CRE Deal Volume Up 7.5% in 2018
Commercial sales volumes totaled $537 billion last year, the second strongest year on record in the US.
“There was a lot of merger and acquisition activity, particularly in the retail space. One of the larger and more notable transactions was Brookfield’s acquisition of GGP for $15 billion. That really boosted deal volumes in the retail sector,” Christopher Muoio, quantitative strategist at Ten-X, tells GlobeSt.com.
Opportunity zones were an equally strong driver of activity. Muoio estimates that 14% of deal volume in 2018 occurred in designated opportunity zones. “The opportunity zone legislation created in the recent tax overhaul,” he says. “A lot of the investors and clients that we talk to are really interested in this space, and it seems to be a rising theme. Investors are trying to take advantage of this tax legislation.”
While there is a lot of excitement in the space, the opportunity zone regulations weren’t finalized until this year, making some of the deal activity last year preemptive. “The regulations were not finalized, but everyone had a pretty good idea of what they were going to look like,” says Muoio. “It was the final details that weren’t ironed out. A lot of investors new that they would get a tax benefit and wanted to start investing in this space sooner rather than later.”
While the numbers clearly show bullish investor activity, investor sentiment reports show increasing concern about the possibility of a recession. However, this could be left over concern about the Fed’s plan to increase interest rates last year. This year, it has changed direction, softening investor concerns. “Early last year, interest rates were steadily increasing and investors were fearing more expensive capital,” says Muoio. “That sort of fear has been taken off of the table by the Fed at this point.”
Last year’s deal volume, however, could have been an anomaly—a perfect storm of new tax policy, opportunity zone incentives and strong merger deals. In 2019, Muoio doesn’t expect to hit the same numbers. Instead, he says 2019 will likely be on par with 2017 deal activity. “When looking at 2018 transaction volume, it was really boosted by merger and acquisition activity, and those are one-off, non-repeatable event,” he says. “Deal volume has stayed strong this year, but it is hard to imagine it eclipsing 2018 numbers. 2019 deal volume should be solid barring any cyclical change.”
➤➤ Join the GlobeSt.com ADAPT: Opportunity Zones conference September 16-17 in Baltimore, MD The new national conference series is aimed at identifying Opportunity Zones across all property types and geographic regions. This first-of-its-kind event will educate, connect and celebrate the investors, developers and owners with the people behind the planning and decision-making, such as architects, consultants, academics and, most importantly, municipal officials.
Click here to register and view the agenda.