Probably because this might not be the last major merger the industry will be seeing.
“A theme that has been playing out in the apartment REIT space in the last year and a half is the belief that bigger is better,” says Dave Bragg, managing director at Newport Beach, Calif.-based Green Street Advisors.
“All level expenses can be reduced significantly because of the overlapping portfolios,” Bragg says.
As the upturn matures, and the low-hanging fruit of distressed acquisitions disappears, owners are trying to find different ways of adding value to their enterprises, and portfolio buys are one big way of doing so.
“We’re in the part of the cycle where major owners of properties and investors are doing more creative ways to extract value,” says Dan Fasulo, managing director of New York-based market-research firm Real Capital Analytics. “It’s not 2 or 3 years ago where prices are depressed, there are distressed properties, etc … that game is over. So your next thing is what do you do?”
REITs certainly have a leg up over private companies in terms of accessing the capital markets, and they're using it to take advantage of the economies of scale. But despite all the massive deals this industry has seen over the last year, we may just be getting started.
“Given where we were at the peak, and how far we are from that, we’re in the early innings of the M&A cycle for commercial real estate,” he says, adding that with the increasing availability of debt capital, he only expects it to increase this year.
These mergers also give investors confidence about the market, as these kinds of deals don’t happen in worsening environments.
“Most of the time you really have to be confident of the future to make the numbers work,” Fasulo says. “It’s a shot of confidence for the sector."
—Linsey Isaacs is an assistant editor with Multifamily Executive magazine. Follow her on twitter @LinseyI to continue this conversation.