7/2/2012 | By Allen Kenney
Access to capital, valuations and timing, are among the chief reasons why the mergers-and-acquisitions activity in the commercial real estate market has fallen short of expectations, according to Arthur Hurley, vice president and senior portfolio manager with Columbia Management.
"I think there are a number of reasons why M-and-A activity can't accelerate too much at any given time, and it takes time for these deals to really come together," Hurley said in a video interview in New York with REIT.com at REITWeek 2012: NAREIT's Investor Forum.
Although private real estate companies may struggle to gain access to capital in the current market, public companies can avail themselves of an array of equity and debt options, according to Hurley. "I think that gives them more options than simply falling back on some kind of M-and-A activity," Hurley said.
Hurley also noted that differences in valuations have arisen among companies in the same sectors that may not be in the same line of business. For example, REITs that specialize in class-A office assets in the downtown areas of major markets likely won't be interested in expanding into suburban markets.
Hurley said timing issues have also felled deals.
"For M-and-A transactions to take place, you need willing sellers and you need motivated buyers coming together in some pretty complex deals at the same time, and it really takes time for those things to take place," he said. Hurley pointed out that while the transactions market has remained subdued, he does think deal-making will eventually gain steam.
Hurley cited REIT conversions from "non-traditional owners of real estate" as one of the biggest stories of the first half of 2012. These include cell tower owners and document and data storage operators. Hurley said he expects to see those conversions continue in the second half of the year.
Another major story in the first six months of the year has been the performance of REITs in the "new normal economy." He said moderate employment growth has still managed to create incremental demand for space, but it has yet to spur increases in new building and development. Additionally, he said borrowing costs remain low.