Real Estate M&A Are On the Rise

Mergers and acquisitions in the real estate sector are on the rise, as a mix of pent-up demand, renewed confidence, and a frustration in finding direct-investment opportunities at scale are spurring activity, reported JLL.

This activity comes amid a booming sales market in general, with one analyst from Avison Young predicting that it wouldn’t be surprising if fourth quarter sales volume doubled that of the third quarter in part.

A string of deals in recent months is a sharp contrast to the lull experienced early in the COVID-19 pandemic when caution ruled among real estate investors.

“The pandemic narrowed the focus to opportunities in some sought-after real estate sectors, while at the same time other sectors suffered significant disruption to business models,” Raj Somchand, head of M&A and Equity Advisory for EMEA at JLL, said in a recent post. “But we’re quickly moving on from that.”

Likewise for some metro areas. New York City, for example, is riding up a V-shape recovery, James Nelson, Principal & Head of Tri-State Investment Sales at Avison Young, tells GlobeSt. “After the Manhattan investment sales sector hit a 10-year low in the first quarter, we have seen a massive uptick in activity.”

Avison Young’s Tri-State Investment Sales Group “is anticipating closing 7x to 8x the amount of dollar volume for the second half of 2021 as sellers have come off the sidelines and buyers are there with open arms being fueled by incredibly cheap debt,” Nelson continues.  “I wouldn’t be surprised if fourth quarter sales volume doubles that of the third quarter.”

Global Activity Soaring

Among recent deals, the world’s third-largest listed real estate investment manager is being created with $129 billion of assets under management, as Hong Kong-headquartered ESR Cayman buys real estate fund manager ARA Asset Management, PERE reports. 

In Germany, Europe’s largest real estate merger recently saw Vonovia takeover Deutsche Wohnen for around US$22.1 billion, bringing two major residential specialists together, JLL points out. 

Increased M&A activity in the real estate world is mirrored by a rise in deal-making across all industries, with volumes already close to their all-time $4.8 trillion high, having so far surpassed $4.3 trillion this year, according to Refinitiv data. 

Consolidation Continues

Another driver of M&A this year has been a continuation of the consolidation trend in the sector. Some M&A activity may have taken place regardless given the weight of capital focused on real estate, Somchand says.

In a $3.9 billion deal, New York listed Columbia Property Trust is being bought by investment manager PIMCO. 

Blackstone’s $1.7 billion take-private deal for UK property company St Modwen gives the former access to new warehouse opportunities at a time of heightened competition for the logistics sector. Meanwhile, European industrial property manager CTP’s €800 million move for Deutsche Industrie REIT gives it a portfolio of around €7.2 billion.