Office Portfolio Deals Are Turning Regional CRE Firms Into National Players
Six of the top 50 office sales in the U.S. last year were portfolio deals, including the top sale of 2016, the $2B Cousins-Parkway merger. The last time portfolio sales were this strong was before the Great Recession, according to CommercialCafé.
Yardi Matrix senior research officer Doug Ressler said this is the start of a rebound for the portfolio sale, identifying four factors driving this resurgence for Bisnow.
1. Rising Capital Expense Rates
Ressler said portfolio owners have found that portfolio values are peaking without substantial growth occuring or additional assets being added to the portfolio. This means that sellers can command higher bids for their bundled assets because capital expenditure rates are rising faster, resulting in a higher return on investment.
2. The Value Of Existing Management
Investors recognize the value of buying a portfolio that has an existing management team on board, which reduces the amount of time required to transfer the properties because the setup work has already been completed. Ressler said that buyers can expect an immediate 75 to 125 basis point gain upon acquiring a portfolio with an existing management team in place.
3. Portfolios Lend Themselves To Current CRE Trends
Investors eager to increase their return on investment are finding valuable opportunities in newly acquired portfolios, Ressler said. The desire to update and renovate a portfolio's assets gives investors the ability to ultimately transform these portfolios into more modern assets that cost less than ground-up redevelopments. These assets, once renovated, can be positioned with new cash deals for immediate growth.
4. Regional Players Can Grow Into National Players
For regional players like Cousins Properties, the Parkway deal satisfies what Ressler said is a sometimes impatient desire for immediate growth. Acquiring a group of assets like Parkway allows a regional firm to become a non-publicly traded REIT, opening it up to a wider investor pool for future deals of similar scale. This ultimately welcomes regional players to compete with national and even global firms like Blackstone, whose $1.7B acquisition of the Alecta portfolio (pictured, 815 Connecticut Ave. NW in Washington, DC) was the fourth-largest deal of 2016.