to de-risk them and earn proper returns. Finally, within the platforms, as you would expect, we're always constantly working to improve margins and efficiency and working with our leasing groups to increase value. The investment targets within the platforms, we're looking at single asset acquisitions, always looking for distressed debt or control opportunities, looking to recapitalize busted funds or corporate entities or operating companies that are in need of recapitalization. We always, within our portfolio, find opportunities to help partners in transition work their way out of investments, and that also often leads to very, you know, very good opportunities for us. Finally, I think someone asked it in a question.
We've been active within some of our public entities buying back our shares. We think, you know, we know those assets very well, and they represent a great value to us. We always benchmark new acquisitions to the opportunity to, you know, reinvest in the company on behalf of shareholders. Some of the growth drivers, specifically internal growth drivers for us, within the office company, we've leased 4.4 million sq ft through the middle of the year. We have also announced another 1.3 million sq ft of leasing transactions so far in the third quarter, which we expect to report larger numbers by the end of the quarter. We have 6 million sq ft of leasing discussions at a stage that we consider serious, meaning to us that they have a high probability to be able to convert those into leasing transactions.
For sure, we won't get all those done this year. Some will float to next year. Some might not happen. We do have the possibility of leasing, we think, between 10 million and 12 million sq ft overall within our office portfolio for the year. Just benchmarking that versus historical performance, our second best year or our best year ever so far was 2007 where we leased 8.4 million sq ft . The markets for the first seven months of the year in any event performed very well. We saw upticks in underlying rental rates and concessions starting to tighten. We expect a very good year within our office portfolio on the operating side. This could result in NOI increase between $45 million and $50 million. At the same time, reduce our lease expiry rollover exposure by about 1,200 basis points between now and 2016.
While we're getting this leasing done, one of the things I would just point out, we don't need to dwell on this too much, though, is that we, on average, have our in-place rents about 20% less than market rent. We have been able to capture upside as we've been getting this leasing done. On the capital recycling end, we're always looking to sell non-core assets that we own in non-core markets or non-core assets within core markets. We're basically selling down our interest in assets that we think we've maximized value on. So far this year, we've disposed of about $600 million gross of assets, representing about $240 million of equity. We expect before we have all this done, and hopefully by the end of the year, to have traded out of $1.7 billion gross of assets, generating $800 million of equity.
Between transactions that we've completed so far this year and ones that we've identified, we could reinvest that money into $2.8 billion gross of assets and still have about $270 million of equity left to invest as well. We have been trading out of assets mostly in secondary markets at roughly an 8% unlevered IRR and redeploying the money at roughly a 9% unlevered IRR in more primary markets. The net result of assets we sold was that we generated levered returns on those investments of close to 30%. We also have a development pipeline, which we think gives us a great ability to capture upside and NOI growth over time. That portfolio in total amounts to about 17 million sq ft , 10 million sq ft of which is at a state that we consider development ready.
If you think about the developments that occurred throughout the world, and particularly in the markets that we invest in over the last 15 years, it's been very little. At the same time, supply-demand balances have been in check. Vacancies have been at pretty stable levels. For us, what this means is once the world starts to expand again, and it will at some point, we can debate when that might be, but once the world starts to recover and expand, we expect to see rapidly declining vacancies and spiking rental rates. We are poised to take advantage of that. We are not crazy speculative developers. We are not going to launch development without some pre-leasing done in advance so that we can de-risk. The net result of this is we think we can generate through this portfolio over $500 million of incremental NOI over time.
Shifting away from office for a second and just talking about multifamily, you will have noted that we recapitalized a company called Fairfield, together with our opportunistic fund, have been investing in multifamily projects around the country. We have invested about $1 billion in core plus in development properties over the last little while. Net operating income in this division for us has increased by about 8.6% year-over-year at this point in time. On the investing side going forward, we are constantly looking to come up with new offerings for our clients. We have several funds in existence now whose investment periods expire over the next little while. We expect by the time that they do, that we will have a large global opportunistic fund in place to replace that. All things that we continue to work on.
Just to kind of wrap it up before we take questions, I'll just mention a couple of things that we've done. Internally, we have been working to basically reorganize our businesses into sector-specific operating entities. We've completed that on the office side and the residential land development side this year by merging our Karma Housing and Land Development Group into Brookfield Homes, creating Brookfield Residential Properties. We've obviously recapitalized General Growth Properties, which Sandeep will talk about in a couple of minutes. We've reorganized and recapitalized Fairfield, giving us a multifamily platform. We've recently recapitalized a company called Legacy Partners, which owns 5.3 million sq ft of Class A and B office assets, primarily on the West Coast. We've also done about $2.3 billion of office acquisitions over the last 12 months as well. That's the things that we've been up to on the property side.
I'd be happy to answer a couple of questions. Anybody has any? I have a microphone.
Can you just talk about the interest that you guys would have in industrial and how you would think about just one, maybe if you could elaborate on the platform that you have currently, and if you are to grow that business, if that platform is scalable enough to be able to grow that business significantly. Then what you think about return requirements for industrial versus office, retail, or multifamily.
On the industrial side, I wouldn't exactly say we have an operating platform at the moment. Our investments have been made through our opportunity fund. It's one area that we've been spending a lot of time on and a lot of focus. I think over time, for sure, you'll see that we added an industrial portfolio or industrial platform to our portfolio. In the meantime, we'll make investments with other operators or through our opportunity fund and with others who are able to operate the properties. As far as returns go, our expectation is that probably 100 - 150 basis points higher returns we would expect on industrial investments versus office, for example. We do expect to be more active in this area over time.
Questions?
I will hand the podium over to Sandeep.
Thanks, Ric. Good afternoon. It was actually interesting for me to hear all the presentations because I remember when I first was hired at GGP, Bruce said, "Do you want a little bit of update of who Brookfield is?" He brought these six people in the room and gave me a whole presentation. I'm glad to say it's the same presentation. A lot of consistency. Let me see if I can know how to work this. The other way. There we go. What I'm going to walk you through is a little bit of a presentation on, you know, who GGP is. I'm sure a lot of you know a little bit about our financial preview, a little bit about our portfolio, our capital structure, what we're all about, and where I see growth really over the next 12 - 36 months.
A lot of these will be points that we actually made during what I'm going to call the IPO or emergence party or the emergence race, whatever word you'd like, that we did in November of 2010. GGP actually has over 200 assets. It's predominantly a mall company. We own about 166 malls today. We plan to spin 30 out. We'll own, at the end of the day, about 136 malls. We have about 200 million sq ft of GLA, which is gross leasable area, of which about 66 million sq ft is the inline GLA or the small tenants as we know it, without the anchor department stores. What is interesting is that we are the number two company in the country for malls, second to Simon. The next company is actually half our size. There is a huge disparity between one, two, and three in the mall space.
We have a national footprint. We're in, I think, 44 states right now. Our NOI is generally resilient through the downturns, and you'll see why, because essentially our lease rollover is about 10% a year. Most of our rent is derived from fixed rents and not percentage rents. Generally, even in downturns, barring bankruptcies and attendance, we should be pretty resilient to downturns. We have significant development opportunities in our portfolio. We've actually just finished or are finishing a review of all our assets. What I found interesting is that we almost have $2 billion that we could invest in our assets. Over $1 billion of it actually could be invested at double-digit returns. At dinner with Cyrus and Bruce last night, he said, "You better clarify what double-digit means," because most people think of double-digit as IRR.
Being an old-fashioned developer that I am, it's really the old-fashioned cash on cost. So it's truly unlevered returns, year-one returns. You know, having a national platform, being the second largest mall operator in the country, we have a fantastic relationship with tenants, national tenants. That somewhat helps us tremendously, enabling us to keep our portfolio sort of well occupied even in down markets because a lot of our assets are very high quality. I might add that, you know, of the 166 malls that we own, and if once we spin out 30 to a new company called Rouse, we will have 25 of the top 100 malls in the country and 125 of the top 600 malls in the country. It's a pretty dominant position to play in. Our focus is to get operational improvements in the initial year. We're very focused on leasing.
Our leasing activity, as I will show you in slides to come, is focused on increasing occupancy and increasing occupancy cost. What that really means is the percentage of the rent that we collect as a percentage of sales. We're very focused on improving both those metrics. Our goal is to spin off 30 malls, which we call the Rouse assets. The reason for the spin-off is that they require a different sort of asset management, a very dedicated management. It's capital intensive. We wanted to basically create two companies. One was much more core with steady growth being GGP , and one with a higher, actually, it's a higher growth, lower leverage portfolio called Rouse. We'll continue to dispose of our non-core assets.
We have a few office buildings left and a few strip shopping centers, which our goal at the end of the day, hopefully in 36 months, is to be a pure play mall company of high-end assets. Allocation of capital. Again, I think in our case, we'll have more things to do with money than money we have. As I mentioned earlier, we have about $1 billion of development pipeline with double-digit returns. Obviously, it does take capital in our business to continue the lease up. We'll be very judicious in how we invest our capital to make sure that we have long-term steady cash flows. Obviously, we'll continue in this low interest rate environment. We've actually done a very good job this year of refinancing almost $4 billion of our debt and at $3.1 at share.
We'll continue deleveraging our portfolio with contractual amortization reduction as well as corporate repayment. We will talk a little bit about that as I talk about the financial picture of the company. There we go. We have, as I said, what we want to be tomorrow is a pure play mall company with very high-end office, high-end malls. We want to sell our value-add malls into Rouse Properties, and we are selling our strips and offices. This year has been a very active year in the sale of our non-core assets. We sold 24 assets, about $1.3 billion in value, and we have actually harnessed about $500 million of cash. Rouse Properties. The principal reason, again, like I said, to do Rouse is it requires a dedicated management. It requires a high amount of capital.
It has about $150 million of net operating income today, which will go to about $200 million in about five years with a capital investment of about $200 million. It is a high-return business. It will be spun out at about a 6.5 x debt to EBITDA ratio. It is relatively low leverage in my industry. It is very different from what GGP will be. GGP will be a company left with sales of over $500 a square foot, high occupancy, and a much more steady growth profile. Also, by getting rid of Rouse from our portfolio, we reduce about $1 billion of debt. The GGP will be left with 136 malls. That 57 million sq ft is the inline GLA. As I mentioned earlier, we start off at 66 million sq ft . 9 million is predominantly Rouse, and the remaining portfolio will be about 57 million sq ft .
Focused again about how the NOI is really broken up. About 90% of the current NOI comes from the GGP malls, about 7% from Rouse. International is 1.4%, which is predominantly our investment in a public vehicle in Brazil called Allianz, which we own 30% of. Our strips and our offices, again, are really small, which will be gone in about 36 months. Post-Rouse, 97% of our income will come predominantly from the GGP malls, which are those 136 malls I referred to earlier. I want to take this opportunity. When we did our second quarter call, some of you may have been on, there was a lot of confusion as to where the earnings are and how we are doing.
When we sort of analyze the information, we look at our core business, which is our GGP malls, and we actually see in 2010, in the first two quarters, the NOI went up almost 2%. That is in spite of, I am going to come to a chart which talks about leasing activity, which you will see that the excessive leasing that we have done in this year, plus the contractual bumps, have created this increase in NOI. The predominant negative factors are termination fees, which I actually love because I think that tenants should not terminate their leases and I should not collect fees. The fact that our accounting allows us to count that as a recurring expense, I find fascinating. The fact that termination fees have come down means our business is actually getting stronger.
We also sold our Turkish operations, so that is a one-time sort of income. We have also been, we are busy, you know, we obviously lost a tenant, an office tenant, which is not really our core business in Vegas. If you look at our core business, which is really important, it is up almost 2%. The leasing spread chart, which I think I love the most, I sort of break this up into two parts. There was a time where, obviously, most of you know we were in bankruptcy. While we were in bankruptcy in 2010, the leasing activity that was done, which is sort of reflected in the NOI numbers of 2011, was actually done at a negative leasing spread.
In 2011, when the new management took over, Brookfield recapitalized the company. We have done quite a bit of leasing, but most of it will be evident in 2012 onwards. It had a very healthy positive spread, almost an 18% spread for renewal rents and generally flat for the new tenants. While we were in this financial distorted condition, leasing activity continued, but not with positive spreads. When we came out of the position, our leasing activity has been with tremendous positive spreads. As a matter of fact, that activity has continued in the months of July and August. As I was telling Ric a little earlier, we approved deals every week, and we approved almost 140 deals yesterday, which means those deals were approved by their management in the last 30 days, which is in this environment where it is a suspect whether we are going to go further.
As Bruce said, we are in a shaky environment, whether we survive going into a recession or we continue bubbling at the bottom. Those deals were done at a 14% spread. In our industry, actually, if you reflect back to 2007, we lack. We are not going to really see the impacts of the economy really until 2012. I actually anticipate the next three or four months to continue with an aggressive leasing pipeline with good positive spreads. We're heading into a very important season for us, which is the Christmas selling season. The biggest negative, if I was to point out that we could have, is consumer confidence. I also mentioned earlier in an earlier slide that essentially the NOI is pretty resilient. It's resilient because our lease rollover is about 10% a year. Not much can really get hurt. We can't really get hurt a lot.
You know, the economy slides for a year to 18 months. If 2007, 2008, 2009 are any indicators, what we find is that tenants will do short-term leases because we can afford to do that at the same rent. Unlike the office business, where you tend to do, I think, longer-term leases, our retail tenants are able to operate because they're in existence in over a shorter period of time. I don't really anticipate, even if the market starts to go south, that we'll have much of an NOI impact. The question always I'm amazed at is people talk about unemployment, and they talk about unemployment being 9%. At the same time, we look at retail sales month over month for the year of 2011. Retail sales have continued to go up. You have to sort of sit back and question yourself why.
The reason really is that 4.3% is the unemployment rate amongst the educated Americans. The people with the highest amount of disposable income, who are the largest taxpayers, are the better employed. The people who actually go into malls generally are the higher demographic customer. Therefore, when you look at retail sales of the people who are the mall tenants, they tend to have gone up month over month. The people who have actually been hurt in a resurgent market have actually been people like Walmart. The reason is because their clientele has 14% unemployment. If you don't have a bachelor's degree, if you don't have a high school diploma, the unemployment rate is the low of 14%. What's going on is that our sales of our portfolio have almost reached peak. Peak sales were about $471 a square foot, and we're about at $465 a square foot.
Effectively, I'll say we're at peak. It took us, call it, by the time the retail business saw negative sales, which was 2008, it's taken us about two years to bounce back to the same sales levels as we were with the theoretical 9% unemployment rate. Again, supports my point that the shopper that comes to the malls is generally of a higher demographic. If you exclude the Rouse Properties, the GGP portfolio is over $500 a square foot, almost $500 a square foot. The other important part, if you remember, I said was the two metrics that we're focused on are occupancy cost and occupancy. The leasing activity done in 2011 has been at almost 14.5% occupancy cost. When we started off the year, we were at about 13.5%. What has helped dramatically is we've been leasing into an environment with rising sales.
When we do our leases, we do it based upon the last year's sales. Our 14.5% is based upon sales of about $430 a square foot. Sales are today $465. If you actually did the math, we're back to about 13% occupancy cost. That again speaks to where the rents can grow year after year as the renewals come up or leases come up. That's the 10% of your expirations. The second metric is occupancy. We started off the year at about 92% and almost 93% occupancy, and we're going to end 2011 at about 94% occupancy. That's about 100 basis points. The way GGP reports, which I think is interesting, is that we report occupancy based upon leases that are signed, and generally, they're not occupied. We have 300 basis points of tenants that are not in occupancy where leases are signed. There's a lag of NOI to occupancy.
Each 100 basis points is about $25 million. We have enough leasing activity done to take our NOI up by about $75 million. In addition, the 100 basis points that we increased in occupancy cost based upon the 10% rollover year is about $10 million on an annualized basis. The last bit is the 100 basis points of total occupancy increase from 93% to almost 94%, is about $20 million in NOI. We see over the next 12 - 15 months, as these tenants come into play, our NOI should grow by about $100 million. There's tremendous embedded growth for the activity that we've actually accomplished in 2011. Our risk going forward in 2012. For 2011, we basically accomplished most of the outstanding renewals or lease expirations. We have about 250,000 ft left, which I would call fairly insignificant.
In 2012, we've actually leased 50% or accomplished 50% of the renewals or the expirations that are coming up, which is about that 10% a year. Half is complete. In addition, we've leased an additional 1 million sq ft of new space. If you look forward to 2012, our exposure is half of the renewals that are outstanding. Once again, if 2007, and I hope we don't go back to a deep recession, I don't even think we head into a recession because I, like Bruce, am a little bit more bullish on the American economy than other players in the market, is that I actually don't feel that we have much of an exposure to see any downward slide in NOI. Our capital structure. What got GGP in trouble the last time around was we were facing a wall of debt, which doesn't seem to be the case today.
Only 18% of our debt matures before 2014. We have about over $300 million of amortizations a year. We used to brag about a weighted average interest rate of 5.28%, but compared to Bruce's 3.7%, I don't know, we better get back to work. 2011 has been a very active year for us on the financing part. I mentioned that we did about $4 billion of financing, $3.1 billion at share. The most important part of that $3.1 billion to me is $1.7 billion was with life companies. About the rest, $2.2 billion was with CMBS money. We were very active in the beginning part of the year with CMBS debt. CMBS debt is almost frozen. It's coming to a standstill. We very well went down the path of pursuing life companies, repairing a lot of our relationships, and we're able to do about $1.7 billion of life company debt.
When we look forward to 2012, we've opened up an avenue of facing our debt with life companies more than just the CMBS market. We're not dependent upon one single market. We've laddered our maturities. I'm going to show you a maturity chart right now. We've taken our interest rate down from 5.8% to 5.1%. The better part is we've extended our maturity from two and a half years to nine years. We're not going to be looking at a wall of maturities in the next two years. Our maturity ladder. In 2012, we've got $1.6 billion of property-level debt coming due and about $400 million of a corporate bond. Again, it's about $2 billion. In 2013, it's $1.2 billion.
When I met a bunch of investors last week, I said one thing investors should really look at is when you compare debt levels, is how much debt is actually coming due year by year. You could be called a 50% levered company, but 40% of that 50% comes due in 2012 and 2013. I think that's a riskier situation to be in than a company that's got laddered maturities over a 10-year period and that does essentially all 30-year amortization loans. We had many an opportunity this year to do interest-only loans. Again, being prudent, not wanting to get back in trouble again. We've done 30-year amortization. If you actually look at our debt profile and you match it to the laddered maturities and you look at the rental growth, at the end of the term, these assets are going to be about 35% levered.
Just to end, my job is to lease, lease, lease. It's the easiest, cheapest way to increase NOI is to lease the assets you have. We are very focused on completing the Rouse deal, which we hope to get done before the year is complete. Again, selling our non-core assets. We have $1.3 billion of liquidity. We haven't touched our $750 million line. We're going to use that money judiciously to invest in the highest return, you know, within our portfolio. We did buy an asset, as Bruce pointed out, in St. Louis. The way we bought the asset, it was a Class A mall. We owned the second mall in the market. It can't be argued which one is the best or which is the second best, but it almost doesn't matter today because we own them both.
We actually sold 26% of the other mall that we owned 100% of and bought 55% of the new mall. It was a cash-neutral deal to us, but it was important to control the market. We are very judicious in how we expand our capital. We'll continue to refinance. The good part about the refinancing beyond the $1.6 billion or so that's due next year is when we sort of came out of bankruptcy, we had the ability to prepay debt without any defeasance. If the market gets flush with capital again, CMBS rebounds back, we have the ability to refinance almost $6.7 billion of debt in 2012 beyond what's actually coming due, which is about $1.6 billion. We like Brazil for all the obvious reasons. The retail sales in Brazil have been increasing at double digits. Our rents are increasing at double digits.
The development pipeline of Allianz actually is going up almost 20% a year. We will continue to for sure maintain, because I've been asked many a time, will you sell that platform? For sure maintain, if not grow that Brazilian platform. I'll open it up for a few questions.
Hi, Andrew [Kutz], Credit Suisse. Just in respect to Brazil, and you just touched upon your concluding remarks, how do you think about Brazil and the opportunities in Brazil? I ask the question in part because BAM is the largest shareholder directly and indirectly at GGP . GGP has a substantial interest in Allianz. BAM also has private funds in Brazil that are in the mall portfolio. How do you think about growth opportunities in that market from the seat that you sit in?
I think we sort of look at it fairly, and I'm going to say independently. Obviously, Allianz is a public company. We have a 30% ownership stake of Allianz. Allianz is more of a development company to grow by development. Actually, Brookfield's investments have all been, I think, all acquisitions, and their method of growth has been different to Allianz's. I sort of view today the investment in Allianz to hopefully continue to grow. It may grow because we might invest in Allianz or we might invest alongside Allianz. Our vehicle of growth today will be through Allianz. Okay.
One more. Do you think there's overcapacity in the world of retail in general?
The world of retail or in the United States?
How about the U.S.? I guess retail sort of stands in contrast to some of the supply-constrained assets that Brookfield generally emphasizes. I'd like your thoughts on that.
Okay. To answer the question, the United States for sure is over-retailed. That includes all retail formats. I don't believe the mall space is over-retailed. There are about 1,100 - 1,200 malls in this country, depending on whose statistic you look at. There are 600 - 700, what I would call, irreplaceable malls in the country. If you're an owner of a large percentage of the irreplaceable assets, malls are not easy to build. They take a lot of land. It's a long entitlement process. They're usually at the best intersection. If you actually look forward, I think Ric said in his business, he has, I don't know if it's 10 billion or 10 million sq ft , I think 10 million sq ft of office-ready properties. I don't think there is 2 million sq ft of malls that can be built tomorrow in the United States.
Actually, I think there's only one mall that can be built, if at all, in 2014. In an ironic way, as much as this country is over-retailed, the mall business, because of its constraints, is actually under-retailed. Someone asked me a question. I'm going to deter. It said, "What about internet sales? How does it impact you?" My answer to that was, it impacts more the destination retailers. Obviously, we know it affected books. It affects music. Fast fashion is least impacted by it because so far we haven't perfected how to buy fast fashion on the internet. As a matter of fact, more of the destination retailers, as they get impacted with internet sales, they will downsize. As they downsize, they're no longer going to be destination. They're going to be where they want foot traffic. Still, the best foot traffic is in the malls.
It actually is the biggest pastime, even more than baseball in this country. I actually think that's a fact. I actually think the mall space, the fortress malls, if you will, is constrained. We will own 125 of the top 600 malls in the country.
Sandeep, does scale, you think, matter that much in your business? Is 125 malls that are the top quality malls the right number? If you were down to a number that was significantly less than that, does that impact your business with national retailers and the ability to lease? Do you think you need to be at a number higher than 125? Just your thoughts on scale?
Taubman has 24 malls. I think they have pretty good leverage with the tenants. I would say that 125 malls is a pretty good scale. That would still be a $33 billion company. It is fairly large. The third largest owner is actually [Magswitch]. They are about half the size of GGP. I think they have 75 or 80 malls. I think the scale of over a, if you're a 100-mall company, it's a fairly large-sized company.
Does that then give you an opportunity to monetize some of the remaining 125 that are top-flight malls if you can get great pricing on some of that stuff, and use that capital for the $1 billion of development potential that you have?
At [$3,000], everything's a sale.
What about a [4]?
Maybe. Okay, thank you.
Good afternoon, everyone. My name is Sam Pollock, and I look after the infrastructure business for Brookfield. The agenda for today is really threefold. The first thing, I'll give a very brief overview of our business. Second, I'll provide an update on how we've been doing so far this year. Probably lastly, spend most of the time discussing a number of our growth initiatives that are underway. Let's start off with our infrastructure business that we've established. I think it's pretty unique in terms of both its diversity, scale, and quality. Our operations are located in two very established markets, North America and Europe, and then two markets that I would describe as fast-growing, at least in terms of infrastructure perspective, that being South America and Australia. Our business, we segment, I guess, into three sections. We have our utilities business that has about $9 billion of assets under management.
We have our transport and energy business, which has about $3 billion assets under management. Finally, our timber business, which has about $4 billion of assets under management, all in total of about $16 billion. We've had good results this year. I think they're up about 60%, over 60% year on year. I think our performance reflects two things. The first thing is that we just have very high-quality cash flows in the business. Secondly, we were successful in acquiring a business last year called Prime Infrastructure. We had owned 40% of it. It was part of the recapitalization of Babcock done back in 2009. That transaction was quite accretive for us. As you'll see in a number of the segments, it has impacted our results very favorably. We operate our business primarily through two flagship vehicles. The first one is a publicly listed limited partnership called Brookfield Infrastructure Partners.
I think Bruce referred to that earlier. It's a $4 billion market cap company listed on Toronto and New York stock exchanges. In addition to that, we have a private fund called Brookfield America's Infrastructure Fund. It's a $2.7 billion private fund with investors that include sovereign wealth funds and North American and European pension funds. I'd say, you know, so far, both these companies and entities have done very well. We're pleased with the performance. Brookfield Infrastructure Partners has been very well received in the public markets. As Bruce mentioned, there are a number of investors who are looking for, you know, a high dividend payout vehicle that, you know, they perceive as a safe haven. I'd say Brookfield Infrastructure Partners ticks that box. In addition, so far in our Brookfield America's Infrastructure Fund, we've been operating for about a year and a half since we closed that fund.
So far, our results today are about a 27% IRR, and we've invested about a third of the fund. The next couple of slides, I'm just going to provide an overview of the various segments and some highlights. Let me start with the utilities platform. Our utilities platform consists of a portfolio of regulated businesses that generally earn a regulated or stipulated or notional return on an asset base. Virtually 100% of our revenues are contracted and are locked in for a very long period of time. As a result, it provides us a tremendous amount of stability and predictability for this company. We also benefit from a diverse portfolio. We have operations in four different countries. As a result, we have very limited regulatory risk. As you know, that's probably the greatest thing that keeps us up at night.
Finally, I think the other benefit and strength of this business is the fact that it is located in a number of growing markets. As a result, we have a requirement and a demand to invest within those frameworks. Given that we earn a very attractive return in most of these areas, it's a good way for us to deploy capital on a low-risk, high-return basis. One of the key elements of this particular segment is attracting long-term low-cost financing. This year, we significantly de-risked the business by diversifying our funding sources and extending terms in three of our assets. The three financings we carried out this year, the first one is in South America, where we financed our electricity transmission operations in a local market. This was an offering that we did in three tranches. The average duration was 18 years, and the longest tranche was 28 years.
We also tapped into the U.S. private placement market in our Australasian businesses. This for us was key because it opened up a whole new market for these businesses of low-cost capital. In the case of our Australian coal terminal, this was a very highly and well-received offering that was three times oversubscribed. Our transport and energy business is a geographically diverse business that operates natural gas pipelines in the U.S., container and bulk ports in Europe, and a rail network in Australia. Our business generally benefits from increased movement of goods and freight, particularly commodities, over our system that over the long term tends to increase with the growth in the economy. While this is a GDP-sensitive business, for us, it's a relatively stable business as well. The reason for that is, I'd say, threefold.
The first one is that we're protected from competition because of high barriers to entry. Secondly, we have a diverse business across many geographies and sectors, so we have a bit of a diversity effect, I guess. Finally, 70% of our cash flows within this business are contracted. This year, there were two exciting developments for us. The first one was in our railroad operation. I'll talk a bit more later about the growth initiatives in this particular business. What was very exciting for us was the way we were able to basically re-contract this entire business, such that when we acquired it, we had essentially 0% taker pay contracts. Today, with six new projects coming on stream and two contracts that we were able to renew, we've now converted such that 60% of this business is now taker pay.
I get the question often of, you know, what is a taker pay contract and why do people sign those up? Essentially, a taker pay contract is when someone pays you for the availability to use your system, whether or not they use it. In the case of large mining companies, they do this because we have an open access system. There are lots of new users coming on with new projects, and what they don't want to see happen is some of their access to the rail being bumped by others. What they do is, in order to ensure their space on the track, they will pay us in the future whether or not they use it. The other benefit of these contracts is we are also normally able to achieve inflation indexation, so it's a nice cash flow stream over a long period of time.
The second big win in this business was the reopening of a blast furnace adjacent to our port in the United Kingdom. This will probably drive about 10 million more tons of cargo through our port. From an EBITDA impact, that's probably another [$6 million - $8 million over pounds] of EBITDA that will happen as a result of that. When we bought the asset back in 2009, this was not what we had budgeted for. This is a great win. It probably won't begin to take place till the fourth quarter of this year, but everything seems to be moving ahead well. Our last segment is our timber platform. It's comprised of about 2.5 million acres of high-quality timberlands. They're located on the east and west coast of North America and also in Brazil. I like this business. It's a high-margin business. These are perpetual assets.
We also have a tremendous amount of operating flexibility that allows us to manage our production to meet market conditions. Our timber results this year have improved substantially. It's probably, I guess, over 100%, 150% from the prior year. There are really two things driving that. One is prices. Prices are up about 13% year-over-year. In addition to that, in light of that pricing environment, we have increased production by 30%. I'm pleased to say if prices hold up, and I think they'll probably get a bit stronger, we have the ability to increase production another 20%. A lot of people have been asking, you know, why have prices moved up? I'll touch on the U.S. situation a little bit later in my slides. It has everything to do with Asia. I guess that's a common theme.
In our timber business, two years ago, we did not sell any logs into China. Today, 53% of our exports go to China. I suspect that number is going to continue to grow. What's driving the demand growth in China? Really, it's three things. The first one is just, as you can see on the chart, the massive growth in annual housing starts. The second factor is just the amount of civil construction that's going on in that country. Thirdly, they're using a lot more wood in their housing. That's having a big effect. They're now using it for roof trusses and floor beams. Just using more wood probably has the biggest impact on a long-term basis. The only thing I would add is, you know, there is still some fluctuations.
In growth in that market, this summer we did see a bit of a slowdown in activity in China. It appears to have been solely due to the hot weather and really the construction slowing down because of that. Probably starting in October, we saw activity pick up again. Right now, we are predicting a very strong fourth quarter for that business. The next couple of slides are just going to deal with the environment for infrastructure, and in particular, I guess four themes that are affecting our business. The first one, and you'll have seen it in our past results and you'll see it going forward, is just the effect on demand for infrastructure related to growth in commodities and energy demand. We don't see at this stage any abatement in that growth.
I know there's been lots of press recently about volatility in commodity prices, but as we talk to our mining companies, we are still seeing a tremendous amount of desire to build new mines and contract with us for additional infrastructure. The second big theme is government privatizations. This is a global phenomenon, but it is really centered around Europe these days. I'd say that over the next six to 12 months, there will probably be unprecedented opportunities to buy assets from governments in Europe. There will be sales. In fact, sales are already underway at airports in Spain and numerous assets in Portugal and Greece. I'd say from our perspective, this is probably one area where you will see us less active than probably others.
The main reason for that is, A, these are all very public broad auctions, and so it does tend to be a bit of a cost of capital shootout. That's not really the way that we look for opportunities. Second, even though the governments have all said that they're very interested in selling assets, in almost every case, there seems to be a few twists or little hidden hooks that they're keeping in the businesses. Because of that, that does make them less attractive for us. The third main theme, and I'm going to talk about this a bit later on with one of our recent acquisitions, is that the effect of the sovereign debt crisis in Europe, which has obviously had a tremendous impact on banks, has had a knock-on effect to construction companies in Europe. The European construction companies have built unbelievable infrastructure franchises around the world.
The problem now is their banks are all looking for their capital back. Because of that, they're either looking to sell assets so that they can repay debt or they're looking for partners who can invest with them to keep their engines going. I see opportunities for us in both those ways. Finally, I just want to talk a bit about where investment capital is going. Where we see the most competition today is probably not on the GDP-sensitive assets or even around Europe so much. It really has to be in relation to the utility-type assets. People are searching for a safe haven and a proxy for dividend-type or income-type products. Anything that is fully contracted on a long-term basis is probably attracting high single-digit-type investment returns. Let me touch on some of the opportunities within our business.
I guess the theme with each one of these will probably be talking about some of the immediate opportunities and then, secondly, looking out into the future. In the utilities segment, we have nonetheless been successful, I guess, buying assets and continuing to progress our organic pipeline of projects. On the investment side, we were successful in buying from a bank a 330 MW transmission cable that connects Connecticut with Long Island. It's a very attractive asset as it's fully contracted for the next approximately 25 years. It is an availability-based contract, so we get paid whether or not it's used. It is what I describe as a critical infrastructure asset for this region. I think we'll be able to leverage it to hopefully expand it in the future. That investment closed in August. It's a $190 million asset. The equity check is actually relatively modest. It's about $40 million.
This went into our America's Infrastructure Fund. The second project that we have been building for the last, I guess, progressing for the last year and a half is our Texas Transmission Project. It's a $750 million transmission initiative to connect wind power in the state of Texas. This year, we have been successful in closing the financing required to build the project. We have completed all our permitting that was necessary. We've signed our EPC contract and we'll be commencing construction in the fourth quarter. We expect that this project will be completed in the first quarter of 2013 and be operational around that time as well. Looking out into the future, I think last year I may have had this project on the screen as well. It's obviously a massive project that we continue to progress.
What it is, it's basically an 800-hectare piece of land that's adjacent to our existing terminal in Australia. It probably has the capacity to hold another 150 million tons per annum of coal export capacity. Just to put that on scale, our existing terminal is about 85 million tons per annum. Where we are with this particular project is we're in the master planning process to determine what land allocation we will receive. We are basically one of two preferred proponents for receiving the land. We've been promised at least a quarter of the land. What we have done this past year is we have gone out and sought exclusive orders from potential customers. These are commitments that, subject to us building the facility, they would sign a contract to use it. We attract the interest of 160 million tons per annum.
With that demand, we will probably ask for about 75% of the total land. To give you just a sense of context for the scale of the project, if we got only half the land we asked for and we were able to build a 65 million- 75 million ton per annum facility, it's probably a $5 billion project. If we do it, it probably won't be able to start construction until 2013. It would come on stream in 2017. Moving to our transport energy business, we have over $500 million of organic growth projects underway. The majority of the growth is taking place on our railroad where we have six new projects underway. What we have done this year is we've actually negotiated definitive terms with all six of those customers.
Four of them now have been fully contracted, and two we expect to have contracted probably in the next month or two. Basically, the terms have all been agreed. These are highly accretive projects. The returns on equity for these projects I expect will be well north of 20% after tax. Another question I often get is what's next after that for the railroad. The truth is there is just a tremendous number of other opportunities where we can continue to grow that railroad. When I speak about the 24 million tons per annum on the previous slide of growth, that doesn't include another 14 million, almost 15 million tons per annum that if you check the website of our customers, they actually think they're going to bring online. The actual growth is not 25 in their minds. They think it's 40.
We've only contracted on a minimum basis for the 24. If they produce more, then we obviously benefit and get that additional cash flow. The second area of growth for us will be continuing to work with new customers who are looking to bring on mines in the area. As you sort of, I know it's not a great chart, but as you look, I guess the lower left region, there's a tremendous amount of coal resource in that area. That's probably, if there's a next contract signed, it'll probably be in that region. In the middle ring there called the Yule Garden region, there's a number of iron ore projects that are being developed in that area. The other great opportunity here is there are six ports that our railroad connects to. They're all government-owned. The government doesn't have the money, and these ports are operating at full capacity.
In order for the production of these mines to be increased, they can probably accommodate what we have to date. For further growth, they will need some de-bottlenecking and investments. We're working with some of the miners to put together proposals to invest capital to upgrade these ports. I think it's going to be a good investment opportunity for us. Finally, in timber, I think the prospects for log prices are very positive. Just looking at the demand side, I see continued growth in Asia. In addition to that, at some point, and it's obviously hard to predict when, I am predicting a recovery in the U.S. housing market. Today, housing starts are probably in the $570,000 range.
Our view is that to meet the needs of the growing population, geographical shifts of people going back and forth, and just replacing obsolete housing, the normal rate is probably somewhere between $1.5 million and $1.7 million starts per annum. On the supply side, the mountain pine beetle has done its damage. 20% of the timber supply that serves that market is not available for the next 4-6 years. There isn't going to be a supply response from North America. In Asia, the big potential source of timber to meet the Asian demand is from Russia. Today, I think our view is that in the near term, we're not going to see a supply response from Russia because, A, there's still tariffs in that market that are discouraging exports. In addition to that, there's just not financing available in those markets to facilitate expansion of their harvest.
Also, we're spending a lot of time in Brazil investing in new timberlands in that market. It's a great market because obviously, it's rapidly growing. They've got a very competitive customer base for us. Today, we feel that we can buy well down there. Prices are at a level that still makes sense for us, and we're able to buy outside of auctions, which is one thing that's pretty tough to do in the timber sector here in North America. So far, we've invested about $250 million in the past two years in our Brazil timber fund. Our gross returns are about 16%. They've been good, and we think over the long term, we'll get good results. Quickly, just on our acquisition strategy, we have a strategy for all three of our different segments. In the utilities business, it's quite tough to, as I mentioned earlier, buy new projects.
Our focus here is mainly buying assets in and around our networks where we might have synergies or some sort of competitive advantage, and obviously just building out our business. Second, on the transport and energy business, this is an area where we are trying to establish new platforms. We're looking at toll roads, airports, storage facilities, and we're spending our efforts looking at value opportunities in distressed markets. Obviously, the biggest distressed market is Europe. The benefit there is not only can we buy assets in Europe, but we can buy assets that are outside of Europe that are owned by European countries or companies. Finally, on the timber side, we're looking at emerging markets and government privatizations, primarily in Australia. As an example of that strategy, we have recently, this weekend, signed a transaction to acquire two toll roads in Santiago, Chile, for about $340 million.
This is an investment led by our Brookfield America's Infrastructure Fund. This particular acquisition was a direct result of our European outreach program, which we probably started two years ago. I think we've talked about it quite a bit. The key was really developing a relationship with the seller, who is ACS. This was not an auction process. This was a transaction that we had exclusivity over since April. We've been negotiating with them, carrying out extensive due diligence, and I think we structured a transaction that in the long run will be very good. It's an attractive investment from our perspective for two reasons. One is on a very attractive revenue framework. We're allowed to increase our rates on an annual basis, both by CPI and a further 3.5% real basis. We also have the ability to charge congestion tariffs.
When there are certain traffic flows, we can increase our prices. In addition to that, it's a well-located road. It's in a fast-growing city with higher motorization rates, and it's one of the key arteries of the city. This deal, by the way, will probably close sometime in the fourth quarter. It is still subject to some third-party consents. In summary, we're focused on two things. We're focused on the stability of our business and also growth. From a stability perspective, we think we can do that by owning and operating a diverse business across sectors and geographies and by continuing to de-risk our business, extending our debt, and contracting our revenue streams. From a growth perspective, we're trying to do it in both a measured way and in an opportunistic way. I'd like to thank you, and I'd be happy to take any questions.
Thank you. Alex Avery from CIBC. Just regarding the growth in your timber business, I guess on two fronts. One, where do we stand in terms of the adoption of wood as a building material in China? The second question would be, you noted that your volumes were up 30% year-over-year. Where do you stand relative to your capacity for timber production?
Right. Two questions there. I'd say, yeah, we're still at the early stages of the quantity of wood that China uses in its construction. I'd say today, most of the wood is being used for concrete forming and scaffolding. They have started to use, as I mentioned, I think in roof trusses and floor beams. I think at the end of the day, it will not be a society that uses wood like North Americans. I think most of their units will be concrete, a high proportion of concrete. I think over time, because of the cost and ease of using wood, it will continue to develop over time. The other exciting thing about the growth in that region is not just China, it is India. India today has not really been much of an importer of timber.
I think this past year, they imported about 600,000 cubic meters , which is really nothing. If there's anywhere to the same growth that China went through in India in the use of wood, then that could be another big market down the road as well. Finally, just to your second question, which was how much additional capacity do we have, we have the ability to increase our harvest by another 20%. We can maintain that level for about 10 years, and then we'd probably fall back to the harvest level we're at today.
Would you buy carbon-based power plants?
I'll probably leave that to Richard, who is our power expert. I think Richard, I'm not sure if in your presentation you talked about some of the new technologies we've looked at. Typically, in the infrastructure business, most of that is done by Richard. I'll leave that question for him if you don't mind.
Michael Goldberg, Desjardins . Just curious, how did you determine to put the toll roads into the private fund? What distinguishes it instead from going into BIP?
Thanks, Michael. I'll explain. It does go into both. Just to clarify, I guess how the investment works, we have this $2.7 billion Americas Infrastructure Fund. The largest investor in that fund is Brookfield Infrastructure Partners, the public vehicle. It participates 25% of all investments in that fund. To the extent that there are co-investments, typically, Brookfield Infrastructure Partners will get a higher percentage. More often than not, Michael, when we have an investment that is of some scale, somewhere between 25% and 50% of that investment actually goes into Brookfield Infrastructure Partners.
We're over here.
Okay. Maybe there might have been some misinterpretation of what I said. I guess there, absolutely, the timber rotation in South America is about seven years for our eucalyptus trees. In North America, it's probably, it depends if it's in the U.S. or Canada. Probably for where we own trees, it's in the 50 - 60 year range. Each of those plantations serves different markets, so there are different species. They serve different markets. For instance, our timber in South America, a lot of it is used for the pig iron industry. That's a big use. Some of it goes into furniture, but it all stays locally. None of that would go on a boat and go into Asia. It's just not high-quality enough.
Whereas our timber in North America, particularly the West Coast, is a very high-quality species, and because of that, it can support the freight costs going into Asia. I think I'll take one more question, and then I'll turn it over to Richard. Brendan?
[Dungeon Point], if you guys get that project and you start spending development capital, the $5 billion that you mentioned, is that something where beginning as you spend it in 2013, that you'll earn a return on the capital spent? Or do you not earn a return until it's in place and operational in 2017?
Good question. We still have to negotiate the contracts with the users. All this is subject to actually putting those frameworks in place. The way it worked for DBCT is that we did earn a return as soon as we spent dollars of capital. We didn't necessarily collect it, though, until it came on stream. You absolutely earn a return as the money is spent. It goes into the base, yes. I think that's it. Thank you very much. I'll turn it over to Richard Legault.
Thank you, Sam. Good afternoon, everyone. I will try and maintain the very disciplined approach to time. Everyone seems to have kept to their 30 minutes. I'm going to try and do the same. In terms of this afternoon, I'd like to certainly talk to you a little bit about our renewable power business, give you some insight as to the drivers and the outlook for the markets in this sector, focus some time on growth strategy and also the opportunities in front of us, and more particularly spend a bit of time discussing the recently announced transaction whereby Brookfield's renewable power businesses would be combined into a new flagship entity called Brookfield Renewable Energy Partners. On that, first, we believe that we have one of the premier pure-play renewable platforms in the world.
With the construction that we are completing in 2011 and 2012, we will have 4,800 MW of renewable capacity, 86% of which will be hydroelectric, which we believe is a very high value, if not the highest value renewable in the sector. We operate in three countries: in Canada, the U.S., and Brazil, with 40% in each of the U.S. and the Canadian market and 20% in Brazil. We believe in efficient regional operating platforms. I think you've heard throughout these various presentations that this is a fundamental belief that the business model that we use is to leverage our operating and development capabilities in order to create value in our respective businesses. Currently, we are managing the construction of seven projects across different jurisdictions, which I'll get into later on, but for a total construction program right now in renewables of $1.2 billion.
We've integrated over the last 10 years over 20 transactions, which we think have been integrated into a unified, efficient platform across these jurisdictions. In addition, we built 16 hydros or are building 16 hydro facilities and five wind farms since 2003. Our operating platforms in both Canada, the U.S., and Brazil are similar in nature, where the operations and development expertise are certainly in-house. We produce stable, high-quality cash flows. We have today about 80% of our cash flows that are contracted. If you consider BEM and you consider that 71% or 70% of these cash flows are contracted long term, about 10% of that is contracted through financial contracts that mitigate financial price risk. However, when we look at this profile, certainly, it's been very consistent throughout the years. It has produced, as I've said, very stable cash flows for this business.
Hydrology, I would say, is the other risk that we manage. I think I wouldn't pretend to or assume to control rainfall. However, we have storage and diversification that certainly has helped us throughout the years in managing hydrology risk in North America. In Brazil, we have essentially no material hydrology exposure, considering that the regulator assumes that risk for most of the pool of hydro facilities in that country. Over the years, and I have a graph that shows from 2000, 2005, and 2010, our cash flows or net operating income has increased on a compounded basis by 23% per year. This has clearly been a business where we've focused a lot of time and attention and effort into growing the cash flows of this business over that period. Let me turn to some of the drivers in the various power markets we operate.
Certainly, starting with the key drivers or fundamental things that we watch for in terms of the direction of these markets. We continue to believe that gas markets in 2012 will be oversupplied. The effects of shale gas will continue to be felt, particularly in the U.S. This has an impact on prices, where prices continue to be at cyclical lows in electricity. When we look at the key drivers for renewables, however, we continue to be fairly bullish in terms of these drivers. One, I would say, the wide acceptance of the need to reduce the carbon footprint across the world. Significant issues in competing technologies, both coal and nuclear. If I can address the question that was asked to Sam earlier on, would we invest in carbon-based generation? We've looked at several opportunities, both coal and also natural gas and other types of carbon-based generation.
Coal, we would feel, has lots of issues in terms of environmental requirements that going forward have made that not the first choice that utilities in both Canada and the U.S. would have. Would we? There's always probably, I think, as much as Bruce said, you know, in the next five years, I will say I won't say never. I would say that this would not be our first choice across infrastructure and certainly not a choice for the renewable power business. In terms of strong need for energy self-sufficiency, we've seen in many of these markets policy and governments to actually encourage renewables, even though, again, some of the retirements that are expected in these markets have not occurred. Strong willingness to bring domestic generation online has really promoted increase in terms of the demand for renewables in a lot of our core markets.
Emerging markets, particularly in Brazil, I would say, remain very strong in terms of strong demand growth. The supply to actually meet this demand growth is required over the next years. Again, growth in demand driving expected supply to meet that growing demand. I would say that, again, we have certainly been looking at large-scale hydro projects and large-scale projects experiencing delays in that marketplace. Some concern. When we look at policies for pushing further supply to the marketplace, we've seen one trend that we find interesting, which is in a lot of Latin American countries, biomass and wind are now part of the agenda and being pushed by several countries in terms of ability to sign long-term contracts and attractive financing conditions being made available to developers. Brazil, again, we continue to feel very strongly about the fundamentals of that market.
Generally, across all of these emerging markets in Latin America, we feel the same way. In terms of our more traditional markets, particularly in Canada, we have seen in Canada being the beneficiaries of the legacy of the 1960s, 1970s, where lots of generation capacity were built in those periods, which today we benefit from with low rates in Canada delivered to consumers. We feel that there is a growing political pressure, particularly on the higher-cost renewables. Again, because we're not invested in it, I can actually name them. Solar would be one area that I can't, again, particularly rooftop solar, which we consider to be $0.30, $0.40 a kilowatt. Comparing that with rates being sold to consumers at $0.06 - $0.09 in Canada has really sort of increased pressure, political pressure on renewable programs in some of these jurisdictions. We feel that that will be short-lived.
Aging infrastructure has to be replaced. Growing demand has to be met. Over time, they will continue to support, certainly, I think, renewables with long-term contracts, which is what really has supported the Canadian market up to now. We see, I think, some major differences depending on the regions, particularly if you look at British Columbia with shale gas. We believe that gas will play an increasing role in that particular market. Solar is expected to be a lesser factor in Ontario than first expected. We also feel that Quebec has been building large hydroelectric facilities. The focus for Quebec will certainly be transmission capabilities to the U.S. in order to export that quantum of power. In the United States, renewable portfolio standards in most jurisdictions, most states have been increasing and certainly encouraging renewable programs to continue. We feel that gas prices will certainly return to more sustainable levels.
I should have said in the next five years, but I've actually been more precise than that. In 2013, 2014, we think there will be a need for new capital to be invested in the shale plays or certainly higher expected risk returns from investors in that sector, which should bring a little bit more to the sector. In terms of some of the things to watch for in the U.S. in particular, incentive programs, as you know, investment tax credits, Department of Energy loan guarantees, all of that certainly is brought in question. This is not new because incentives in the U.S. always have a finite term. What shape they will take in the next few years, we will see. Growth of the U.S. economy, we mentioned that it was shaky. We're certainly looking at what will happen on that front from a growth and in-demand perspective.
The timing of plant retirement is also important. In Brazil, I call it the perfect storm. By that, I mean in a positive way for us. We view this as the expected demand to accelerate, the Olympics, certainly the World Cup. Combined with a growing middle class, certainly demand is accelerating in that jurisdiction. When I look at the supply pipeline, we believe that there will be significant delays in large-scale projects in Brazil, which really will bring reserve margins to very tight levels in 2014. We think that will bring more gas and more fuels that are imported into the country in terms of the supply mix of electricity, increasing prices. We think that's a positive for us in Brazil looking forward to 2014. Maybe turning to the growth opportunities that we have.
Here, over the next five years, we do plan on doubling the size of our renewable power business. This may sound certainly, I think, an important goal of ours. We feel very, we have strong convictions, I should say, that we can achieve this goal. However, we want to make sure that investors understand that we will continue to focus our efforts on markets with attractive dynamics, very high barriers to entry. Our core markets that we traditionally have been in will continue to be the core markets we look at going forward. In terms of adding a platform in one of these in an additional market, Australasia, Europe, I think we have certainly Brookfield has a global reach today that we want to look at in terms of leveraging and certainly looking at opportunities in new markets for us. Highest value, longest life renewable technologies.
You won't see us change our investment strategy on this front. Hydro and wind, we believe, are certainly the technologies of choice for us. We have a wide-ranging expertise in the fields. We would like to add a renewable technology to our platform in the next five years. This will be conducive and helpful in achieving our objective of doubling. When we look at the various technologies, biomass, particularly in Latin America, is very attractive to us. I've never been a big fan of biomass in North America for a lot of different reasons. In Latin America, there are clearly policies and incentives that are significant, meaning long-term contracts, financing conditions that are helpful in this area. Another technology that we feel strongly about is certainly geothermal. We have no geothermal expertise within our group.
Therefore, if we ever did expand in that technology, we need to invest in a platform or a team of people. We are very much attracted by that technology. Arbitraging builder-buy continues to be a common theme. I will talk about this in a few slides from now. In terms of leveraging Brookfield's global reach and global platform to originate transactions and help us find growth that are attractive and value-based is very much important. Projects under construction. I can be a little bit more specific. We talked about the $1.2 billion program that we have underway. There are four projects in hydro, two of them in Brazil, two in North America. We also have three wind projects under construction. When we look at this, this will add 431 MW or 10% more capacity. Our development pipeline is about 2,000 MW.
More importantly, we do like to look at late-stage opportunities that may exist out in the marketplace where they may not be distressed, but certainly a lack of capital. That lack of capital has brought very interesting opportunities for us, two wind farms in the U.S. I think we got involved at a late stage and turned those situations around and are under construction today. We do have, for those opportunities or those times where it gets a little bit more expensive or there are fewer opportunities, 2,000 MW of capacity that we can build in all of our core technologies and most of our core markets that total about 2,000 MW.
I wanted to give you an example of what I mean by late-stage projects and the capabilities that Brookfield can bring to bear on opportunities that are essentially, I won't say distressed, but certainly a lack of capital and running out of options is what I would like to call it. We bought a 99 MW project in the fourth quarter of 2010. We bought that project where there was a lack of capital to secure turbines for the project. There were still regulatory approvals to obtain. When we looked at some of the benefits from investment tax credits or the 30% grant that the government makes available for these types of projects and government loan guarantees that existed, it wouldn't have happened without either Brookfield, meaning the capital that we could bring to bear on this project, and an operating platform in the U.S.
that really pulled all the stops to get this done. By the fourth quarter of 2011, we have gone from a concept and a late-stage project that wasn't fully permitted to a fully built commissioned project that should be commissioned in the fourth quarter of this year. That's 12 months. That is a very short period of time. When we move fast, we also think that we are able to surface certainly very attractive returns for our investors. Let me turn my presentation to the combination of our businesses into Brookfield Renewable Energy Partners. This will be what we believe to be one of the world's largest listed pure-play renewable power businesses in the world. It is going to be a business that's going to be modeled and certainly BREP, as I'm happy that Brian actually got all the acronyms out of the way.
BREP will certainly be modeled after BIP. We believe that BIP has shown so much success in the marketplace that we feel that was the right model for us to use. It will be listed on the Toronto Stock Exchange. We plan to file for a listing on the New York Stock Exchange in early 2012. When the transaction is completed, Brookfield will own 73% of the common equity of BREP, and 27% will be owned by public unit holders. BREP will also assume all of the corporate debt that was issued by Brookfield Renewable Power Inc. and also assume the preferred shares issued by Brookfield Renewable Energy Fund, which was $250 million in preferred shares and $1.1 billion in corporate bonds. Brookfield will continue certainly its strong relationship.
When we look at the relationship it's had over the years with the fund, which is a Canadian income fund created in 1999 that is currently called Brookfield Renewable Energy Fund, BREP was essentially created in 1999, has returned approximately 15% return since 1999 to its investors. This was based on revenue contracts that escalated at 20%- 40% of inflation. I think we've been very successful at growing this, particularly because of the sponsorship and the relationship we've maintained with Brookfield in that fund. Going forward, BREP will be Brookfield's primary vehicle for investing or through which it will invest in renewable power assets on a global basis. Brookfield will also be the managing general partner through one of its wholly owned subsidiaries and will be entitled to incentive-based distributions very similar to those afforded to BIP's general partner.
In terms of the team that will manage this business going forward, it is the same management team that has managed the business since the mid-1990s for Brookfield. We will be entitled to management fees that will be $20 million and 25% of increased total capitalization going forward. One of the key things that has meant success for Brookfield Renewable Energy Fund has been its contract profile. BREP will have a fully contracted profile, meaning 100% of its revenues will be contracted with creditworthy counterparties, one of which will be Brookfield. As part of this transaction, we plan on putting a new contract in place. That PPA will be covering our U.S. portfolio, particularly the New York portfolio that is uncontracted today.
At $75 a megawatt hour and a 40% inflation factor and a 25-year term with 20-year extensions, this will bring BREP to a fully contracted profile, providing certainty and stability of cash flows for investors going forward. When we look at the financial highlights or the financial profile, we plan on having an initial distribution of $1.35. That means from CAD 1.30 today and with a profile of increasing distributions between 3% and 5% per year. This is very much consistent with an 80% payout ratio, which leaves about $100 million a year of free cash flow in order for us to invest in accretive transactions and opportunities for BREP . In terms of the investment grade ratings, it will maintain the same investment grade ratings that prior to this transaction that Brookfield had enjoyed in Brookfield Renewable Power Inc.
The benefits of this transaction clearly create a global flagship vehicle, well positioned to grow on a global basis. It enhances liquidity and access to capital, provides a competitive cost of capital going forward, and with listings in New York and also Toronto, we believe that this will broaden the investor base for this particular business and segment. It simplifies our corporate structure. That means a global mandate and an asset management model applied to this business going forward for BAM . Strong value proposition for both groups, but particularly the fund unit holders have reacted since the announcement in a very positive way. The risk-reward proposition, particularly in future upside or in terms of the pricing of power, continues to be the same. One takeaway I would like you to remember is that with 73% ownership, Brookfield is not divesting of anything and certainly not of its business.
It will own exactly the same economic interest post this transaction once it closes. Let me just finish because I'm trying to be mindful of the 30 minutes, and I'm getting close. Priorities for next year, and this is no different. Setting priorities on an annual basis, the themes are always easy for me. Driving financial results and operating results out of the business is tremendously important. Our EBITDA targets, maximizing value and flexibility of our assets, and managing costs. Deploying capital will certainly be an important theme for us. We feel that through an outreach program and a proactive outreach program with Brookfield, we plan on deploying at least $1 billion in the next year through development and acquisitions. We would like to deliver our construction program on scope, schedule, and budget, but more importantly, to do it safely for all of our employees and contractors.
We would also make sure that we advance one project in particular, a 45 MW hydro project that is completing its permitting phase and should be ready to start construction in 2012. We'd like to implement effective funding strategies. Launching BREP will be an important element of our strategy, but also keeping focused on providing the lowest cost of capital on certainly the debt refinancings that are coming up in 2012. On that, I will certainly wrap up and take any questions. I see a number two. That means I can take two questions.
Michael Goldberg, Desjardins. Richard, so BAM will own 73% of BREP , earning, let's say, the current yield plus growth, a 9% return over time, plus its management fees. What do you—what could we think about the optimum ownership level for BAM ?
Certainly, Michael, I would say that at the present time, BAM will own 73% on closing of this transaction. I think that currently, there are no plans to reduce that ownership. We have 73% today economic interest. We will have post-closing 73%. It is not typical, as you've seen in some of the presentations, to have that high of an interest in the various flagships that we currently own. Depending on the opportunities in the future, that may happen naturally to sort of reduce our interest. We think that there are a lot of really neat opportunities out there that we can now certainly focus on and grow our portfolio. Part of that process may be certainly a reduction of our interest over time.
Richard, when you think about biomass and in particular in Brazil, what have you really learned from, say, the timber group and the ag fund in Brazil and how that might help you in the biomass opportunity in that country?
I think the biomass opportunity in Brazil, more particularly, is better on the bagasse sort of side, which is really a byproduct of sugar cane that is burnt in order to actually generate steam and also electricity in either ethanol and also sugar producers. In that particular respect, there are really interesting long-term contracts that are available. The government policies clearly are encouraging that type of generation to be built. The size of them vary between 40 and 80 MW, I would say. They don't get a lot bigger than that. We think that when we look at our experience, as you know, we are a big landowner in Brazil. We have lots of relationships with the ethanol business. We think we have a pretty significant competitive advantage to secure the best projects and ultimately get in front of people and certainly get involved in that business.
We've been involved, by the way. We have expertise and experience in co-generation biomass facilities in North America. We feel pretty confident that we can actually execute on this. The wood-based biomass facilities in Brazil are interesting, I think. In our view, the bagasse and certainly biomass with ethanol producers would be more so. Wood producing sort of, if you could combine the two, it would actually be perfect. We have talked with technology producers in this field about the ability to do so. I feel that this is a good segment for us to get involved. We have a competitive advantage. Another question at the back.
Two questions. One is, do you think the floating of the BREP common will true up to what do you think the better underlying valuation of the franchise is versus the IFRS standards that have been applied? The second is, and you sort of referenced a little bit in terms of cost of capital. I was wondering if you could go a little deeper into that in terms of some of the opportunities you see around that. The second is, you talk a little bit more about moving Ontario Power Generation in a Northeast compact and the time for the off-season elements or peak pricing and the time framework for realizing that value and the fact that you've got sort of different seasonal needs in the Northeastern U.S. versus hydrological capacity out of Ontario. Thanks.
OK. I think there were more than two questions. I think I'm going to try and answer a few of them. The first one, I think in terms of IFRS valuations, I can tell you that pre-transaction or post-the-transaction, we're using exactly the same valuation metrics. You have to understand that in terms of BREP , it will actually have a different revenue profile considering that its contract profile is very different. Also, the escalation of its revenue streams is very different because, again, it has 20% - 40% escalation, 20% - 40% of inflation escalation versus a lot of the other sort of contracts would be full inflation. It's a hard question to answer in great detail. I would say the takeaway is that our assumptions are exactly the same pre or post-transaction.
In terms of, I believe the last part of your question was when we look at hydrology and how we shift water across different sort of periods of the year and off-peak seasons, etc., I can tell you that we've been doing this for a very, very long time. We've been managing water in the most optimal way possible. That is the first variable. Moving water in the highest price periods is something that we do every day, every month, and every year. At the same time, moving power in the best jurisdiction, I would say, is also something that we have a large group of people that do this on a full-time basis. I believe our margins have improved.
You can see, I believe, from some of the numbers that Brian showed earlier on that even in a really sort of tough market, we're still surfacing very significant increases in revenues year-over-year as a result of moving power and benefiting from the optionality of the asset. On that, hopefully, I think there will be further time for questions at the end. I will now pass matters over to Cyrus Madon. Thank you very much.
Good afternoon. Before I get started, I actually had a question for Richard. Richard, you said twice you didn't want to use the word distress. I'm wondering why because I actually like the word a lot. OK. I wanted to talk to you today about our private equity and distress investing activities, which we conduct across our businesses. Our private equity group comprises 25 investment professionals in North America. All of them have a background in restructurings and distress investing. In addition to pursuing private equity investments, most of which are businesses that have some form of operational or financial distress, our private equity team regularly assists the rest of Brookfield in pursuing similar types of investments in our other platforms, some of which you've heard about today. Our professionals have a deep expertise in bankruptcy and reorganization processes across jurisdictions.
Brookfield's long history and experience as an owner and operator of businesses enables us to manage the companies to ensure we properly turn their operations around and generate positive cash flow. Our private equity group manages $8 billion in assets through funds and directly held investments. This slide highlights certain of our restructuring investments over three decades. As you can see, as an organization, we have a very long history in successfully recapitalizing financially and operationally distressed companies. Several of our substantial assets were acquired throughout our history by way of a recapitalization or restructuring process. This would include Brookfield Properties, World Financial Center, New York, and more recently, Brookfield Infrastructure Partners, Australian and European assets, and our investment in General Growth Properties.
Our long track record in distress investing has enabled us to invest on a deep value basis across our operating platforms and generate significant returns with relatively low risk. Our approach to investing, combined with our global platform, gives us tremendous advantages in executing a distress investing strategy. We have deep industry knowledge through our global platform. Our access to experience in finance, legal, and operations means we can commit substantial resources to pursuing transactions. In order to avoid auction situations, we target complex situations, often acquiring debt securities as a means to work our way into a transaction. That could be securities in the market or making a loan directly to a company. We're highly focused on capital preservation, which means that our portfolios are not highly leveraged. Where they do have debt, the debt is structured to be readily manageable by our portfolio companies.
We actively manage the companies we invest in, again, so we are sure to be able to implement an operations plan to bring the company back to health. What that really means is we always generally target positions of significant influence or control. You won't see us taking minority positions in companies where we don't have influence unless it's by accident. I thought it might be useful to give you an update on two recent transactions that we did and give you a little bit of an update on progress in one of our existing companies as well. The first company I'd like to talk about is a company called Armtec Infrastructure, a Canadian manufacturer of precast concrete, steel, and plastic pipe with end markets in infrastructure, commercial, and residential construction. Armtec is the market leader in Canada and has a very long history of profitability.
The company went through a very rapid phase of growth over the last five years, financed primarily with debt. Off-market conditions recently combined with operating challenges have impaired Armtec's EBITDA. It dropped from about $80 million a couple of years ago to approximately $30 million today. It resulted in the company's banks putting it under a lot of pressure to refinance their $100 million loan. We replaced this loan with a $125 million senior secured facility, and we provided the company with greater covenant flexibility. We plan to syndicate a senior portion of this loan, which will increase our returns on about half of the loan that we will retain. In addition, we received seven-year warrants on 15% of the company's equity so we can participate meaningfully in any recovery of the company's prospects. Importantly, these warrants are subject to a minimum return to us of $20 million.
What this means is that we should earn a return of about 25% on our capital invested, assuming no recovery in the company's prospects. What we like about this investment is that we sourced it directly with no competition, no auction process. We understand the sector very well. Our diligence confirmed our view that the company's long-term prospects remain intact. In the unlikely event of a liquidation or restructuring, our loan is very well protected by $300 million of tangible assets in the company. We hope to find other loans like this where we can earn equity returns with very limited downside risk. The second investment we made recently is in a company called Ember Resources. Ember is a Calgary-based natural gas producer focused on coal-bed methane and shallow gas. Ember has extensive land holdings totaling approximately 400,000 acres and 435 producing wells. It owns long-life, high-quality gas reserves.
The company has tremendous reserve development potential. It was unable to take advantage of it because it was extremely highly leveraged. Because the company's banks were on the verge of demanding their loan, we were able to take this company private along with one of its significant shareholders.
A compelling valuation. Our diligence confirmed our view that this is a high-value, underdeveloped land base, and we developed a plan to triple reserves with limited additional investment. This is a remarkable asset base, given that it's generating positive cash flow today at extremely depressed natural gas prices. What we liked about this investment is that we were able to pursue a proprietary investment in a company in financial distress with no competition, and as a result, we were able to make this investment at a 50% discount to net asset value. Today, the company has very little debt, it generates cash, and we should earn a 25% annual return on our $50 million investment over many years. The last private equity investment I wanted to update you on is Longview Fibre Paper and Packaging.
Longview is a producer of craft paper and manufacturer of corrugated containers used in the food industry. We acquired this 1 million-ton pulp and paper mill together with seven containerboard plants as part of Brookfield's acquisition of Longview Fibre in 2007, which consisted of timber assets and the manufacturing business. At the time, because Longview's manufacturing business was generating nominal cash flow, we valued it at only $235 million, essentially at its working capital value. We got the manufacturing business for free, which has a replacement value in excess of $2 billion. Our operating teams got deeply involved in the company and made significant changes. This involved replacing the entire management team, reducing headcount by more than 700 people, shutting down the high-cost paper machines, and eliminating unprofitable product lines. To put it in perspective, I think we dropped our product SKUs from about 200 to 70.
In addition, we started an export sales program for craft paper, which now comprises 13% of the company's sales. These actions have increased our annual EBITDA to well in excess of $100 million so far. Early this year, we test-marketed the company for sale but weren't satisfied with the bids we received. Instead, we successfully executed a $480 million public bond issue. To date, including a prior dividend, we've generated distributions to our fund investors and ourselves of almost 5x our invested capital. With continued operational progress, we are very positive about the long-term prospects for Longview. Given industry consolidation, Longview should be a very attractive acquisition target for a strategic buyer. That is generally our preferred exit for the vast majority of our investments, simply because a strategic buyer can afford to pay for synergies.
In addition, as you've heard today from Ric and Sam , we assisted in the execution of several real estate transactions and assisted our infrastructure group in other distressed activities. I won't go into them because they've been mentioned. I'd now like to talk to you about our current private equity initiative in Brazil. Brazil has a population of over 200 million people, making it the fifth most populous nation in the world. What's really interesting is that it is the second youngest country among the world's 10 largest economies, both in terms of median age and percentage of population under the age of 25. As individuals transition into a higher-income earning stage, they tend to spend more not only on discretionary expenditures, such as health products and services, but also on home ownership expenditures, financial services, and education.
The country has a stable democracy and an investment-grade sovereign credit rating. Credit markets continue to evolve, and citizens have increased access to credit, which has made homes, cars, and durable goods more affordable. All of this supports the current and long-term expansion of household income. As a result, we think this is a prime market to enhance our private equity efforts, especially given our very lengthy experience and expertise in the country. To remind you, Brookfield has 7,000 employees and approximately $13 billion in assets under management in Brazil. Our substantial platform gives us very strong proprietary transaction flow and gives us the ability to support the growth of our portfolio companies. To that end, we have established a 12-person local team to pursue private equity opportunities in Brazil.
We're targeting opportunities in growth sectors with simple business models where we can create value by leveraging our national operating reach and finance growth initiatives, similar to how we built our Brazilian real estate and power generation businesses. We plan to use our competitive advantage to target mid-market opportunities in sectors including housing, financial services, agriculture and food, wood products, energy, and infrastructure. Finally, I wanted to comment on the market. I know you've heard quite a bit today from my colleagues, so I'll try not to be repetitive, but specifically comment on different geographies and what type of distress opportunities we intend to see. In the U.S., there obviously continue to be economic challenges that you're all well aware of. The economy is struggling with high unemployment. The S&P has downgraded the U.S. credit rating. The housing market is still in disarray.
The upcoming federal election and political posturing appears to be adding to risk in the markets. While very robust credit markets in 2010 and during the first half of this year enabled many companies to refinance debt and extend maturities, more recently, credit markets have weakened significantly, making it challenging for lower-grade issuers and weak sponsors to raise capital. In addition, certain industries and regions remain fundamentally challenged. This environment will continue to foster opportunities for us across our businesses. In Europe, as Sam mentioned, government default risk is a significant concern with global implications. Despite attempts by eurozone countries and the IMF to assist Greece, the market is assessing a risk of a Greek default at about 100%. Bond risk premiums have now risen quite substantially for Spain, Italy, and Portugal.
The European economy is also weakening, with growth in industrial production slowing fairly sharply over the last year and unemployment remaining stubbornly high. The sovereign risk in Europe and a weak economy have put enormous pressure on banks, which have traded down significantly as they fail to instill confidence in the market that they are equipped to deal with these risks. Corporate spreads have also widened as liquidity fears have set in. We are very well positioned to pursue the acquisition of loans held by these banks that need liquidity, and in addition, to assist sponsors to recapitalize their balance sheets. In particular, there should be opportunities for us in property and infrastructure. I'd also like to comment briefly on China and India, which are not suffering distress like many developed economies, but nonetheless have selective, interesting opportunities for us.
As you're aware, China continues to grow at a very impressive rate and could very well become the largest global economy within the next 10 years. Governments are attempting to moderate that growth to restrain inflation and to create an environment of sustainable domestic growth. In particular, the China Banking Regulatory Commission has instructed banks to reduce lending against real estate. The attempts to slow growth and other global factors have reduced valuations for a number of Chinese companies. For North American listed Chinese companies, in particular, the contraction in value has been very severe as investor concerns regarding transparency, credibility, and governance weigh in. These same companies are unable to access capital today. Many of them are liquidity constrained. There may be selective opportunities for Brookfield to assist companies in industries very well known to us.
In India, many companies are experiencing broader liquidity issues for a variety of reasons. While India is a country with favorable demographics, an investment-grade sovereign rating, and a strong democracy, growth has recently slowed as the Reserve Bank has increased interest rates in an effort to dampen inflation. In addition, growth in bank financing for real estate and infrastructure has been severely curtailed in response to Reserve Bank requirements. This has created a gap in funding for these industries, particularly because the country has not developed a deep public credit market. At the same time, foreign direct investment has been shrinking, and corporate governance concerns have arisen. The combination of these factors has led to a meaningful decline in equity market valuations in that country.
The expansion of infrastructure and high-quality real estate is essential to the continued growth of India, and many developers are now turning to private equity for financing of projects. We opened business development offices in Mumbai and Hong Kong a few years ago. Since that time, we've launched our real estate services businesses as a means to enter the countries on a capital light basis. Today, our teams are looking for opportunities in liquidity-constrained situations in real estate and infrastructure. We'll see how we do. You can rest assured whatever we do there will be in a very, very measured way. We do believe that both countries hold tremendous potential for us in the long term. With that, I'd just like to summarize by saying that the environment for us suits us in many jurisdictions. Our strategy and approach to distressed investing gives us a competitive advantage.
We believe there are high-quality assets available in various jurisdictions, and our teams are actively pursuing opportunities. I'd be happy to take any questions, two or three. Be happy to sit down too. All right.
Nobody asked questions of the distressed guy. I will wrap up with the following, just one slide, and then I'd be happy to take any questions. I guess first, maybe I'd just say thank you for those that have still endured the day. We find it often hard, and if you have any suggestions, we would take them. We find it hard to do this in less than four hours. We'd like to, we only do it once a year. We want to explain our businesses. We find it tough to explain a whole business and what we're doing in less than 30 minutes. If you think you should do it in 15, please tell us. We could do parts of the presentation each year. We just find that some people don't come every year. If you have suggestions, we'd love to take them.
I guess we think that, and I hope you got it from the people that presented it today, but we think that there's a tremendous opportunity within our operating businesses. They're generally performing well. They can always be better. In fact, we get aggravated each day when they're not performing better. I'd say relative to most others in the world at large, they're performing well. We're pretty well positioned in this environment. Our global business and the size we have gives us access to opportunities that most don't have the luxury of getting. We've been endowed with a significant amount of liquidity, relationships, balance sheet, and capital to do things which allow us to build a business through this environment. That's quite exciting. The funds and strategies have done well since we started them 10 years ago, and that's been additive to the business.
There are probably 10 or 20 alternative investment managers that are like us in the world in different ways, but we're in that group. That gives us a great advantage, and we keep building it over time. I hope you see from the individuals that are here, and we have many others in the company, that we have an in-depth bunch of people in the organization that have been here a long time and are dedicated to building the business. I'd say we're very positive about the future. The one thing I would say, and we generally try to give you a pre-varnished view of the world at large and where we're investing and what we think of the different opportunities in the different countries. We're not macroeconomics people, though, and we don't try to invest that way.
In fact, all we try to do is gauge the market that's out there and try to put capital to work either faster or slower based on what we think might occur in the future. I can tell you, in 2007, we were very worried come summertime that the world was melting down and that we had to do things to protect the balance sheet. Today, we're not that way at all. While we say there's distress out there and there's issues in places, and there are, there's no doubt about it, we're actually quite positive about the fundamentals of the business. Even here in the United States, everyone talks about the doom and gloom, but if you listen to Sandeep's story on General Growth, it's a very different story what's going on in some of the assets underneath.
This is an amazing economy that just needs to figure some things out. Maybe that's an understatement. With that, I'd say business is the bottom line. Business is never, ever, ever easy. While we make mistakes as we go along, we keep learning from it. The good news is we've been here a long time, and we're actually all getting older. That means that we probably maybe make less mistakes than before, but we have a lot of that behind us, and we're quite enthused about what we can build in the next 5 or 10 years. That's really all I was going to say as a wrap-up. If there are any other questions, I would be happy to take them. Otherwise, there is a reception which we have upstairs once we're done with questions, or people can trail out during questions.
It's just upstairs in the lobby if people want to stay and stick around and talk to any of the management people that are here. Are there any other questions that anyone would like to ask? Michael?
Just a big-picture question. Looking out five years from now, what would you think about how the proportion of private managed funds will change?
No, I don't know, Michael. It's a good question. I would say our business, we try to be extremely flexible. I don't mean to be, we don't mean to be evasive when we answer people's questions, but we run a business which tries to be extremely flexible to the environment that we have and in response to situations which allow us to earn proper returns on capital with the type of business that we run. I guess that's just to say sometimes capital markets are freely open for income products that we offer to people, and therefore the public market vehicles will grow. Sometimes institutions are going to be pouring money into the type of products we have, and therefore they will grow significantly.
If I had to guess, my best guess is I do think both of them will grow dramatically because I think both the defined, as our view is, the defined contribution programs in the United States are going to continue to put money into income products which need to be found. We're creating some of those products that can fit into defined contribution plans in the U.S., which are really publicly traded, more income-like securities. The institutions, and one of the slides we had in the presentation, institutions need to earn more than 1% or 2% on their bond portfolios, and they need supplements to that, and they're going to continue to have to allocate to alternatives. I think we'll get it from both sides.
If I had to guess, I think they're both going to grow at a very significant pace for people who have good track records, not just us, people who have good track records over the next 10 - 20 years. I think there's an enormous, firstly, wealth management is growing dramatically, but the alternative space in wealth management is growing at a far, far more rapid pace and will continue to 4, 5, or 10 years.
[Our associates], I'm going to pick on something you say you don't do well in terms of your macro. I'm interested in why four years ago you were very concerned about the state of the world, and now you're not. Just to help you out, maybe because the nexus of what's going on in the world and the concerns come from the other side of the Atlantic where you don't have a lot of exposure. All your businesses touch the economy and the markets in a very visceral way. Even though you claim you're not macro people, you know you feel the market. I'm curious as to why things look so much better to you today than they did four years ago.
Thank you for the question. It's an excellent one. I would say the following. Maybe it's a naivety because we're not sitting there with a bunch of issues in Europe. I like to think that it's two things. Number one, and I think this applies to all U.S. companies, in 2007, we had come off a period of five years beforehand, which was extremely positive. Capital was freely available, and everyone, I don't think there's anybody, including ourselves, that didn't do a few dumb things. Thank God ours weren't very big. Everyone did a few things that they probably shouldn't have done, and they had financing. In fact, corporations all had financing, which they just didn't expect what happened to occur. Therefore, they were in a situation where they had things that couldn't, either it was tough to withstand the market that happened in 2008 or 2009, and some couldn't.
Like General Growth couldn't withstand it. It was a freak occurrence of what occurred, but it just, they couldn't withstand it. What happened then was corporations went through, had gone through really four years, call it 2008, 2009, 2010, 2011. We're almost four years into this. They didn't do anything aggressive. In fact, they were repairing all of the things from the past five years. U.S. corporations, Canadian ones, are sitting in amazing shape. Look at the multinational companies in the U.S. Many of them are sitting at net cash and trading at 8x or 9 x or 10 x earnings. These are amazing companies at very low valuation. I guess I'd just say, I think for U.S. corporations, they're in extremely good shape to withstand, even if there is a , even if Europe does come along. I just look at ourselves.
All of our businesses are sitting on more cash, longer-term bank lines, no real extended issues that they have to deal with. There are things all the time, so you should never say never, but very few. I just think people are more prepared for that situation, and we definitely are. There's no doubt if Europe melts down and the European Union breaks apart and we have what we had in 2008 come along, it's not going to be fun for anybody. That's not to say that there aren't issues if those macroeconomic situations come along, but you have to deal with all of these things in macroeconomics and try to invest along the way if you should be. I guess our view is that we, in particular, and many, are in much better shape, especially on this side of the pond.
That is partly because our view in 2007 was that capital markets, the credit markets seized up far, far ahead of the equity markets at the end of 2008. We saw it, and it frankly scared us a lot. Today, that does not exist. Maybe it does exist for a few people in Europe who deal, whose core banking group is Spanish and Portuguese banks, maybe Greek too. The point is, if you have those counterparties as your people, they are pulling capital back, and it is trouble. Today, our banking groups are either major international institutions, U.S., Canadian, Brazilian, or Australian. They are in good shape.
Thank you.
You're welcome.
Bruce, I just wanted to go back to something you said at the beginning of the day and relate that to Michael's question and your talk about asset management growth. I think you mentioned that assets where cash flows are apparent are trading at very strong valuations. Where there isn't apparent cash flows, that's where you guys like to invest, and you can see a lot of value potential. It would seem like the investors that you're targeting would want those stable cash flows. How do you kind of manage investing and investing alongside with them at returns that are acceptable to you and that are acceptable to your investment partners if those assets are trading at pretty strong valuations today?
What investors really want is transparent cash flows at returns like they weren't. That's the real thing that they want. Everyone wants that. I guess I would say that much of our investing is about finding great assets with cash flows that you can't readily see tomorrow morning. Either it's tangled up in a corporate situation or it has a bunch of assets around it, or you have to sell some assets to get the good ones. It's always a situation where we're trying to do that. The bottom line, the way we manage that situation, I think specific to your question, is if someone just wants to earn a 7% yield over time and that doesn't really match our returns, then often we just won't have as much money into it.
We may have 50% of a private equity fund or 30% because we want to have a lot of our money invested in that. On core properties, where an institutional client wants to earn a lower return and is happy with it, we may run it for them and own 20%. Often in our office business, we just sold a property in Washington that we bought 100% of five years ago. To a private high net worth group put together by one of the financial institutions, we sold 90% of the property, kept 10% of it, we managed to run it and operated it for them, but we only have 10% of the money in. They're going to earn, I think, a fantastic return over time, exactly what they bargained for. We get 10% of that plus the extra, and it aligns us with them.
I think that's how we've tried to manage it.