RR Donnelly has released the October edition of its Venue Market Spotlight, entitled Real Estate and M&A. The report, a summary of a survey of experts, speaks to what we can expect in terms of real estate-related M&A in the next 12 months. Experts predict an increase in activity, and this legal update will highlight some of the discussions outlined in the report, including forecasts, drivers, and potential roadblocks.Forecasts
An overwhelming majority of the experts surveyed predict an increase in global real estate M&A levels in the coming year. While some experts see this increase coming through the residential real estate market, 80% of experts surveyed agree that the commercial real estate market will see the largest increases in the next 12 months. One US-based expert noted that the commercial bias may be, at least in part, due to relaxed underwriting standards for commercial real estate borrowers.
While opinions were fairly divided as to where secondary levels of growth would be seen, the majority of experts forecast the largest increases coming out of the Asia-Pacific region in the next 12 months, with China and India being two countries to watch in particular.
Experts expect to see most real estate M&A deals being made by property development companies, home builders, and REITs. Consolidation in the Asia-Pacific region, especially in the property development subsector, is a key area to watch.Drivers
Markets are doing well, giving buyers a greater appetite for risk and an eye for deals in the real estate sector. The global economy is recovering and so are employment rates and incomes. This is expected to lead into increased demand for homes and commercial space.
Geographically speaking, an important driver is the urbanization occurring on a massive scale in the Asia-Pacific region. As the scale slides from rural to urban, commercial and residential real estate demand will continue to explode, prompting further acquisition and investment.
More generally, respondents point to recovery in the real estate market as well as geographic expansion as the two most important factors influencing and driving real estate M&A in the coming year. Again, expect to see many North American and European companies swivelling their sights towards the Asia-Pacific region.Roadblocks
Unsurprisingly, licencing and regulatory issues, particularly for cross-border M&A, are cited as the top roadblocks to look out for. Investors should be aware of and prepared for foreign ownership restrictions, antitrust issues and opaque regulatory regimes. The next largest challenge is proper valuation, with buyers and sellers disagreeing on the “true” value of an acquisition.
These challenges notwithstanding, the prepared and properly-advised company would do well to keep its eyes open for real estate-related M&A opportunities in the year ahead.
The author would like to thank Jad Debs, articling student, for his assistance in preparing this legal update.