INVESTMENT ANALYSIS
By Rob Raymond
WHAT ’ S AHEAD IN M & A
In a frenzied environment of corporate mergers and acquisitions , commercial real estate will face tough decisions in the long and short terms .
By every measure , 2021 was a record-breaking year for merger and acquisition activity among global corporations — both public and private . High year-over-year measures were expected given the COVID-19-induced lull in 2020 . According to data from Dealogic , though , global M & A volume exceeded $ 5 trillion , with the U . S . leading the way with $ 2.5 trillion . Both of those figures surpass previous records set in 2007 shortly before the global financial crisis . This uptick in M & A activity added further complexity to the commercial real estate environment , which was already experiencing turbulence and uncertainty due to COVID-19 . Considering the inflationary pressures heading into 2022 , it is no surprise that CRE owners and occupiers are finding that they need to be more creative and nimbler than ever when it comes to managing their portfolios .
This wave of M & A activity is considerably different than the wave that occurred prior to the global financial crisis in creating a clear distinction between how organizations think of corporate real estate in the short term versus longer timelines . In the short term , there are two key areas of focus :
1 . Organizations are now focused on how the drastic shift to working from home can be leveraged to gain post-merger synergies in the real estate footprint . California and New York have both lifted indoor mask mandates , driving companies to quickly understand the types and quantity of space needed for the workforce that will return to the office either full time or in a hybrid model .
Considering the inflationary pressures heading into 2022 , it is no surprise that CRE owners and occupiers are finding that they need to be more creative and nimbler than ever .
They are then seeking to immediately shed any excess or underutilized space due to an expected rise in rent rates .
2 . The rise in rent rates is consistent with the expected increase in inflation . Companies are examining the sale-leaseback of owned real estate and deciding whether to own or lease real estate . For example , despite some companies being in a good position to take advantage of record high real estate valuations in the summer of 2021 , clients are choosing not to proceed with the sale or sale-leaseback of assets due to the increased cash it would generate on their balance sheets with no immediate plans to deploy it back into their business . The erosion effects of inflation are adding to this concern , which is why it ’ s imperative that global and regional CRE leaders align their real estate strategy with their CFO and finance organization .
Within the context of a merger integration , there often is a small lack of synergy in the short term , particularly if the time to get to Day 1 is rather short . This incoherence may be caused by having to maintain different legacy CRE and facility management systems or differentiated policies and processes . Lastly , for intellectual property or proprietary knowledge reasons , you may not be able to have co-location of employees , regardless of legal allowances . Where these concerns exist within the carveout or merger of two companies , global and regional CRE decision-makers may need to incur capital costs or even expand the space — either temporarily or permanently — to accommodate .
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COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2022