Private Equity CRE Activity Falls In Q2
The slowdown is likely due to higher asset pricing, with fund managers moving to the lower end of the market for deal flow.
LONDON–In its earnings call earlier this month Blackstone CEO Stephen Schwarzman confirmed that it is set on raising funds for its next Blackstone Real Estate Partners Fund in the next several months. “We expect our fundraising super cycle to bring the firm’s total AUM above the $500 billion milestone, likely in the first half of next year,” Schwarzman said.
As it does, the giant and prolific private equity player will be entering an environment of falling deal flow, if current trends continue.
Despite the wave of public-to-private transactions the commercial real estate market has seen over the past quarter, the first half of 2018 has been marked by two consecutive quarters of decline in both the number of private equity deals announced and their aggregate value, according to new figures from Preqin.
A total of 1,295 transactions were completed in Q2 with a combined value of $62 billion, down from 1,623 deals worth a total of $77 billion seen in Q1. The largest deal completed in Q2 2018 was the acquisition of Gramercy Property Trust by Blackstone Group for $7.6 billion.
Preqin expects Q2 totals to rise by up to 10% as more information becomes available, but it remains some way off the record $102 billion in deal making seen in Q4 2017.
The slowdown is likely due to higher asset pricing, with fund managers moving to the lower end of the market for deal flow: two-thirds of transactions in Q2 were valued at less than $50 million compared with 59% the year before.
Additionally, the quarter saw a shift towards residential deals, which accounted for 27% of deal value, up from 15% in Q2 2017. This is unsurprising, Tom Carr, head of real estate products for Preqin, said in a prepared statement as over half of investors view residential property types as currently presenting the best opportunities.
By contrast, office transactions — which make up just over a quarter (27%) of transactions — fell from 36% to 28% over the same time period.
The industry shouldn’t necessarily start to worry about this decline, Carr added, noting that the first half of 2018 has still seen activity on par with levels recorded in 2016 and 2015.