PErspective in Real Estate - Fall 2016

October 2016

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Exit activity for U.S.-based non‑traded REITs in 2016 has been relatively modest, not least because the majority of capital raising took place during the last four years, according to National Real Estate Investor.

Of the $65 to $70 billion currently invested in non-traded REITs, nearly $45 billion was raised since 2012. Funds may also be holding onto investments longer, rather than returning dividends or capital to shareholders, as regulatory changes requiring non-traded REITs to market have made fundraising more challenging, National Real Estate Investor reports.

For investments that are maturing, exit options have lately been narrower than usual. The challenging IPO market has affected every sector from technology to natural resources, and REITs are no exception. During what The Wall Street Journal calls the slowest year for U.S. IPOs since 2009, 2016 has so far seen just one U.S. REIT IPO—MGM Growth Properties, which raised $1.05 billion in its April launch.

Globally, it’s a different story. While the U.S. IPO market has stagnated in 2016, global REIT IPO activity is up, driven by low interest rates around the world and investor demand for stable yields amid global uncertainty. According to, there have been 31 real estate IPOs globally in 2016, raising a combined total of $6 billion, with a strong showing in Asia. Following the successful debut of Viva Energy REIT, which raised $1 billion on the Australian Stock Exchange (ASX) in August, other Asia-Pacific REITs considering an IPO include Charter Hall Group’s Charter Hall Long WALE REIT (ASX), as well as Bain Capital’s plans to sell part of its Japan hotel assets through a REIT IPO (Tokyo Stock Exchange).

Despite improving U.S. equity markets, rising property prices and increasing demand for commercial real estate in recent years—factors which would normally drive IPOs—liquidation and M&A are the most attractive options for non-traded REITs looking to exit in the near term, according to National Real Estate Investor. Hines REIT recently announced plans to sell seven West Coast office assets to an affiliate of Blackstone Real Estate Partners VIII for $1.162 billion, and is in the process of liquidating the remaining assets in its portfolio. Apple Hospitality REIT will buy non-traded REIT Apple REIT Ten in a deal valued at $1.3 billion, set to close in the third quarter. And in August, Mid-America Apartment Communities announced it would acquire Post Properties in an all-stock deal valued at almost $4 billion.

In every sector, U.S. entities are choosing sales over IPOs, as cash-rich strategic and financial investors are eager to take listings off the board at high valuations, The Wall Street Journal reports. As they await maturity, non-traded REITs account for a smaller share of dealmaking compared with three or four years ago, according to However, M&A activity remains consistent with levels seen during the last couple of years due to an increase in the number of public-to-public deals.

Increasing interest from activist investors, such as Pershing Square’s Bill Ackman and Jeffrey Smith of Starboard Value, is driving the growth in publicly traded REIT M&A, according to financial information services provider Bidness Etc.

Large numbers of REITs with market capitalizations under $2 billion make the market ripe for consolidation, as companies seek to increase their net asset value. For instance, Cousins Properties will merge with Parkway Properties in a stock-for-stock agreement valued at $2 billion, due for completion in the fourth quarter. The deal also calls for a spinoff of the Houston-based assets into a new publicly traded REIT. High levels of dealmaking will likely continue as REITs consolidate and PE firms look to deploy their dry powder in a relatively stable market.

Future PErspectives: What's Up Next for Real Estate and REIT Investors?

As long as 10-year Treasury rates remain around their current levels of 1.5 percent, new issues in the U.S. real estate sector should pick up after the November election and into the early part of 2017, according to a podcast. Interest in student housing is high, but there could be increased activity in a variety of asset classes, provided there is not a significant interest rate hike in the coming months. Real estate activity in Asia and South America is expected to remain strong, while Europe will likely see lower levels of dealmaking, as investors grapple with concerns over Brexit and the Italian banking crisis.

A feature examining the role of private equity in the Real Estate Industry.

Sources: Bidness Etc., Value Walk,, National Real Estate Investor, Reuters, The Wall Street Journal, AFR Financial Review, AJC.