Consolidation in private real estate is going through the gears. After a subdued couple of years, 2021 saw merger and acquisition numbers surge and, on the latest evidence, the trend is set to continue.
Research from New York capital advisory firm Hodes Weill & Associates published earlier this month revealed 33 deals happened last year, a notable 83 percent year-on-year increase. In the same research, the firm said a prominent theme in 2022 would be further consolidation characterized by larger managers filling out their capabilities by targeting purchases.
Two corporate transactions announced last week fit that characterization. A common thread between New York private equity firm KKR’s $2 billion takeover of Mitsubishi Corporation and UBS’s jointly owned J-REIT manager MC-UBSR and Stockholm-based private equity firm EQT’s $7.5 billion takeover of Hong Kong-based manager BPE Asia is of the biggest private managers filling gaps in their offerings.
In the first of these two transactions, beyond accelerating the already fast asset under management growth for KRR’s real estate business from $41 billion to $55 billion, the purchase of MC-UBSR sees KKR add a product capability in a marketplace famously difficult to penetrate. For context, there are 61 J-REITs with an aggregate market capitalization of ¥15.55 trillion ($131 billion; €119 billion) currently, according to the Association for Real Estate Securitization, an association that monitors J-REITs. The vast majority of these are managed by Japanese managers with international groups barely getting a look in.
The second of the transactions sees EQT’s real estate business build on its US expansion at the start of 2021 with the $1.9 billion acquisition of Philadelphia-based Exeter Property Group. EQT-Exeter inherits the final Asia piece in BPE Asia Real Estate, a division which brings with it an opportunistic platform with $1.5 billion of assets acquired via a main fund series and other sector-focused vehicles.
This escalation in mergers will stay on course, especially if global logistics giant Prologis successfully hijacks Blackstone’s €21 billion sale of portfolio business Mileway. News of that possibility broke this week. Blackstone had agreed on a sale to a consortium of bidders including other units it manages but was required to allow a 75-day ‘go-shop’ period for rival bids to materialize. Prologis, the sector’s biggest landlord is among a select few able to take advantage of such a window.
A victorious competitive bid would bring European heft comparable to its American dominance. Prologis manages 602 million square feet of logistics in the US compared to 214 million square feet in Europe. Acquiring the region’s second biggest logistics landlord Mileway would extend the firm’s lead in Europe, adding some 161 million square feet to its books. By comparison, Europe’s next biggest logistics manager is Singapore-based GLP with 90 million square feet.
The three examples here have different drivers for their corporate expansions. But each stems from an appetite to offer more services to a wider customer base. Whether current macroeconomic and geopolitical issues alter the trajectory predicted by Hodes Weill’s report will be interesting to see. For now, however, private real estate M&A is being characterized by groups which see now as the time to plug their gaps.