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Ahead of the pack: US M&A 2019
Fire escapes
Insight

Real estate deals build on very solid foundations

The trend for megadeals in US real estate continued in 2019, with 38 transactions in the sector, worth a total US$56.6 billion—but overall deal volume was down 17 percent and deal value fell 25 percent year-on-year

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Real estate deals in the US may be down on the previous year but only because 2018 saw a particularly marked uptick in M&A value of 117 percent. Megadeals are still driving the market.

 

Funds finding a home

Transactions in the sector have been driven by portfolio purchases, with PE real estate funds in the driver's seat. These investors have raised significant amounts of capital over recent years, with 2018 seeing 300 funds raise an aggregate of US$124 billion worldwide, according to Preqin. 2018 marks the sixth consecutive year in which fundraising topped US$100 billion.

This is where we see appetite from overseas investors for the US market manifest itself. Driven by a quest for yield at a time of persistently low or negative interest rates in some markets, many institutions are ploughing their real estate allocations into funds, where they can benefit from diversification as well as property management and development expertise.

Indeed, two of the four largest real estate deals in 2019 featured a single PERE fund—Blackstone. It acquired the US logistics real estate assets of Singaporean investment manager GLP in a transaction valued at US$13.4 billion, and it purchased Colony Capital's US logistics assets for US$5.7 billion.

US $56.6 billion

The value of 38 transactions in the US real estate sector in 2019

 

Logistics in the lead

As the Blackstone deals demonstrate, industrial, logistics and warehousing assets are in high demand among dealmakers, with the second-largest transaction—Prologis's acquisition of Liberty Property Trust—making this space account for the top three real estate deals by value in 2019.

The rise of e-commerce continues to drive this part of the market, while others spot potential to redevelop and repurpose physical retail spaces to create mixed-use developments with residential, retail, entertainment and specialty office assets. With long lead times—five years or more from redevelopment through stabilization—these opportunities are well suited to those armed with patient capital.

 

Pressures and potential

In the coming months, some contraction may occur as WeWork contracts. The rapid expansion of the past few years may come to a halt if the US experiences a downturn over the coming period. However, a market contraction is likely to offer real estate dealmakers some attractive opportunities.

Top real estate deals 2019

1. Blackstone acquired the US real estate logistics assets of GLP Pte. for US$13.4 billion

2. Prologis acquired Liberty Property Trust for US$12.2 billion

3. Mirae Asset Global acquired Strategic Hotels & Resorts for US$5.8 billion

    
    

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Ahead of the pack: US M&A in 2019

 

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