US real estate merger and acquisition activity has rebounded strongly this year and is likely to keep percolating. But mega-deals or large initial public offerings (IPOs) of private companies such as Hilton Hotels or apartment owner Archstone are not likely this year.
US real estate merger activity picked up in the latter half of last year, with 290 deals worth $40.24 billion (Dh148. billion) announced in 2010. That rocketed to 81 deals worth $37.96 billion in first-quarter 2011, as both the public markets and large US investment banks have been eager to jump in with the range of funds needed to do a deal.
"I think there'll be a number of deals in the $500 million to $1.5 billion size, and maybe Reits [Real Estate Investment Trusts] will buy them, and maybe private equity buys them," said Jackson Hsieh, UBS vice-chairman and global head of the real estate, lodging and leisure group.
Large deals included acquisitions by health care Reits, such as HCP Inc's $6.1 billion takeover of HCR ManorCare, and the $8.7 billion merger of warehouse and distribution center owners AMB Property Corp Property and ProLogis.
Reit M&A deals are unlike other corporate deals because many Reits are still controlled by the families that started them, infusing an emotional aspect into whether to be acquired, said David Lazarus, senior managing director and co-founder of EdgeRock Realty Advisors.
In addition, most types of commercial real estate, other than malls and distribution centers, do not lend themselves to the kind of cost cutting seen in other corporate mergers.
Private equity firms may be looking for bigger deals to spend the roughly $170 billion of committed capital they have raised, Hsieh said. They may buy properties so they can raise more funds to spend.
"I think we'll start to see that in the next 18 months, and I think that's going to start to accelerate deal activity," he said.
Blackstone Group LP recently agreed to buy nearly 600 US portfolios of US shopping centers from Australia's Centro Properties ltd for $9.4 billion and already is raising another fund. Other private equity players such as TPG Capital LP and KKR & Co also are looking to bulk up their real estate under management.
"A lot of private equity firms have evolved into asset managers," Lazarus said.
From / Gulf News