NEW YORK CITY-To have three multi-billion-dollar commercial real estate deals announced in a single day is something one might have expected in 2006 or 2007, not amid a post-downturn recovery. Yet the start of this week brought just a hat trick: Ventas’ $7.4-billion acquisition of Nationwide Health Properties, a $2.4-billion buy of most of the real estate assets of Genesis HealthCare by Health Care REIT and the Blackstone Group’s deal for 588 Centro Properties Group malls in the US for $9.4 billion.
“It’s pretty rare to see these types of deals this early in the cycle,” Real Capital Analytics’ Dan Fasulo tells GlobeSt.com. “We’re only at the beginning of a recovery. Usually, you see the $10-billion deals at the end of an up cycle.” That we’ve seen such mega-deals at this stage is “a great signal of how much liquidity exists on both the equity and debt sides to allow these transactions to take place,” says Fasulo, managing director of RCA.
Such deals might not have happened in 2010, says Fasulo. “Last year, everybody was testing the waters,” he says. “Now we’re at the point where there’s a plethora of institutional investors sitting on piles of capital that need to be put to work.” The result, he adds, will be more jumbo-sized deals where these came from as 2011 progresses.
At some point, there will be what Fasulo calls “an arms race” to make large portfolio acquisitions while avoiding the heavy competition that now results whenever a single trophy asset comes to market. “If you want to buy a Manhattan office building right now, you’ve got to fight with 30 or 40 players,” he says. “If it’s a $5-billion or $10-billion portfolio buy, there’s just a handful willing to make those sector bets.”
Two of this week’s mega-deals involved REITs, continuing the investment trusts’ winning streak. The sector has seen increases of more than 8% each in the FSTE NAREIT All Equity REITs and FTSE NAREIT All REITs indices since the start of the year, and on Wednesday Fitch Ratings boosted its outlook for Ventas following its NHP deal. The Blackstone/Centro transaction occurred in the private equity space, and Fasulo thinks it could be a bellwether.
“Private equity firms are sitting on a great deal of capital right now,” he says. “Blackstone has been known for making big sector bets; they did it very successfully in the beginning of the last up cycle.” More broadly, though, “when the industry sees a savvy player like Blackstone make its sector bets, it shoots confidence down into the smaller players. That could really strengthen the recovery.” Whether the greater liquidity of the current market means a wave of IPOs this year—one of Blackstone’s major sector bets from the peak of the cycle, Hilton Hotels, is widely seen as a likely candidate—remains to be seen, he adds.
Another possible benefit of mega-deals returning: “It could give discretionary sellers more confidence to bring their portfolios to market,” says Fasulo. “That could really fuel the fire for a big year in 2011 as those discretionary sellers really start coming to market with assets, especially the lenders that have taken over a bunch of big portfolios.”