The Global Market

The onset of the COVID-19 pandemic rattled the worldwide mortgage market. New lending volumes plummeted to record lows amid declining consumer sentiment, job losses, and nationwide lockdowns in many countries. However, new mortgage lending has remained on an upward trajectory since the second half of 2020. The total number of closed-end mortgage originations jumped from 8.3 million in 2019 to 13.6 million in 2020. That’s an increase of 65.2%. Regulators have kept interest rates at an all-time low. Even though interest rates could begin to tick up at some point, globally, the mortgage brokerage services market is expected to continue to see tremendous growth through the year 2027.

The COVID-19 pandemic has had a negative impact on all classes of commercial real estate. Yet, it also created some new opportunities within the commercial real estate (CRE) market, such as affordable rental prices, improved digital communication and payment facilitation, as well as new opportunities for business owners and investors. And further recovery is well underway.  

CRE prices fell 11% between March and May of 2020. Since July, prices increased 7%, erasing over half of those pandemic declines. With investors sitting on wealth, more investment in stocks and bonds took place, which pushed prices up and interest rates down. With inflation being a growing concern, more investors may look to commercial properties with leases that have built-in rent increases to keep pace with inflation.

The global leisure industry is comprised of restaurants, bars, hotels, casinos, sports facilities, travel agencies, tour operators and other customer-focused business segments. This industry is subject to some very specific influential factors such as geopolitics, weather conditions, natural catastrophes, fuel costs, and changing consumer habits and demands. Technology also plays a key role in how people plan their activities and choose to experience them. This presents new opportunities for growth, and at the same time, new challenges.

M&A can be used as an effective solution for vertical integration to fill gaps across the value chain and to offer more efficient global platforms in the leisure industry
and its subsectors.

Opportunities and Challenges

The impacts of new technologies can be beneficial to businesses, but they also present new obstacles. The good news is that people are never going to stop wanting to enjoy themselves. It’s just a matter of how they go about it that faces significant changes.

• Sports Venues: With large and complicated physical infrastructures, sports facilities aim to attract more fans, fill more seats, and maximize returns. Technology aids in getting fans to engage more and spend more money both in person and from their devices. The Internet offers viewers immediate access to scores, stats and updates. While this can enhance sports venues’ offerings, there is also the challenge of competing with home entertainment systems that allow consumers to create their own fan experience in the comfort of their own homes.
• Travel Agencies and Online Booking: There was a time when booking a vacation meant picking up the phone and calling your travel agent. But today, people turn to travel booking websites and apps to plan their trips, leading to overhauled business models. Online travel agents are looking to expand, increase their geographic reach, and be more integral to their customers’ experiences. Additionally, in the world of platforms such as Expedia, Kayak and Priceline, there remains little differentiation among brands, keeping the segment ripe for consolidation.
• The Gaming Industry: The loosening of sports-betting regulations is driving change in the gaming industry. People are increasingly able to gamble online in various capacities, and while casinos are adopting strategies to capitalize on these opportunities, there is still the prospect of less foot traffic that would have transferred to more money spent on in-house dining and other in-person gambling options. This sector is prime for consolidations and partnerships.
• Restaurants: Once a very brick-and-mortar focused sector, new technologies allow customers to opt for food delivery companies and apps to bring dinner to them rather than dining out at a physical restaurant location.
• The Cruise Industry: Cybersecurity is an important concern within this sector, as more people spend more time on their connected devices while they enjoy their cruise vacation. Personalized data-driven technology improves the passenger experience, but it also requires more integration so that more systems can share more information.
• Hotels: Web platforms such as airbnb have changed how people lodge on their vacations, moving tourism traffic from concentrated urban areas to more residential neighborhoods.
• Amusement Parks: Consumers seek out unique and immersive experiences through their tech. Theme parks are creating new partnerships to cater to these demands, and seeking out novel ways to tap into new markets. These partnerships can be less capital intensive and give businesses flexibility to adapt to changing trends.

Cross-Border M&A Considerations

Cross-border M&A transactions can involve several issues as political, cultural and economic environments evolve and regulations change. Certain due diligence factors should always be considered for these types of deals are expected to result in success stories.

• Transaction framework: This involves careful evaluation of pricing (maximized value), timing, and certainty (public reputation and proof of funds)
• Regulatory compliance: Focus on cybersecurity, foreign investment laws, national security laws, fraud, sanction violations, and money laundering
• Antitrust and competition: This includes overlaps between brands, overlaps between operations, market concentration, and specific clearances
• Technology and intellectual property: Thoroughly assess trademarks, domain names, IP rights, third-party licensing, existing claims, infrastructure, loyalty programs, data privacy laws, and databases

As with M&A transactions in any industry, there are several other areas that must be considered for due diligence and company valuation, including management agreements, financing, tax structures, employment issues, and other operational risks.

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If you are thinking about selling your company, or would like to start exit planning, contact our M&A specialists at Benchmark International to start the process. We can help you understand your options and key factors for consideration, and get you on your way to a deal that works best for your vision of the future.

The global real estate environment is off to a strong start for 2019. While uncertainties regarding trade, Brexit, and other geopolitical tensions linger, we have yet to see any major weaknesses in real estate markets. The sector continues to attract capital and pricing levels are holding steady thanks to strong capital flows. 

Real Capital Analytics (RCA) reports that acquisitions of income-producing commercial real estate last year rose by 3 percent to $963.7 billion. That is the third highest annual total on record behind 2007 and 2015.

The Multifamily Sector

Multifamily housing is expected to continue to attract sustained investment and debt capital. Multifamily demand remains steady and is driving up rent prices as younger generations are being priced out of home ownership and older generations are downsizing. The top three emerging markets to watch in the United States for multifamily housing this year are Phoenix, Portland, and Tampa Bay.

Workforce Housing

The growing need for workforce housing is also driving the market for multifamily housing. In fact, workforce housing has actually outperformed the overall multifamily market in each of the last four years.According to a report by CBRE, workforce housing has brought in nearly $375 billion in investment over the last five years. That is more than 51 percent of the total for all multifamily asset classes.

Tech, Retail & E-commerce

Real estate fundamentals remain strong amid trends surrounding urbanization, retail, and ecommerce. Suburban markets are adapting to technology and becoming more urbanized with added focus on community-oriented retail concepts. Retail stores and shopping malls are undergoing an identity transformation, as retailers are adjusting their real estate needs to accommodate omnichannel experiences, especially in the U.S. and Europe. Additionally, e-commerce companies are adding smaller, satellite facilities to their networks of regional distribution centers as a reaction to the demand for fast, low-cost shipping.

Tech firms and flexible space providers continue to have a major impact on the global real estate market this year. Flexible space providers are targeting their focus on larger enterprises. More and more firms are leasing shared spaces. And as employees become more mobile, companies are adapting and coworking is becoming more popular. Coworking is primarily focused in high-wage markets and cities with a large number of professional services companies. Coworking spaces in tech markets are nearly double that of other markets.

Mixed-use real estate is also going to remain a significant opportunity, with the convergence of retail, office, residential, hospitality, and community-focused spaces. This adaptation is causing a shift in the types of tenants that properties are accommodating, resulting in shorter lease agreements.

REITs and Mergers & Acquisitions

Investors are expected to continue to diversify into secondary markets in search of yield. This includes real estate investment trusts (REITs), which have recently increased valuations and pay healthy dividends. Global REITs are projected to outperform other sectors and deliver strong returns in 2019. The property sectors among REITs expected to see the most M&A activity this year are industrial, self-storage, data center, multifamily, and student housing. Experts also predict the possibilities of some deals in the hotel REIT sector.

The year 2018 outperformed 2015’s prosperity for global commercial real estate investment in the current cycle, with a five percent increase in global investment volume. The U.S. accounted for 52 percent of global transactions. A total of six investors from Canada, France and China invested a record $41 billion in U.S. entities.

The value of U.S. entity-level transactions increased threefold last year, driven in majority by cross-border investment. Toronto-based Brookfield acquired Forest City Realty for $11 billion, making Brookfield the second-largest property owner in New York City, led only by the city government, and boasting a NYC portfolio worth around $32 billion. In 2018, Brookfield also acquired the second-largest U.S. mall owner, General Growth Properties, for $15 billion. Both Forest City and GGP were publicly traded REITs. 

Global Hotspots

International property is sustaining its 2018 performances as a remarkably popular market. Some of the top cities for real estate investment in 2019 include Lisbon, Toronto, Dallas-Forth Worth, Melbourne, Singapore, Berlin, New York City, Vancouver, Raleigh, Montreal, Tokyo, Madrid, Osaka, and Sydney. Specifically, the city of Lisbon has been noted to be the 2019 investment capital of Europe. This is due to increased tourism, a growing economy, and competitively lower pricing.

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If you are interested pursuing a growth strategy or an exit plan. No matter what sector you work or invest in, Benchmark International can help you take your aspirations to the next level.