Commercial Property Deals May Double in U.S. as Blackstone Bets on Rebound

U.S. commercial property purchases may double this year as confidence builds among investors with access to credit and equity that values will rebound.

Blackstone Group LP’s planned $9.4 billion purchase of U.S. shopping centers and Ventas Inc.’s proposed $5.7 billion buyout of a health-care real estate investment trust, one of two multi- billion dollar health care REIT deals announced yesterday, may mean a wave of commercial real estate acquisitions is coming as buyers regain confidence in the market.

“Both these deals are a great signal that liquidity has returned to the commercial real estate space,” Dan Fasulo, managing director of Real Capital Analytics Inc., said in a telephone interview. “It certainly will have ripple effects on the entire industry.”

Transactions surged over the past year as the economy began to recover and low interest rates made it cheaper for REITs and private-equity buyers to acquire office, retail, industrial, apartment and health-care properties. Completed acquisitions by U.S. REITs more than tripled to $24 billion in the 12 months through the end of February compared with the previous year, according to data compiled by Bloomberg. Fasulo said he “wouldn’t be surprised” if U.S. commercial property purchases double in 2011 from almost $140 billion in 2010.

Demand for commercial real estate plunged during the credit crisis and recession as property values fell and investors had difficulty securing financing for new purchases or refinancing short-term debt from earlier deals. U.S. commercial property transactions fell 89 percent to $66 billion in 2009 from the peak of $579 billion in 2007, according to New York-based Real Capital.

Confidence is Critical

An increase in takeovers shows that investors have confidence in the market and “all the smaller players will look to that,” said Christopher Macke, senior real estate strategist at Washington-based CoStar Group Inc., a property-information service. “That confidence level is just critical,” he said.

Blackstone, the world’s largest private-equity firm, agreed to buy Centro Properties Group’s U.S. shopping centers for about $9.4 billion, Melbourne-based Centro said in a statement today.

The 588 strip malls and related properties, anchored mainly by discount stores and supermarket chains, add to Blackstone’s $500 million investment in mall owner General Growth Properties Inc. and a March 2010 venture with Glimcher Realty Trust to look for retail acquisitions. Blackstone also has been buying hotel and warehouse assets.

Blackstone plans to hold onto the Centro assets in anticipation of a recovery in U.S. property values, said a person familiar with the deal. The person asked not to be identified because the details of the transaction are private.

Health Care Deals

Ventas’s deal to buy Nationwide Health Properties Inc. is the biggest ever among health-care real estate investment trusts and will create the largest health-care REIT. HCP Inc. is currently the biggest health-care REIT by market value.

Ventas announced almost $4 billion in acquisitions in 2010, Ventas Chairman and Chief Executive Officer Debra Cafaro said in a conference call with investors on Feb. 17. Those deals, which included the purchase of almost all the real estate assets of Atria Senior Living Inc., made Ventas the largest U.S. owner of senior housing in the U.S., Cafaro said.

“We’re putting the best two health-care REITs together and we’re creating really a market leader in the REIT sector as well as the health-care REIT space,” Cafaro said in a telephone interview yesterday. “The transaction brings tremendous strategic and financial benefits to both sets of shareholders.”

The health-care real estate market is more than $700 billion and REITs own less than 10 percent of it, Cafaro said.

Health Care REIT Inc., the third-largest health care real estate investment trust, agreed to buy substantially all the property assets of closely held Genesis HealthCare for $2.4 billion, in a deal announced yesterday.

Prologis-AMB Merger

In January, ProLogis, the world’s largest warehouse operator, agreed to merge with rival AMB Property Corp., creating a real estate company that will own or manage $46 billion in assets.

Prices of commercial properties sold by institutional investors surged 19 percent in 2010, the second-biggest gain on record, according to an index developed by the MIT Center for Real Estate in Cambridge, Massachusetts. Investments in office properties, the largest part of the market, more than doubled last year to $42.8 billion, according to Real Capital.

Low Interest Rates

Near record-low interest rates are luring buyers with the prospect of cheaper financing and higher returns.

A resurgent debt-securitization market is also driving the recovery. Commercial mortgage-backed securities issuance in the U.S. rose to $10.9 billion in 2010 compared with $2.1 billion in 2009, according to a Jones Lang LaSalle Inc. report on Feb. 2. Issuance is estimated to be over $40 billion in 2011, “providing added liquidity to owners with maturing loans to refinance,” the report said.

REITs may lead deals because of their access to capital for funding, Macke of CoStar said. Global private-equity real estate fund-raising fell to a seven-year low in 2010, according to Preqin Ltd.

“The public market is raising money hand over fist and the other group is not,” Macke said.

To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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