As commercial real estate prices struggle to rebound to their pre-Covid peak, Retail Opportunity Investments Corp. (Nasdaq: ROIC) announced the company’s intention to go private via a $4 billion acquisition by Blackstone. The all-cash deal is structured as a reverse triangular merger and is expected to close during Q1 2025.
“As of September 30, 2024, ROIC owned 93 shopping centers encompassing approximately 10.5 million square feet,” according to the company’s press release. “ROIC is the largest publicly-traded, grocery-anchored shopping center REIT focused exclusively on the West Coast.”
Following the Great Recession of 2007-2009, the U.S. commercial real estate market surged year after year, reaching nearly $1.35 trillion by 2019; however, that growth was abruptly reversed by the onset of the Covid-19 pandemic in 2020. As the following chart depicts, the market has contracted further each year, with the steepest decline during 2021-22.
“The commercial real estate market in the U.S. is a rapidly evolving sector that has undergone significant disruptions, hindering its growth in recent years,” according to analysts at DoorLoop. “The Covid-19 pandemic, for instance, brought about profound societal transformations that have impacted the market.” As businesses have switched to hybrid working arrangements and adapted to office sharing, the demand for commercial space has waned.
These figures stand in stark contrast to residential real estate demand. The surge in housing prices in recent years has become a hot button political issue. Election data shows that voters in regions with the largest disconnect between median income and housing prices swung toward President-elect Trump. The economic hardship experienced by those attempting to buy homes proved pivotal in many swing states. As the following chart depicts, housing prices have increased across the U.S., with the largest surges in the Northeast and Midwest.
Average Sales Price: Residential
McKinsey predicts that demand for retail and office space in large cities may never rebound to 2019 levels. “In a moderate scenario that we modeled, demand for office space is 13 percent lower in 2030 than it was in 2019 for the median city in our study. In a severe scenario, demand falls by 38 percent in the most heavily affected city.”
According to DealPulse’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of publicly-announced transactions, ROIC is advised by law firm Clifford Chance and Blackstone is advised by Simpson Thacher & Bartlett LLP.
