Global mergers and acquisitions had a banner year in 2017, with some $3.5 trillion worth of
deals completed, according to Thomson Reuters
data. Much like the the broader M&A space, CRE
companies were acquired and absorbed for a wide
range of reasons and across diverse asset classes.
Building scale, for example, is a chief driver of
deals and one not limited to CRE. The merger
among Colony Capital, NorthStar Asset
Management Group and NorthStar Realty Finance
illustrated this trend very well last year: the equity
REIT resulting from that union has a market cap of
roughly $9 billion and assets under management
of $58 billion. Today we can find Colony NorthStar
trading on the NYSE with significant holdings in
the healthcare, industrial and hospitality industries. It also owns opportunistic equity and debt
investments as well as an embedded institutional
and retail investment management business.
Colony’s was advised by BofA Merrill Lynch and
received legal counsel from Willkie Farr &
Gallagher LLP and Hogan Lovells LLP. Barclays,
Credit Suisse, Deutsche Bank Securities, JP
Morgan and Morgan Stanley also acted as financial advisors to Colony in connection with the
transaction. NSAM was advised by Goldman Sachs
and received legal counsel from Sullivan &
Cromwell LLP, Goodwin Procter LLP, Skadden,
Arps, Slate, Meagher & Flom LLP and Hunton &
Williams LLP. NSAM’s special committee was
advised by Evercore and received legal counsel
from Fried, Frank, Harris, Shriver & Jacobson LLP
and Morris, Nichols, Arsht & Tunnell LLP.
Consolidation in a fragmented market space has
been another driver, as seen by Invitation Homes
and Starwood Waypoint Homes’ $11-billion all-
stock merger of equals. While these two companies
were the major players in the single-family rental
housing market, the combined Invitation Homes
portfolio still represents just 0.5% of the market.
Indeed, Starwood Waypoint was itself the product of
a 2015 merger between Starwood Waypoint
Residential Trust and Colony American Homes.
Deutsche Bank Securities Inc. and J.P. Morgan
Securities LLC were financial advisors and
Simpson Thacher & Bartlett was INVH’s legal advisor. Morgan Stanley Co. LLC and Evercore Group
LLC were financial advisors to Starwood Waypoint,
while Sidley Austin LLP was legal cousel.
Another REIT deal last year that consolidated
assets in its particular space was RLJ Lodging
Trust’s merger with FelCor Lodging, a $7-billion
stock-for-stock transaction that created the third
largest pure-play lodging trust. Shareholders of
both companies approved the union creating the
third largest pure-play lodging REIT on August 15,
despite analysts’ concerns that RLJ was paying
too high of a price. Barclays acted as financial
advisor, while Hogan Lovells and Arent Fox acted
as legal advisors to RLJ r.
In August, Sabra Health Care REIT and Care
Capital Properties Inc. completed their much-con-tested $7.4-billion merger. The combined company is being led by current Sabra CEO Rick
Matros from its Irvine, CA headquarters and continues trading under the SBRA ticker on Nasdaq.
Consolidation was a driver in another deal
between Brookdale Senior Living and HCP. The
$275 million multi-part transaction entailed property acquisitions, lease terminations, Ridea
restructuring and the amendment and restatement of the lease portfolio. Skadden represented
both Brookdale and HCP in the transaction.
Last year also saw a blockbuster-sized deal in
what had, to date, been a niche product—manu-
factured housing. In March, Colony NorthStar sold
its manufactured housing portfolio, consisting of
135 communities in 13 states, to Brookfield Asset
Management for $2.1 billion. Fried Frank acted as
counsel to Brookfield in the deal.
Another transaction that fell outside the main
food groups of CRE was Kayne Anderson Real
Estate Advisors’ acquisition of Sentio Healthcare
Properties. KAREA paid $825 million in cash for the
KKR-backed, non-listed REIT. The transaction
added 33 high-quality assets to Kayne Anderson’s
seniors housing and medical office portfolios.
Citigroup Global Markets Inc. and HFF LP acted
as financial advisors to KAREA, Hogan Lovells US
LLP was corporate legal advisor and Greenberg
Traurig LLP as real estate legal advisor. For Sentio,
Robert A. Stanger & Co. Inc. and UBS Investment
Bank acted as financial advisors; Latham &
Watkins LLP, Foley & Lardner LLP and DLA Piper
provided legal advice. Simpson Thacher & Bartlett
LLP was legal advisor to KKR. Capital One provided
KAREA with a total of $521 million in loans to
facilitate the buy.
Indeed, non-traded REITs were the driver of
many M&A in 2017. Phillips Edison Grocery Center
REIT I, as another illustration, completed the acquisition of certain real estate assets and the third-party asset management business of its former
sponsor and external advisor, Phillips Edison LP. The
combined company, now doing business as Phillips
Edison, is a non-traded REIT with a total enterprise
value of approximately $4 billion. Lazard acted as
the exclusive financial advisor and Sidley Austin LLP
acted as legal advisor to the special committee of
the board of directors of PECO I. Goldman Sachs, JP
Morgan Securities LLC and KeyBanc Capital
Markets Inc. acted as financial advisors and Latham
Watkins LLP acted as legal advisor to PELP. PECO I
has also engaged Duff & Phelps to perform an
ANOTHER BIG YEAR FOR M&A ACTIVITY
year. The spec project was reportedly one of the last available building sites for prime office headquarters in Mission Bay.
That deal took the top spot
from Facebook, which had signed
a major lease at Jay Paul Co.’s 181
Fremont earlier that month in
what had been San Francisco’s
largest office lease in three years.
The social media giant will use
the entire 33-story, 436,000-s
office portion of the mixed-use
building for its Instagram divi-
sion. The move represents
Facebook’s entrée into San
Francisco and is part of its plan to
improve the commute for its employees, which had been com-mut-
ing into the city from its Menlo Park headquarters. Lease terms were
not announced, but sources pegged its value at around $80 per sf.
Also housing ultra high-end condos and hotel, the tower is expected
to be the tallest residential building on the West Coast.
Yet DropBox wasn’t the only win for Kilroy Realty, whose hefty
investments in San Francisco and the tech industry certainly paid
off last year. In October, Adobe Systems took up the entire of-fice
space at 100 Hooper, currently under way in Mission Bay. The
firm will commence its 320,000-sf lease later this year. And in
December, Kilroy snagged a 10-year deal with Okta at 100 First St.
Having issued an IPO earlier in the year, the tech firm will use the
207,000-sf space as its new corporate headquarters. The deal
brought the 27-story, 467-sf building’s occupancy to 95%.
Meanwhile, Airbnb this year started moving into the 287,000 sf it
subleased a year ago from Zyn-ga at its headquarters buildings at 650
Townsend and 699 8th Street under a nine-year lease. The gaming