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Rate of busted deals in US commercial real estate increased fourfold

Europe, Asia-Pacific regions have also seen major transactions fall through

Rate of Scrapped CRE Deals Rises Worldwide Due to Covid (Credit: iStock)

Soon after the coronavirus was declared a pandemic in mid-March, real estate dealmaking around the world ground to halt as capital markets froze and buyers reconsidered the value of assets.

In-contract deals that were disrupted in the early days of the crisis included a luxury hotel portfolio and a trophy office building in Midtown Manhattan, as well as countless smaller transactions. Data from Real Capital Analytics quantifies the scale of these “busted deals” — and puts the disruption in global context.

“The number of terminated contract deals as a percentage of closed transactions has jumped across the U.S., Europe and Asia Pacific as the tally of completed transactions in those geographies has also sunk,” the report finds.

In the years prior to the current crisis, the U.S. had a notably lower proportion of busted deals, with just 0.4 percent of in-contract deals falling apart between 2015-2019, well below Europe’s 1 percent and the Asia-Pacific region’s 1.5 percent.

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From this lower baseline, however, the U.S. busted-deal rate increased the most dramatically after March, increasing fourfold to 2.5 percent — reflecting a dramatic drop in deal volume in the Americas, as CBRE research has highlighted. Europe and Asia Pacific also saw the proportion of busted deals rise sharply.

Given the globalized nature of commercial real estate, the largest busted deal in the U.S. involved two APAC-based parties, with South Korea’s Mirae Asset seeking to scrap a $5.8 billion hotel buy from China’s Anbang Insurance Group. Meanwhile, the Asia Pacific region’s largest abandoned deal involved U.S.-based Blackstone Group, which ended discussions to acquire developer Soho China in May.

In Europe, terminated deals were concentrated in the U.K. British mall operator Hammerson’s $500 million deal to sell seven retail parks to private equity firm Orion was terminated in May, with Orion forfeiting a $26 million deposit in the process.

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CoronavirusInternational Real EstateTRD Insights