Real Estate M&A Going From Hot to Not

June 29, 2007

RealEstate07.jpgThe Reuters Real Estate Summit held in New York this week had a clear message for property dealmakers: If you’re waiting for the M&A cycle to kick into high gear, it could be a while. In fact, it’s more likely the cycle is headed for a dry spell, they said.

Indeed, with commerical property investors spooked by CMBS concerns and homebuilders seeing another year of slumping markets, the M&A outlook at the summit this week wasn’t too hot

But there may be deals elsewhere in the industry. Companies specializing in real estate advisory and other real estate related services — like Chicago-based Jones Lang LaSalle – could peak the interest of big investment companies looking for a purchase. Executives at the summit spoke about the possibility of large commercial banks or asset managers beefing up real estate capabilities by buying a real estate advisory or real estate services firms.

Advisory firm Grubb & Ellis‘ vice chairman Howard Grufferman sees real estate service companies becoming a part of bigger investment firms — noting that the number of such specialized service providers is limited.

And muted M&A doesn’t mean there won’t be consolidation: tough markets could cause some companies — especially the over-levered — to go out of business or become easy takeover targets in a recovery.

“I would expect consolidation, not necessarily because (companies) are bought but also because they go out of business,” the CFO of Hovnanian Enterprises, the sixth largest US homebuider, told the summit. “I think there will be opportunities once we can clearly see that the market has bottomed.” He also had a few things to say about the bad timing of a Hovnanian Florida deal.

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