NEW YORK CITY—Surveying the universe of investors that predominated last year, Real Capital Analytics calls 2017 “the year of private capital sources.” This class of investors was behind approximately 50% of all $467.5 billion worth of acquisitions for the year, according to RCA, even if their share of dollar volume was achieved with smaller deals than those of any other investor class.
On average, private investors spent an average of $10.8 million per commercial property transaction in '17, according to RCA data. That compares with an average of $31.6 million per transaction for listed REITs, $32.6 million for institutional investors and $39.8 million for cross-border capital.
“Private capital sources tend to be more locally focused and are showing a willingness to look at assets in locations where the institutional and cross-border capital sources fear to tread,” RCA says in its latest US Capital Trends Big Picture report. Typically, such willingness to dig deeper translates into “looking at less favored property subtypes and smaller deals. In fact, the average deal size for private capital sources in 2017 was only about one-third of the size of that for institutional investors and REITs and only one-quarter of the size of deals completed by cross-border buyers.”
Looking back over the past five years, private capital has ranked consistently at the top when it comes to buyer composition nationally, RCA data show. However, private sources gained share of the total deal pie in '17 as the share of institutions and cross-border investors eroded, by 21% and 23%, respectively. Foreign investors' share ranged as high as 18% in 2015, but had diminished to 11% by last year.
Conversely, says RCA, REITs posted a turnaround in market share last year. Representing 11% of all deal volume for '17, a 28% year-over-year increase, this class of investor had fallen off to a single-digit share of the market in 2016 after three consecutive years of declines.
“The growth for the year was driven in part by activity falling off for other investment groups, but REITs were on a stronger pace for acquisitions in 2017,” according to the USCT report. “REITs expanded their pace of deals for every property sector but apartments last year.” In the retail sector, REITs were second only to private capital sources for market share, representing 18% of the $63.4 billion of significant transactions the retail sector saw last year.
Cross-border investors' falling-off of deal volume brought this investor class' market share back to levels similar to those seen in 2013 and 2014 “before the frenzy of acquisitions by Asian buyers,” according to RCA. Foreign buyers did step up their share of deal volume for both the apartment and industrial sectors last year, though.
RCA notes that institutional investors remained the second largest source of buyers in '17 even though their share of the market declined to 23% from 27% in each of the two preceding years. Institutions posted particularly large drops in their share of acquisitions in retail, says RCA.
In fact, only warehouses and suburban office properties saw increasing deal activity among institutions last year. “These sectors each have good yield stories at a time when investors hunger for yield,” says RCA.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
