By Jim Costello on October 17th, 2019
Preliminary deal volume figures for the third quarter are showing a turndown in U.S. activity from a year earlier. The big entity-level transactions that closed a year ago do not have as many counterparts in the past quarter. Single asset sales seem to be on a healthy path though, with activity essentially unchanged from last year.
While entity-level sales were not as plentiful in the third quarter of 2019, the market did have notable, large portfolio sales. In two different transactions that closed in September, Blackstone vehicles purchased portfolios of industrial assets from GLP. One of these portfolios was priced at $13.4 billion, marking it as the largest portfolio transaction in history. Normally, deals of this size are M&A-type transactions involving the purchase of the whole entity owning the real estate assets.
Megadeals — our grouping of entity-level and portfolio deals — are representing a larger share of the market later into 2019. In the first quarter these deals made up only 22% of total U.S. deal volume, a share that has grown to 32% in the third quarter. Blackstone entities have been responsible for one quarter of the megadeal volume in the U.S. for the year to date.
The industrial sector has been most impacted by megadeals, with 47% of all activity for the year so far tied up in such transactions. Retail was the big sector for megadeal activity in 2018, but for 2019 to date such deals have comprised only 15% of total sales volume for the sector.
Entity-level transactions are not as common in 2019 as in years past. Interest rates have been falling and share prices of REITs — the usual takeover targets for these M&A-type deals — tend to be sensitive to rate movements. Higher share prices have limited the attractiveness of REIT takeovers.
Still, deals were completed for REIT acquisitions in the hotel and apartment sectors in the third quarter. The hotel sector transaction involved the purchase of one REIT by another, with Park Hotels & Resorts acquiring Chesapeake Lodging Trust. Cortland purchased Pure Multi-Family REIT in the apartment sector.
The new edition of US Capital Trends will be released October 23. In this issue we examine volume and pricing data across the property types for the third quarter. We also report on how individual markets are faring in 2019 and the influence of megadeals.
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