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Against all odds: US M&A 2020
Real estate M&A tumbles, despite bright spots in healthcare and logistics
Insight

Real estate M&A tumbles, despite bright spots in healthcare and logistics

Real estate portfolios exposed to hospitality and retail assets have struggled through COVID-19 lockdown periods, but healthcare and logistics investments have performed strongly

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US real estate M&A activity dropped in 2020. With offices, retail and hospitality all under lockdown restrictions, the impact on rent and property values has been severe.

With these core real estate verticals under financial pressure, deal volume in US real estate fell 20 percent to 36 deals for the year. Value over the same period was down 28 percent to US$37 billion. The Dow Jones US Real Estate Index is down 10.5 percent for the year-to-date, even as stocks in other industries have rallied.

Despite these headwinds, certain aspects of the real estate industry— logistics and technology infrastructure among them—have been boosted by the pandemic. This has not yet translated to a large uptick in deal activity, in part, perhaps, due to the difficulty in arriving at a consensus on valuations during this volatile time.

Among the larger deals in tech infrastructure was alternative assets manager Blackstone’s US$350 million sale-and-leaseback deal for 13 industrial sites owned by data storage and information management company Iron Mountain. The shift towards remote work, precipitated by the pandemic, has accelerated the growth in demand for data backup and storage.

 

Healthcare highlights

The largest transaction of the year saw Blackstone on the sale side and involved another sector that has been boosted heavily by the pandemic: the healthcare sector. The deal saw Blackstone sell BioMed Realty, the largest private owner of life sciences office buildings, to a group of existing BioMed investors in a US$14.6 billion deal to recapitalize the business. The deal represents a sizeable return for Blackstone, which took the asset private in 2015 for US$7.8 billion.

 

Retail woes

While the retail and hospitality sectors have had an especially tough time throughout the COVID-19 crisis, there has not been the flood of distressed asset M&A that some predicted at the start of the pandemic. As with industries boosted by the health crisis, businesses that have been severely negatively impacted are reluctant to agree to valuations at an uncertain time.

That said, some retail real estate deals have gone ahead. Simon Property Group, for example, made a US$6.2 billion move for shopping mall operator Taubman Centers. Although the outlook for retail space is challenging, retail specialists like Simon have seen opportunities to acquire assets at attractive valuations and build market share.

Top real estate deals 2020

1. BioMed Realty was acquired by a group of existing BioMed investors for US$14.6 billion

2. Simon Property Group bought Taubman for US$6.2 billion

3. Apartment Investment and Management Co bought Apartment Income REIT Corp for US$5.4 billion

Investors such as Simon and Brookfield Asset Management, which also has an extensive retail real estate portfolio, have turned to M&A to vertically integrate the retail real estate supply chain by investing directly into the retailers that rent spaces in their malls. For instance, Simon and Brookfield have teamed up to buy department store JCPenney, a key mall tenant, out of chapter 11 bankruptcy in a US$1.75 billion deal.

The promise of vaccine rollouts and the beginning of the end of the pandemic in 2021 may bring greater certainty to the real estate market, which could spark a wave of deals.

 

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Against all odds: US M&A 2020

 

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