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The Deal-Making Flurry in Private Real Estate

Record levels of dry powder are being put to work, data from Preqin shows.

Deal activity in private real estate reached a five-year high for the first quarter, a new report from alternative data provider Preqin showed. 

A total of 1,403 deals valued at an aggregate of $67 billion went through in the first quarter of 2018, according to the April 19 report, compared to 1,244 deals worth $56 billion in the same period last year. 

“The real estate industry saw a banner quarter in the first quarter of 2018, both in terms of fundraising and deal activity,” said Oliver Senchal, head of real estate at Preqin, in a statement. “Transactions reached a five-year high for any opening quarter, both in terms of the number of deals announced, and their total value.”

The record comes at an interesting time for the private equity industry. According to Preqin, more private equity funds are seeking capital now than at any other time in history. These funds are looking beyond traditional buyouts to put that capital to work. As a result, real estate is just one of several asset classes growing in popularity.

The first quarter of each year is typically a slow period for real estate, Preqin data showed. Fewer private equity real estate deals closed in the first quarter of 2018 than in the last quarter of 2017, but the year-over-year increase is noteworthy. 

“This shows the private equity real estate deal market is going from strength to strength, as this comes on the heels of a record year in 2017,” Senchal said. “If this pace continues, we could see 2018 surpass its predecessor as the biggest year ever for private equity real estate transactions.”

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As the number of private equity real estate deals completed swells, differentiated asset classes are getting more play than usual, Preqin data showed. Affice buildings remained the most-transacted property type in the past quarter, but the sector fell from 40 percent of aggregate deal value in the first quarter of 2017 to 29 percent in 2018.

“Proportionally, more capital was invested in residential, operating companies, and hotel property,” the report said. 

Still, the single largest deal in the first quarter of 2018 was for an office property. The purchase of a Times Square office building — 701 Seventh Avenue in Manhattan — by Fortress Investment Group and Maefield Development clocked in at $1.5 billion, according to Preqin. 

The second largest deal completed during that time period, though, was the acquisition of a Hawaiian resort, The Grand Wailea, by Blackstone for $1.1 billion.

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