Recent REIT M&A activity underscores the resiliency of the real estate sector and more transactions are likely this year as conditions remain favorable for continued deal-making, experts at Deloitte say.
Lynn Kawaminami, partner at Deloitte Tax, and Nathan Florio, principal at Deloitte Transactions and Business Analytics, spoke to the REIT Report on July 20.
“All the activity that we’ve seen this year has really underscored the resiliency of real estate…even the sectors that struggled last year are starting to come back,” Kawaminami said. “The fundamentals are good, and I think we’re ready to get back to normal.”
Florio noted that the hotel sector is experiencing pent-up demand, and some consolidation in the space could occur. “The recovery of hotels will be quicker than what most people expected,” he said. The alternative asset category is also likely to see activity, he said. Kawaminami, meanwhile, said there could be “interesting” transactions in the office sector.
Overall, Kawaminami described the current environment as a “great time to be buying,” given that cap rates and interest rates are low. “There’s a lot of capital out there. I think we’re going to see a lot more deals, in addition to these really large deals that have recently been announced.”
At the same time, there are a number of tax considerations on the table, including uncertainty around capital gains and income tax rate changes, Kawaminami said. She added that any company doing deals today should also consider all of the available structuring opportunities, including tax-free deals using stock or OP units as currency. In addition, companies should review the impact of potential transactions on their distribution requirements for taxable income.