Insurance company Sun Life Financial Inc.'s acquisition of $22 billion real estate money manager Bentall Kennedy Group is the latest example of a growing trend of larger firms looking to expand or start a real estate investment business.
Worldwide real estate mergers and acquisitions accounted for 9.8% of the $2.2 trillion transactions in 2015 through June 30, up from 8.9% of the $1.8 trillion in worldwide mergers and acquisitions in the first half of last year, according to Thomson Reuters data. Real estate mergers and acquisitions activity is approaching the 2007 peak of such deals, Ernst & Young noted in a recent report.
Other acquisitions include GAM Group's announced acquisition in August of the real estate finance business of Renshaw Bay LLP; Apollo Global Management LLC's August announced purchase of a majority interest in AR Global Investments; Ares Management LP's $2.55 billion deal in July for real estate and energy manager Kayne Anderson Capital Advisors LP; and Rockefeller Group's purchase of TA Realty last October.
Total assets under management purchased in all of these transactions, including Sun Life's acquisition of Bentall Kennedy, is at least $73 billion.
Buyers are hoping to cash in on investor demand for real estate investment. Acquisitions are an easy way of getting quick expertise in real estate or an area of real estate the buyer is lacking. It also provides an instant boost of assets under management that would otherwise take years to build. Sellers are looking for homes with larger companies that have broad access to capital or to cash out the real estate executives who built the firms, industry insiders say.
“I have definitely, this year, seen a substantial pickup of real estate mergers and acquisitions activity,” said Irwin A. Kishner, a partner at law firm Herrick, Feinstein LLP, New York, who specializes in M&A. He is also chairman of the executive committee of the law firm, which has a large real estate practice.
“It's one-stop shopping. It's ready to go, all nicely wrapped and packaged, and is another service to offer to clients,” Mr. Kishner said.
Large private equity firms are very interested in buying boutique real estate firms to capitalize on continued investor interest, he said. Mr. Kishner declined to identify potential buyers.
Mark Grinis, partner and real estate private equity leader in the New York office of consulting firm LLP, said the trend is “not a tidal shift, but it is an important one and it provides an indicator of some of the pressures that remain in the middle market.”
Mr. Grinis declined to provide examples. However, when Apollo Global Management acquired AR Global, Apollo noted the acquisition would more than double its real estate assets under management to $27 billion.