Do private real estate M&As work?

While the success rate of such deals can be a point of contention in the industry, several factors can help to determine a transaction’s outcome.

Private real estate mergers and acquisitions activity is scaling to ever-greater heights. 

“Real estate and real assets manager acquisition conversations are at an all-time high right now,” says Ted Gooden, partner at Berkshire Global Advisors, one of the sector’s most active investment banks in private real estate mergers and acquisitions. “I would say our activity level is higher right now than it was even last year, concerning both the number of deals we’re working on and with respect to the quality and volume of our pipeline.” 

Indeed, a record 44 transactions involving real estate and real assets managers with a combined value of $5.48 billion closed in 2018, according to New York-based Berkshire’s statistics. The transaction volume beats the previous record of 30 deals with a total manager value of $3.28 billion in 2018 and is more than triple the 13 deals that closed in 2013 with an aggregate manager value of $1.46 billion, the data shows. 

This uptick in M&A stems partly from increased investor allocations to real estate, which, in turn, have led managers to acquire, or be acquired, by other firms in order to expand their product offerings to these potential clients and increase the buyers’ product breadth and overall market share. Notably, the last year has seen rising interest in M&A from Asia, particularly in countries such as Japan, where large financial institutions are looking at US sellers to help service local clients looking to invest more in the asset class, Gooden observes. 

But while the intensifying interest in merging private real estate platforms is clear to see, how many will be considered successful is less so. Certainly, finding home runs from the mergers taking place since the global financial crisis is challenging. 

Predictably, perspectives on successful mergers depends on who is asked. Furthermore, PERE found several other themes emerge when industry insiders discuss both deals that appear to have worked, and those that have not. 

Retention of key people 

Sonny Kalsi, co-founder of GreenOak Real Estate, is one executive who demurs when asked whether M&As work overall: “Generally speaking, it very much depends on the circumstances of the deal.” GreenOak agreed to sell a large stake to Sun Life Financial in December and will merge with Sun Life’s Bentall Kennedy later this year. 

For Kalsi, one key theme important to a transaction’s success is the retention of the founders and management teams after the deal closes: “It’s hard for me to see scenarios where they can deliver a lot of ROE, growth and performance if that senior team doesn’t stick around as part of the deal.” 

In the case of GreenOak, Kalsi and co-founder John Carrafiell will remain actively engaged with the business for at least seven years, and together with existing GreenOak senior management, Bentall management and strategic partner Tetragon Financial Group, will retain a 49 percent interest in the business. 

“The big issue with all these deals is many of these companies were entrepreneurially founded. The founders and their initial partners are a big part of the business to date and for sure, a big part of what the merger partner is paying for going forward,” he says. “If those folks aren’t locked in, then you have to have a lot of confidence in your ability to run the business without them.” 

Jeff Jacobson, global chief executive of LaSalle Investment Management, is more direct in estimating the success rate of private real estate M&As, calling it “at best 50-50.” 

Jacobson: M&A success rate is ‘at best 50-50’

For Jacobson, the retention of the next generation is also of major importance. He notes one theme of less successful M&As is the next tier of executives being overlooked on whether they are talented, positive about the merger and economically aligned. “The level below the founders – are they aligned? Are they supportive? Are they focused on it?” he asks. 

“For these people, you create economic and ownership interests which retain them, motivate them and keep them aligned with its success. If you don’t do that, once you buy out the founders, the firm’s ability to operate and be successful without them can go away. Making sure there is clear and strong succession in place is critical to the long-term success of the business.” 

In some of LaSalle’s own recent M&A deals, the firm ensured that some of the next-generation leadership retained ownership in the deal to keep them incentivized in the business going forward. 

Meagan Nichols, global head of the real assets investment group at Cambridge Associates, says she evaluates M&A transactions partly in terms of the impact on the selling manager’s edge, in which both the firm’s senior management and next generation of leaders play critical roles: “What is that sustainable differentiated edge that is unique to that manager?” she says. “We’re focused on retention of the right people contributing to that edge, the people we think are the ones that are the moneymakers.” 

In some cases, part of a firm’s edge is sourcing, and can be enhanced with the greater resources of the new parent company. In other cases, however, sourcing capabilities can be compromised as a result of the merger, especially when there is overlap between deal sourcing professionals at the two combining entities and some of those people are consequently made redundant, she says. 

Gooden agrees that an acquisition transaction should be structured to allow for upside and retention of key people at the firm. “That takes thoughtful dealmaking,” he says. 

Indeed, one issue with some acquisitions is that the people at the buying and selling firms do not spend adequate time getting to know each other prior to signing the deal, he notes. “You want multiple people from the buying organization and the seller, as well as the next generation, to spend time together, to talk about the vision of the company, for the buyer to get a feel for who in the organization is adding what type of value and just what they’re like personally,” he says. “That’s obviously not possible in a limited number of meetings.” 

He goes on to say that the more quickly transactions are executed, the riskier they can be, and in fact, the speed of execution can sometimes be driven by the transaction’s advisors, which are often seeking to maximize price and consequently their own return on advisory time invested. “Given the strong demand globally for this asset class, you can get away with a running process like that,” he says. “But, in retrospect, you look at it, and how much time has the buyer really spent with the seller at even the senior most levels, let alone the day-to-day working relationship?” 

A lack of overlap 

Another theme of M&A transactions that have not done well is overlap, whether it be strategies, or investors, or geographies, between the buyer and seller. “If you just use our deal as an example, we were really focused on not doing something with someone where we didn’t have very limited overlap with each other,” says Kalsi, who estimates that Bentall Kennedy, which has pursued primarily core real estate investments, and the more opportunistic-focused GreenOak share less than 10 investors, which means the two platforms are not likely to become cannibalistic. “Then you can have one-plus-one equals more than two. Because if you have a ton of overlap, then you have the risk of one plus one equals less than two because of all your overlap.” 

“If you have a ton of overlap, then you have the risk of one plus one equals less than two” 

Sonny Kalsi 

He notes with some M&A deals, the integration of the two platforms took a lot longer than expected because of the significant overlap in businesses and strategy and geographies: “If you’re spending a lot of time looking inwards, it’s a lot harder to turn around and look outwards in terms of, how do we grow this thing?” 

Nichols agrees that a successful M&A does not result in redundancies between the teams of the buyer and seller. “If it’s more of, this makes sense because they don’t have this capability today and they’re effectively acquiring a skillset and a track record in the space, then it can be a more positive experience for both sides and a more successful merger,” she says. 

“When there is massive overlap between businesses, their products and their clients, the potential client and people fallout from M&A is huge,” Jacobson adds. “What’s worked for us is to look for bolt-on opportunities to buy into great teams that fill a hole in our business and which are a good cultural fit.” In the case of LaSalle’s majority acquisition of US debt fund manager Latitude Management Real Estate Investors this year, “we had a great debt team in Europe and we wanted to replicate this in the US.” 

However, acquiring companies should not take a “one size fits all” approach to acquisitions and integration, he points out. For example, in situations where an opportunistic platform is being acquired by a predominantly core business, one may look to keep a greater degree of separation and independence from the larger company. Trying to integrate two very different investment and business models “can be tricky,” he observes. “With a private equity business, you want to make sure there is an alignment of culture and objectives with the investment strategies you pursue.” 

Good alignment 

For Nichols, “it’s too soon to tell still” if many M&A deals have worked out, even those that were done five or more years ago. This is because in many cases, manager performance has been difficult to dissect. “We’re in an environment where there’s a lot of tailwinds in performance within private real estate of late, so it’s hard to see how much performance is beta, versus how much of that is some type of alpha generated by the strategy and how much of that is the effects of some of these efficiencies that come from the merger,” she says. 

Instead, Nichol’s metrics for determining whether an M&A transaction seems to be working include good alignment. “Anytime you see an independent firm get acquired by somebody or sell a large stake, we start to really worry about alignment,” she says. “It is what underpins all of our manager selection. It’s not the only thing we care about, but where we have had funds go wrong in the past, we can say, there was some alignment challenges. And anytime you’ve got a big firm buying a stake in a smaller or independent firm, those are things you want to think about, are they going to be driven by the new owner to raise more capital and become more of an AUM shop as opposed to a performance-driven shop?” 

She adds: “If it looks more like a grab for AUM and you’re going to start to see strategy drift, if you’re going to start to see massive global geographic expansion into spaces where that manager’s edge is really not going to be sustained, then that’s when we get concerned and we have lots of questions.” 

Often, the stability of the combined entity can be compromised if both parties are not thinking about the long-term future of the business, adds Gooden. “Conceptually, an explosive outcome could occur when a buyer just looking to do a deal to check the box and a seller just looking for liquidity get together. They might get along during the deal because they have a shared short-term objective, but you want to know that the long-term decision makers at the buyer and the long-term participants at the seller have connectivity and a shared vision.” 

“An explosive outcome could occur when a buyer just looking to do a deal to check the box and a seller just looking for liquidity get together” 

Ted Gooden 

When asked if real estate M&As work, Gooden’s response is the most affirmative of the group. 

“In the vast majority of M&A transactions you see, the real estate team is in a much better competitive position over time and this will be especially true as the industry consolidates and becomes ever more competitive,” he says. “You have to look at this industry over a very long period to see the success of these transactions. Especially considering where some of those organizations might be without a partnership. They might have ended up fading away, and instead most have remained stable and growing entities.” 

While not everyone holds the same views, it is difficult to argue that the current boom in real estate M&As – and the discussions surrounding them – will come to an end anytime soon.  

At an all-time high 

The number of transactions, combined manager value and total seller AUM have all risen to record levels in recent years 

  2014  2015  2016  2017  2018 
Number of transactions  13  15  18  30  44 
Combined value ($m)  1,458  1,526  2,892  3,281  5,478 
Total seller AUM ($bn)  93  90  151  184  228 
Avg deal size ($m)  112  102  161  109  125 
Avg seller AUM ($bn)  7  6  8  6  5 


Source: Berkshire Global Advisors 


Private real estate M&A hits and misses 

While it can be difficult to get visibility – and data – on real estate M&As, there tends to be general consensus on the perceived issues or strengths of the sector’s higher profile combinations. Moreover, metrics such as change in AUM and staff size appear to provide support to those perceptions  

Deal 1

CBRE GI: saw multiple departures

Details: CBRE bought ING REIM Europe and Asia, along with ING Clarion Real Estate Securities, for a total of $900 million, merging the platforms into its own manager, CBRE Global Investors 

Date closed: October 2011 

Staff size in 2011: 1,100+ employees 

AUM in 2011*: $94.8 billion 

Staff size today: 780+ employees  

AUM today: $106 billion  

Significant departures: Matt Khourie, CEO, in 2016; Peter Hendrikse, CEO of EMEA, in 2016; Peter DiCorpo, president of managed accounts group, in 2016; Richard Price, CEO of Asia-Pacific, in 2019; David Morrison, chief investment officer of the Americas, 2019 

Perceived issues: Difficult integration, pressure to make savings, overlap in certain segments 

Sample performance: CBRE GI, which represents the second-largest allocation within the California State Teachers’ Retirement System property portfolio at 11 percent by net asset value, was generating a since-inception return of 5.3 percent for the pension system as of March 31, 2018, according to CalSTRS’ first-quarter 2018 real estate report, its most recent available. As of September 30, 2011, CalSTRS reported net returns of -0.2 percent, -7.8 percent and -1.3 percent for CBRE’s core, value-add and opportunistic strategies, respectively 

*As of September 30, 2011

Sources: CBRE Global Investors; LinkedIn; CalSTRS 

Deal 2 
BlackRock and MGPA 

BlackRock: stagnant real estate AUM 

Details: BlackRock, the world’s largest asset manager, acquired Singapore-based private equity real estate firm MGPA 

Date closed: October 2013 

Staff size in 2013: 400+ employees 

AUM in 2013: $23.5 billion 

Staff size today*: 220 employees 

AUM today*: $24 billion 

Significant departures: Jack Chandler, chairman, in 2017; Simon Treacy, global chief investment officer, in 2017; Marcus Sperber, global head of real estate, in 2019 

Perceived issues: Founder Jim Quille and other MGPA executives left the firm before the deal closed; neither BlackRock nor MGPA were considered to have notably strong performances at the time of the transaction 

Sample performance: BlackRock was generating a since-inception return of 10.7 percent for the California State Teachers’ Retirement System as of March 31, 2018, according to the pension plan’s first-quarter 2018 real estate report, its most recent available. As of September 30, 2013, CalSTRS reported net returns of 8.6 percent and 1.7 percent in BlackRock’s core and opportunistic strategies, respectively  

*As of October 2018

Sources: BlackRock; PERE; LinkedIn; CalSTRS 



Deal 3
Clarion Partners and Lightyear Capital 

Furnary: still at Clarion

Details: Dutch financial company ING Group sold its US real estate investment management firm, Clarion Partners, to New York-based private equity firm Lightyear Capital and Clarion’s management for $100 million as it divested its real estate investment management businesses globally  

Date closed: June 2011 

Staff size in 2011: 250+ employees 

AUM in 2011: $22 billion 

Staff size in 2016: 280+ employees 

AUM in 2016: $40 billion 

Perceived strengths: Clarion’s management retained a 25 percent in the business; firm significantly increased AUM during Lightyear’s ownership; both Lightyear and Clarion management were understood to have earned significant returns on investment when the business was sold again in 2016 at a total value of $725 million 

Sample performance: Clarion was generating a since-inception return of 8.8 percent for California State Teachers’ Retirement System as of March 31, 2018, according to the pension plan’s first-quarter 2018 real estate report, its most recent available. As of September 30, 2011, CalSTRS reported net returns of 3.3 percent and 3.8 percent for Clarion’s core and value-add strategies, respectively 

Sources: Lightyear Capital; CalSTRS 

Deal 4
Clarion Partners 
and Legg Mason 

Details: US asset manager Legg Mason bought an 82 percent ownership interest in Clarion Partners for $585 million, with Lightyear Capital selling 100 percent of its stake and Clarion’s management selling 7 percent of its stake  

Date closed: April 2016 

Staff size in 2016: 280+ employees 

AUM in 2016: $40 billion 

Staff size today: 280+ employees 

AUM today: $48.6 billion 

Perceived strengths: Clarion founder Steve Furnary remains at the firm as executive chairman, while current chief executive and chief investment officer Dave Gilbert has been at the firm since 2007; Clarion’s management retains a 18 percent stake in the business; AUM has continued to grow by more than $8 billion under Legg Mason’s ownership 

Sample performance: Current performance same as above. CalSTRS’ 2016 real estate reports did not provide performance data on its managers 

Sources: Lightyear Capital; Clarion; CalSTRS 



Deal 5
Colony Capital, NorthStar Asset Management Group and NorthStar Realty Finance 

Barrack: merger was ‘difficult and complex’

Details: Colony Capital combined with NorthStar Asset Management Group and NorthStar Realty Finance in a three-way merger 

Date closed: January 2017 

AUM in 2017: $58 billion 

Staff size in 2017: 500+ employees 

AUM today*: $43 billion 

Staff size today: 400+ employees 

Perceived issues: The merger has been a money loser thus far, with Colony reporting a net loss of $333.1 million for full-year 2017 and a net loss of $632.7 million for full-year 2018; David Hamamoto resigned in January 2018; chief executive and president Richard Saltzman departed in November 2018, with founder and executive chairman Tom Barrack taking on the role of CEO. In an earnings call in March, Barrack himself said “the merger was much more difficult and complex than anybody envisioned,” and cited challenges that included “limited growth due to inherited structural limitations, complex operating partnerships and high leverage levels” 

Sample performance: Colony was producing since-inception returns of 10 percent, 9.7 percent and 8.8 percent and multiples of 1.44x, 1.27x and 1.12x for the second, third and fourth vehicles, respectively, in its Colony Distressed Credit Fund series as of September 30, according to the Florida State Board of Administration’s third-quarter 2018 alternative asset report, its most recent available. SBA reported since-inception returns of 10.5 percent, 10 percent and 7.1 percent and 1.41x, 1.17x and 1.06x multiples for CDCF II, III and IV, respectively, for Q1 2017, when the merger closed 

*As of December 31

Sources: Colony Capital; Florida SBA