The private equity real estate industry saw 887 deals recorded in the second quarter of 2017, worth a combined $63 billion.
Industry analysts at Prequin expect these figures to rise by up to 10 percent after the slow activity recorded in the previous quarter.
Larger assets drove activity. PERE deals for assets of half a million square feet or more accounted for almost one in five transactions in Q2, and more than half of total deal value.
“The private equity real estate deal market saw a slow start to 2017, with deal volume and value both falling sharply from levels seen in 2016. Q2, however, has seen the industry rebound, with both volume and value climbing,ˮ said Andrew Moylan, Head of Real Estate Products:
“Although the number of deals does not match activity seen last year, aggregate value reached the highest quarterly total recorded since Q4 2015. Considering that dry powder for the industry is approaching a quarter of a trillion dollars, it is encouraging to see fund managers putting more capital to work.ˮ
ANDREW MOYLAN
While fundraising in the asset class remains robust, the sector is increasingly being dominated by a small coterie of fund managers which are able to quickly raise large sums.
Prequin believe that smaller or less well-known managers are likely to find that they face greater competition for a smaller proportion of investors’ allocations, even if those overall allocations are large.
Moylan said, “Over the longer term, it is notable that an increasing proportion of activity is being concentrated around fewer, larger transactions. Portfolio deals have been a relatively static portion of the market in terms of the number of deals over recent quarters, but account for an accelerating proportion of deal value.
“Similarly, the largest class of assets is growing as a share of deal activity, indicating that more fund managers are looking to acquire larger assets or bundles of assets in an effort to effectively deploy their available capital into attractive opportunities.”
Deals worth $50 million or less accounted for 52 percent of deal volume, the lowest quarterly proportion tracked by Preqin.
Office assets represented 32 percent of deals and 34 percent of deal value, the largest proportions. Land assets account for just five percent of deal flow, but almost a fifth (19 percent) of total value, the second-highest proportion.
The largest PERE deal recorded in Q2 for a single asset was the $10.6 billio sale of the Kam Sheung Road Station Site in Hong Kong.
