The political landscape was unstable over the course of 2016 and many people claimed the real estate market would slow down while uncertainty surrounded the US presidential election and the decision of the British public on whether to leave the EU. Despite these concerns, nine single asset transactions valued at $1bn or more completed in 2016, almost double the number of transactions in 2015, as can be seen from the chart below. To put this into perspective, of the 2,985 single asset deals completed in 2016, these nine transactions collectively accounted for $14bn, equating to over 9% of the aggregate deal value for the year.
As shown in the chart, the increase in the number of large deals has been coupled with a sharp rise in the average deal value – a 38% increase between 2012 and 2016. The upward trend has been noted from the investor’s perspective as well, with 68% of institutional investors interviewed in the Preqin Investor Outlook: Alternative Assets H1 2017 reporting that asset valuations are the key issue affecting real estate in 2017.
The vast majority (72%) of these large single asset deals occurred in the US, indicating the region is still a safe haven for firms looking to see stabilized and consistent returns. Seven of the nine largest single assets are located in the US for an aggregate deal value of $9.7bn.
A notable deal for sheer size of the asset was the $1.1bn acquisition of 1221 Avenue of the Americas in New York. Invesco Real Estate purchased the office property from CPP Investment Board, which covers a total of 2,500,000ft².
Offices have traditionally been the property type of choice for real estate fund managers when carrying out their transactions, with 27% of all single asset deals completed in 2016 being office properties; however, this trend is not as clear when it comes to the biggest deals. Since 2012, there have been 25 single asset deals with a value of $1bn or more, and among them, office and mixed-use are tied at the top of the asset types with nine each. One of the largest single asset deals of 2016 occurred in May with China Life Insurance and RXR Realty acquiring the UBS Tower, a mixed-use asset, from AXA Investment Managers – Real Assets and JP Morgan Asset Management for $1.65bn.
Despite the worries of increasing valuations, 93% of investors surveyed in the Preqin Investor Outlook: Alternative Assets H1 2017 reported their real estate portfolio performance had met or exceeded their expectations in the last 12 months. Furthermore, over three-quarters (76%) of respondents expect to commit the same or more capital to real estate funds in the coming year. With this potential inflow of investor capital, we may see further large transactions in the next year as fund managers look to put this capital to work.