US Capital Trends: Is tight pricing shrinking deal volume?

  • March 23, 2017
  • Uncategorized

Throughout 2016, the monthly drop in deal volume was largely a function of pullbacks in portfolio and entity-level transactions. These megadeals were a prominent feature of the investment market in 2015 and as those shrank back, deal volume was challenged.

Single asset sales were the strongest part of the market in 2016, with deal volume unchanged from 2015 and only minimal declines in some months. Over the last three months, however, the pace of decline in single asset sales has been accelerating.

In February, single asset deal activity was down 27% YOY on sales of $17.1b. This drop comes after the 17% and 23% YOY declines seen in Dec’16 and Jan’17 respectively. This pullback in single asset sales is significant as these transactions represent the foundation of the market, with investors underwriting acquisitions one building at a time.

Still, while deal volume is falling, it is not as if the market is entering a collapse in activity like that seen in 2008 and 2009. Pricing is still generally tight and, as shown later in this report, there is a diverse pool of lenders competing to cover the debt portion of the capital stack.

It may well be the case that the current decline in deal volume may be because of tight pricing. With a rising interest rate environment, buyers are concerned about future cap rate movements and may be at an impasse with potential sellers.

-Real Capital Analytics

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