Financial pressures have not been important factors in driving the wave of REIT market M&A activity in the past year, according to panelists at a Nareit-Bloomberg Intelligence hosted webinar on September 30. Seeking value and achieving strategic advantages were far more important, and will continue to be key drivers in 2022, according to Jerry Ehlinger, Senior Managing Director, Global Head and CEO of Public Securities at Heitman, and Seth Weintrob, Managing Director and Global Head of Real Estate in Morgan Stanley’s Investment Banking Division.
The webinar, moderated by Bloomberg Intelligence REIT analysts Lindsay Dutch and Jeff Langbaum, provided an inside look into the types of investors, funding sources and property sectors that will help maintain M&A momentum in the year ahead. The event is available for replay.
Gaining scale will be an important M&A driver, Ehlinger said, noting that “Scale reduces the cost of capital. For companies with global tenants, expanding scale globally also is important in strengthening relationships.”
Acquiring management talent that can add value is an important factor in M&A deals, as well, said Weintrob, “especially for private equity acquirors who have created the new generation of non-traded REITs. I call them NTR 2.0s. They are seeking platforms. They have been raising a lot of money, and they’ll be putting it to work.”
Other active acquirors in 2022 will be sovereign wealth funds, Weintrob said. “Global investors are looking at the U.S. market and seeing value here. They’re also willing to buy at lower cap rates.”
REITs will be acquirors in the coming year, too, Ehlinger said, with good access to both low-cost equity and debt funding. However, he noted that “REITs haven’t had to leverage their balance sheets to do deals this year. They are carrying very conservative levels of debt.”
The panelists said property sectors that will see M&A activity next year will be those that are seeing capital inflows now, including the industrial, apartment and medical office sectors.
“Investor demand for the new property types—data centers, towers and single-family homes—also may lead to deal-making in those sectors,” Ehlinger said.
“When we get some more detail on the outlook for office and retail, we’ll see more activity there—possibly at the back end of 2022,” Weintrob said.