Real Estate

Who Are Shaping U.S. Real Estate Dealmaking?


Written by Finalis

Last edited on May 07, 2024

3 min read

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Building upon our previous exploration of the challenges facing real estate private markets in 2024, where we analyzed broad market factors and their implications for US real estate sentiment and fundraising, we now shift our focus to the brighter side of the equation: key players shifting the U.S. real estate space. In this follow-up blog post, we delve deeper into the realm of real estate investment, spotlighting top deals, influential investors and funds, and emerging trends that offer promising opportunities for investors seeking to navigate the complexities of the market.  Let's dive in!

Significant obstacles marked the U.S. real estate landscape in 2023. Despite a resurgence in public markets, the persistent high-interest rate environment heavily influenced real estate transactions. Sellers hesitated to lower their asset prices, while buyers were cautious about paying inflated prices for properties. 

Given that condition, the prudent approach is to investigate the different dynamics within US real estate activity, as each has its relevant particulars.

Key Takeaways

  • Challenging Conditions in 2023: high interest rates affected real estate transactions, with sellers reluctant to lower prices and buyers cautious about overpaying.
  • M&A Activity and Trends in U.S. Real Estate Space: despite challenges, M&A remains active, driven by the need for innovative deal structures to optimize asset performance amid escalating capital costs.
  • Office Property Challenges: there was notable distress in the office sector, with defaults on significant properties, presenting opportunities for investment in discounted office assets.
  • Dominance in Fundraising by North America: North American closed-end real estate funds raised $79 billion in 2023, accounting for 79.9% of total global fundraising.
  • Value-Add Funds Performance: Despite a decline in overall fundraising, value-add funds raised $29.9 billion, with top funds including EQT Exeter Industrial Value Fund VI and DRA Growth & Income Master Fund XI.
  • Outlook for 2024 in the U.S. real estate arena: Potential stabilization in real estate prices as inflation declines and interest rates potentially plateau, offering more favorable conditions for real estate investment.

M&A deals animating the U.S. real estate scene

In the domain of M&A activities, the real estate sector encounters obstacles that will shape transaction landscapes in the upcoming year. Dealmakers increasingly realize the necessity for adopting more flexible and inventive approaches to structuring deals, optimizing asset performance amidst escalating capital costs in the U.S. real estate market. Immediate uncertainties, such as global election outcomes and ongoing geopolitical tensions affecting cross-border M&A, could also influence the pace of deal-making in 2024. Long-term megatrends like demographic shifts, housing affordability, decarbonization, and digitalization further add complexity to dealmakers' considerations as they shape or recalibrate portfolios. However, amidst prevailing circumstances, M&A transactions persist, and below are some of the foremost deals ranked by deal size from December 2023 to the present day found in Pitchbook.

Top deals by deal size:

  • Spirit Realty Capital, a real estate investment trust primarily involved in leasing properties throughout the U.S. and headquartered in Dallas, Texas, was acquired by Realty Income (NYS: O) for $9.3B on January 23, 2024.
  • Physicians Realty Trust, a company in the United States healthcare sector specializing in acquiring, developing, and leasing healthcare properties to physicians, hospitals, and healthcare delivery systems, and headquartered in Milwaukee, Wisconsin, was acquired by Healthpeak Properties (NYS: PEAK) for $2.64B in March 2024.
  • RPT Realty, a self-managed real estate investment trust investing in and managing retail properties primarily located in top U.S. markets, with its headquarters in New York, New York, was acquired by Kimco Realty (NYS: KIM) for $2B in January 2024. The acquisition expands Kimco's presence in Coastal and Sun Belt markets.
  • Arlington Asset Investment Corp, a U.S.-based principal investment company focused on leveraged MBS investment portfolios, with its headquarters in McLean, Virginia, was acquired by Ellington Financial (NYS: EFC), a subsidiary of Ellington Management Group, for $154M in December 2023. The combined company will conduct business under the name "Ellington Financial Inc." on the NYSE.
  • CARROLL, a provider of real estate services pioneering new ways of real estate investing through a combination of infrastructure and institutional investor abilities, headquartered in Atlanta, Georgia, was acquired by The RMR Group (NAS: RMR) for $100M in December 2023.  

The office hurdle horizon

There's something unsettling about the US real estate market. Multiple asset managers encountered mortgage defaults on US office properties in 2023. In February, Brookfield defaulted on two Los Angeles office properties, with a combined value of $755.0M, followed by a default on a $161.4M loan tied to a portfolio of office buildings across the US in April. And that's just scratching the surface of many other defaults.

Despite the turbulence experienced by the US office sector in recent years, certain investment funds are strategically positioned to leverage the growing availability of discounted properties within the market. According to Pitchbook, CrossHarbor Institutional Partners 2021 and Farallon Real Estate Partners IV, among the top 10 opportunistic and distressed funds to close in 2023, have highlighted US office properties as key areas for investment. This presents a compelling opportunity for those drawn to this niche.

Regionally, North America dominates fundraising 

Globally, closed-end real estate funds managed to raise $98.8B in 2023. Closed-end real estate funds operate as investment mechanisms intended to amass funds over a defined commitment time frame, often lasting between 12 and 18 months. These funds are characterized by a predetermined duration established by the fund manager upon the fund's initiation.

In this scenario, North American funds accounted for $79B, constituting 79.9% of the total, marking an 11% increase in their share compared to the previous year. Conversely, Europe and Asia experienced declines in fundraising, with Europe securing 11.9% of the capital and Asia 8.2%. Although more data on fund closings are awaited, the current fundraising figure is the lowest since 2012.

There are indications that 2024 might offer some respite. With inflation on a downward trajectory, many anticipate that the era of interest rate hikes is concluding, potentially signaling a stabilization or even an increase in real estate prices.

Remarkable value-add funds outcomes

In 2023, fundraising activity among value-add vehicles decreased but did not come to a complete standstill, with 42 funds raising $29.9B.

Value-add funds have successfully garnered US market attention with momentum. For newcomers to the subject, we'll explain what that entails. Value-add vehicles typically refer to investment funds or vehicles that focus on acquiring underperforming or undervalued properties with the goal of enhancing their value over time. These vehicles attract capital from investors interested in higher returns compared to core real estate investments.

Top value-add funds closed in 2023 by size

  • EQT Exeter Industrial Value Fund VI, launched on July 6, raised $4.9B and is based in Radnor, US.
  • DRA Growth & Income Master Fund XI, initiated on October 1, garnered $2.28B and is headquartered in New York, US.
  • Bridge Multifamily Fund V, established on January 30, amassed $2.26B and operates out of Salt Lake City, US.
  • Invesco Real Estate U.S. Fund VI, launched on May 9, secured $1.98B and has its base in Dallas, US.
  • TA Realty Value-Add Fund XIII, launched on October 9, raised $1.77B and is located in Boston, US.
  • Carmel Partners Investment Fund VIII, initiated on April 11, garnered $1.58B and operates from San Francisco, US.
  • Bell Value-Add SM Fund VIII, established on June 20, secured $1.3B and is based in Greensboro, US.
  • Shorenstein Realty Investors XIV, launched on March 31, raised $1.2B and operates from San Francisco, US.

How Finalis can be your ally for real estate investments

For those delving into real estate investment in 2024, it is essential to remain nimble. Utilize market insights, adapt to change, and recognize the potential of smaller funds. Success demands a balanced approach to risk management and seizing opportunities in the ever-evolving investment landscape. Connect with us to explore accessing a global dealmaking ecosystem filled with up-to-date info and opportunities within US real estate. 

At Finalis Connect, there are already 210 real estate deals to pursue and over 100 real estate experts available for potential synergies.

Learn how Finalis can be
your dealmaking partner

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