Improving REIT Stock Prices Could Fuel a New Wave of Acquisition Dealmaking
Recently improving improving valuations in publicly listed real estate companies could spark a rebound in mergers and acquisitions according to Blackstone’s Jonathan Gray. Liquidity for real estate acquisitions could become available if recent rising stock prices among Real Estate Investment Trusts (REITs) in 2024 results in an issuance of new shares. The continued sluggish pace of investment sales transactions due to the hesitation of investors to sell in a slowly recovering commercial real estate (CRE) market continues to limit liquidity, which managers like Blackstone depend on to generate cash. However, Gray warns that despite a broader CRE recovery, office buildings burdened by heavy debt will continue to face “steep challenges,” believing that one of the key factors behind the sector’s struggles is the result of “many investors being caught off guard by the Federal Reserve’s sharp rate hikes in 2022 and 2023, becoming too comfortable with historically low rates” and the “flawed assumption that recent conditions will continue.” As a result, rising debt costs along with continued hybrid work have led to steep price drops within the office market. It is anticipated that many office owners will face “inevitable write-downs as debt deadlines approach, a process that could drag on for years; and while equity markets will feel most of the impact, regional banks may feel that impact as well.