Thirteen days into January, Bill Ackman, founder and CEO of Pershing Square Capital, who doubles as a modern-day Gordon Gekko with a million-strong X army, took a break from posting on the social media platform to announce his intention to take Howard Hughes Holdings private in a $1.5 billion deal.
Ackman laid down his offer to purchase 11.7 million shares of Howard Hughes Holdings, a public commercial real estate firm, at $85 per share, nearly 20 percent higher than the $71.78 it traded at only days prior. While the Howard Hughes board was considering the offer as of press time, Ackman’s billion-
dollar bid has set the tone for a wave of mergers and acquisitions to sweep across CRE capital markets in 2025 following years of muted ripples.
Consider this: After $259 billion of public real estate investment trust (REIT) M&A between 2019 and 2023, last year saw merely two deals, both by Blackstone Real Estate Income Trust, totaling $12.9 billion, according to Nareit, the National Association of Real Estate Investment Trusts.
“It’s fairly clear to everyone that 2024 was a slower activity year, due to uncertainty of pricing and the increase in base rates,” said James Scott, co-head of Americas investment banking for CBRE (CBRE). “In 2025, large transaction and large portfolio activity should proceed and recover along with the broader market.”
Net asset value (NAV), a company’s total assets minus its total liabilities, and its relationship to a public REIT’s share price is the prime consideration when firms weigh a public-to-private takeover or an inter-REIT public-to-public merger. When public values trade too far below NAV, buyers get excited, and sellers don’t want to sell. As public pricing catches up with private NAVs, however, buyers have an easier time convincing boards to either sell or merge at values that are attractive to shareholders.
“That’s the dynamic we’ve seen in the last couple of cycles: As the public markets have recovered, it’s a good harbinger of greater public-
to-private activity,” explained Scott. “And as we end this uncertainty in pricing that the movements in rates have caused us over the last two years, we’ll also see large portfolio activity pickup.”
A December 2024 report by JLL (JLL) estimated that the public REIT sector is trading, on average, at a 19 percent premium to NAV, meaning market prices on average are trading much higher than the average value of REIT assets. In fact, JLL found data centers, self-storage and health care REITs are trading 35 percent above their NAV movements.
“Coming out of the GFC we witnessed a V-shape recovery,” said Steve Hentschel, global co-head of JLL’s M&A and corporate advisory practice, referencing the Global Financial Crisis 17 years ago. “That same pattern is emerging in both public and private capital markets today.”
However, beyond NAVs and stock prices, several highly volatile factors will also play into how CRE M&A activity rebounds in 2025.
Attorney Spencer Johnson III, a partner at King & Spalding and a specialist in corporate finance and investments, said that expectations around Treasury yields heading into the new year initially gave investors hope for rate stabilization. But the 10-Year Treasury has fluctuated from 4.6 percent to nearly 5 percent to as low as 4.4 percent in just over a month since Jan. 1, with President Donald Trump’s tariffs, mass deportations and deficit spending causing nervous tremors through bond markets.
“A number of factors would lead you to the conclusion that there would be much more [M&A activity] from volume standpoint in 2025 … and it hasn’t exactly panned out that way, with tariffs and different things driving yields in the wrong direction,” explained Johnson. “Now with the election behind us, and hopefully some stability in Treasurys at least on the horizon, I think some of the pent-up demand from people wanting to do deals will get done.”
Trump’s bull-in-a-china-shop economic approach offers mixed messages, with the threat of economic disruption balanced by his affection for big business, considering that his governing philosophy — evinced by the anti-regulatory climate that characterized his first term — is decidedly pro-growth.
“With the election of Trump, and the pro-business policies in place, people can think a lot more about growth,” said Alexander Goldfarb, managing director and senior analyst at Piper Sandler, who added that he expects “private capital to come back in a big way” into CRE in 2025.
“We expect private equity to come back into retail real estate and shopping centers, and definitely expect more of that as we move past the pandemic with a pro-growth administration,” continued Goldfarb, who said firms can now underwrite investment outcomes “with more certainty.” Couple that with a general lack of supply, as occupancies are nearly full across major asset classes, and buyers can expect consistent rent growth “because of how much replacement cost is above where assets are trading in the market,” he added.
Robin Panovka, who co-chairs law firm Wachtell, Lipton, Rosen & Katz’s real estate and REIT M&A practice, said that as bid-ask spreads have come down for both individual assets and large portfolios, there’s been a dispersion in valuations across the public REIT sector. That means some REITs are trading at higher multiples than others, giving them the ability to pay more for the smaller REITs, particularly in stock-for-stock deals, thus hastening public-to-public M&A in the months ahead.
“The general sense in M&A across REITs and other sectors is that there’s going to be a lot of activity this year because regulations are decreasing under the new administration, and because the economy is performing well,” he said. “But the wild card is interest rates — that’s what’s been holding back a lot of transactions.”
Where to look
Generally speaking, all commercial real estate sales, purchases and portfolio transactions can qualify as M&A under the guise of “acquisitions.” This analysis, though, will explore the two most common forms of CRE M&A: the merging of one REIT with another (usually smaller) one; and the acquisition of a public REIT by a private firm (usually a private equity company).
Of course, there are noteworthy private-to-private CRE M&A transactions, such as when Jamestown acquired the mixed-use property unit of North American Properties for $2 billion last August, with the goal of expanding its footprint in suburban community development projects, in a deal that speaks to the vertically integrated intention of those CRE acquisitions.
Then there are the rare times when a private company merges with a public REIT in anticipation of going public themselves. Among the most famous examples of this in recent years was when JBG Companies, a Washington, D.C.-based CRE investment firm, merged with a subsidiary of Vornado Realty Trust in July 2017, in an $8.4 billion deal that created a publicly traded REIT called JBG Smith Properties.
These deals occur when companies want to broaden their portfolio before an IPO and when the public markets for REITs are feeling frothy. Not every deal works out as intended: JBG Smith Properties traded at $37 per share one week into the 2017 merger, but has traded at less than $18 per share for two years running.
The real meat-and-potatoes of M&A, however, are those public-
to-public and public-to-private transactions, the complex deals that make or break the careers of participants and set the terms for market behavior across the capital markets landscape. Moreover, in both cases, the REIT being acquired might not be ready to lose its autonomy, creating potentially awkward negotiations.
“Look, it comes down to this: [M&As] are like marriage: it takes two willing spouses,” said Goldfarb. “And if you don’t have a willing seller, then hostiles [hostile takeovers] in REIT land are really tougher, and the buyer needs a good cost of capital. That’s the dynamic.”
What makes the REIT space so attractive for both public and private investment firms is its sheer size and variety. REITs today own $4 trillion of real estate and have an equity market capitalization of $1.3 trillion in the U.S. Approximately 130 REITs have a market cap of $1 billion, with 35 of those REITs boasting capitalization of $10 billion or more, according to Wachtell, Lipton, Rosen & Katz.
For a bit of perspective, in 1995 the market capitalization of all U.S. REITs stood at $57.5 billion, with a mere six REITs carrying market caps over $1 billion.
“People expect [the REIT industry] to continue to grow dramatically over the next five to 10 years because there’s so much commercial real estate that could fit better into the REIT space, where there’s much cheaper capital and efficiencies of scale,” explained Panovka. “It’s cheaper because REITs can access public equity markets, and there’s a willingness by bond markets and stock markets to invest in public companies that have highly liquid stock, are SEC reporting and transparent.”
Panovka said that even as the public REIT market has grown, it has also consolidated into fewer, larger companies, altering the entire chess set of players vying for property and capital.
“What’s been happening over the last 10 to 15 years, in each of the real estate sectors — whether that’s apartments, retail, office, industrial, data centers or cell towers — is that larger companies have been developed both through buying other smaller companies, and also by buying assets,” Panovka explained, noting that the 15 largest REITs represent 55 percent market capitalization of the entire industry.
“In each of the sectors, you’ve got a smaller number of REITs that have been consolidating their respective spaces,” he added.
The two most famous examples of public-to-public consolidation have been VICI Properties’ $17.2 billion strategic acquisition of MGM Growth Properties in May 2022, in a deal that gave the casino and entertainment REIT control of the largest casino owner on the Las Vegas Strip; and American Tower Corporation’s $10.2 billion acquisition of CoreSite Realty, a megamerger of two data center giants in America’s fastest-
growing asset class.
“In public-to-public mergers, a lot of it is the cost of capital of the buyer versus cost of capital for the seller, and these deals tend to be stickier, so there can be more possibilities to make the math work,” said Cedrik Lachance, director of research at advisory firm GreenStreet, who emphasized one entity in the deal always has a cost of capital advantage. “The buyer tends to be able to dramatically reduce [costs], so the combined entity is much more efficient, which should be valued a little bit better in the public market.”
But no public-to-public merger has gained as much attention as when Duke Realty accepted Prologis’ $26 billion offer to merge in June 2022, bringing the nation’s second-
largest industrial REIT and its 153 million square feet of operating properties under the umbrella of the largest U.S. industrial REIT. Rather than targeting a better share price, Prologis chased the deal to enhance its geographic reach and bolster its scale, according to John Worth, executive vice president of research at Nareit.
“I’m not sure it’s a property sector story, so much as it’s about getting alignment,” Worth said. “REITs are doing them to become more diversified, in terms of properties they own, and they’re doing them to become more diversified in terms of geographies, maybe qualities of properties, and to grow the size of the operating platform.”
According to King & Spalding’s Johnson, the considerations during these public mergers straddle the spectrum of weighty, existential questions pertaining to strategy and the nature of a firm’s existence: Am I big enough to access capital markets as a public company in a way that’s still efficient for my shareholders? Will I gain some synergy for my shareholders by combining with another public REIT? Should I expand our balance sheet and our access to capital? Will any of this drive value for shareholders?
“There’s usually some factor that’s leading to that discussion along those lines, but, frankly, it could be a succession plan as well,” Johnson said, hinting at the dynamics of the hit HBO show about corporate M&A. “But those are the main considerations for the public-
to-public combinations.”
Aside from internal concerns, there are sheer market forces at play. Doug Weill, a founder of Hodes Weill & Associates, a global capital advisory firm, said that the difference in market capitalization between the largest and smallest REITs has created an unbalanced dynamic where it’s “either sell or merge with someone to get bigger.”
“Does the market need more than five or six industrial REITs? How many mall REITs does it need?” asked Weill. “The market is rationalizing which REITs will dominate going forward. … The largest REITs have a competitive advantage, and it’s getting harder to compete with them.”
Private eyes
Beyond the public space, there is the increasingly powerful world of private capital — both private credit and private equity — which has taken advantage of the paradigm shift brought on by a pullback in traditional bank lending and burgeoning acceptance among sponsors to use debt funds to finance CRE investment. As private capital has fattened itself on savory returns, the biggest players in the industry have used trillion-dollar balance sheets to purchase public REITs at an astounding pace since 2021.
Notable private equity purchases in the post-pandemic world include KKR’s $15 billion acquisition of CyrusOne, a top data center REIT, in November 2021; and the February 2023 joint venture acquisition between Singapore’s GIC and American private equity firm Oak Street of Store Capital for $15 billion.
But no private equity player has been more active in the take-private space than Blackstone, specifically its private (non-listed) REIT, Blackstone Real Estate Income Trust — aka BREIT.
Beginning with its $7.2 billion acquisition in 2021 of QTS Realty Trust, a data center public REIT, the overlords at BREIT have gone on a veritable spending spree these last four years. In 2022 alone, the private equity behemoth subsequently acquired Resource REIT and its 12,000 multifamily units for $3.8 billion; Preferred Apartments Communities and its 113 properties for $5.8 billion; American Campus Communities and its 143,100 student housing beds for $12.8 billion; and PS Business Parks and its 27 million square feet of industrial space for $7.6 billion.
Last year, BREIT was the only major player in the take-private M&A space. It purchased American Income REIT and its 27,385 single-
family homes last April in a $10 billion deal, and acquired Retail Opportunity Investment Corporation, a REIT specializing in grocery-
anchored retail, in a $4 billion privatization. Last January, the firm also purchased Tricon Residential, a publicly traded investment firm in single-family rental and multifamily rental home space, in a $7.5 billion deal.
“Our portfolio is nearly 90 percent concentrated in our highest-conviction sectors, mainly rental housing, industrial and data centers, where we really see the strongest fundamentals,” Wesley LePatner, CEO of BREIT, said during a Feb. 4 shareholders call. “Our conviction in each of these sectors is underpinned by megatrends with secular demand tailwinds.”
CBRE’s Scott said that the growth of private capital in the public REIT space is both “a near- and long-term trend,” as asset managers like BREIT aim to acquire a broader set of CRE products to keep their investors with them going forward.
“We’re seeing private capital get more sophisticated, and one of the long-term trends is private capital wants to invest in sector-specific real estate, as opposed to diversification,” he said. “So that lends private capital to playing on a sector-specific basis, and could drive additional go-private activity because the public REITs are already sector specific.”
Weill noted that now is a moment in time when many REITs are trading at double-digit percentage discounts to their net asset value, making them appetizing candidates for a takeover financed by leverage and made true in a boardroom. He calculated that closed-end funds are sitting on $370 billion in dry powder, which can be levered at a 2-to-1 ratio to provide private firms with as much as
$1 trillion in acquisition capacity.
“Just in closed-end funds, you have enough dry powder to potentially finance a year’s worth of acquisitions, if you go back to the prior peak,” said Weill. “It just shows you the scale of that capital.”
Spalding & King’s Johnson noted that there haven’t been many IPOs in the last five years, which has kept the supply of public REITs low as consolidation and take-private activities gradually reduce competition, in turn creating a rather ironic circumstance for the remaining public firms to face.
“It’s given other public REITs time to grow their portfolios and access capital, so those that were smaller and less attractive in recent years have evolved and become more attractive targets [for acquisition],” he said.
And it’s not like all of these go-private transactions are hostile. Johnson emphasized the fact that, for stockholders, the cash deal is often their last moment to get maximum value for their securities, and that the private offer is often too good to pass up.
“There comes a point when the offer from the private buyer reaches a dollar amount where, if you look out three to five years, and plan to execute and deliver value to the shareholders comparable to what they get at the sale price, it’s hard to say, ‘I’m not going to do that,’ ” he said.
But the main driver now and forever in CRE M&A, whether it be public or private transactions, is scale. Nowhere is scale more important than within sector-specific REITs, notably the possibilities they offer their future acquirers in both asset type and geographic diversity.
Nareit’s Worth believes that when we look back a decade from now at M&A activity, the privatization of REITs, while important, won’t shape the industry nearly as much as the consolidation within REITs themselves.
“The themes that are going to be really meaningful for the next 10 years are scale — getting bigger, getting a larger operating platform, being able to deliver for clients — and specialization, being a world-class operator in one specific property type,” said Worth. “But scale will be really critical to what the industry looks like in five or 10 years.”
Brian Pascus can be reached at [email protected].
