Private Equity Real Estate Deals Bounce Back in Q2

Dry powder makes a steady jump to $246 billion.

Private equity’s real estate (PERE) section rebounded from a slow Q1 start, reaping healthy rewards in Q2, including with 887 deals—worth a $63 billion total— according to a report from Preqin .

According to the report, this brings deal flow up 15%, and also shows a 36% increase in deal value from Q1.

The largest contributor was from office assets, which represented 32% of deals and 34% of deal value.  Land assets accounted for 5% of deal flow, yet 19% of total value.

Assets at 500,000 square- feet or more accounted for 55% of deal value, representing 19% of the number of transactions—up 6% from the number of deals they accounted for in Q4 2016.

The lowest quarterly proportion tracked were deals worth $50 million or less, making up 52% of deal volume.

Portfolio transactions were 16% of Q2 deals, which is similar to previous quarters. The proportional value of these deals, however, is increasing (in Q2 2016 they were 28%, rising to 34% in Q4, and hitting a high of 44% in Q2 2017).

The largest PERE deal in Q2 for a single asset was the HKD 8.3 billion ($1.062 billion) sale of the Kam Sheung Road Station Site in Hong Kong. The largest portfolio deal was the CNY 55.1 billion ($8.17 billion) acquisition of various development sites in Guangzhou, China. 

Although deal-making levels have increased, the report says dry powder available to PERE fund managers grew to $246 billion at the end of June.

“Considering that dry powder for the industry is approaching a quarter of a trillion dollars, it is encouraging to see fund managers putting more capital to work,” Andrew Moylan, head of real estate products, said in a statement. “Over the longer term, it is notable that an increasing proportion of activity is being concentrated around fewer, larger transactions. Portfolio deals have been a relatively static portion of the market in terms of the number of deals over recent quarters, but account for an accelerating proportion of deal value. Similarly, the largest class of assets is growing as a share of deal activity, indicating that more fund managers are looking to acquire larger assets or bundles of assets in an effort to effectively deploy their available capital into attractive opportunities.”

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