China Private Real Estate Investment Roundtable 2016 – China Money

Top Real estate investment banks

Banking Investment / February 18, 2021

Housing starts, new homes sales, existing homes sales: economic data that comes out of the housing sector has an enormous impact on consumer confidence and the economy's overall trajectory. The real estate market was historically thought to be a very safe investment; one that seemingly always moved higher. Then the great financial crisis of 2008 hit. That recession shined a new light on the market, its players, and inner workings. Far more complicated than was once though to be, the real estate market has revealed its outsized influence on the economic wealth of consumers.

As a specialty market, the real estate sector requires a thorough knowledge and understanding of local fundamentals, as well as the workings of different vehicles that are used to invest in real estate. For example, real estate investment trusts (REITs) appeal to investors because of their structure. They are required to pay out at least 90% of their income as dividends. But while investors enjoy these high payouts, REITs often find themselves in need of capital, relying heavily on debt and equity issuances. For this, REITs turn to investment banks. The investment banks that focus on this sector tend to be large, global players—the top five of which capture a 30-35% share of real estate deals.

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The Top Investment Banks in Real Estate

According to Thomson Reuters, the top five investment banks in the real estate sector have been relatively consistent since 2013, and none has captured more than 10% of the market share. Four of the top five investment banks—Bank of America Merrill Lynch (BAC), Morgan Stanley (MS), Goldman Sachs ( GS) and JP Morgan(JPM)—entered the top ten during the last two years. JP Morgan and Bank of America Merrill Lynch have been in the top five for four years running. Wells Fargo (WFC) was in the top five in 2011, 2013 and 2014, but fell out in 2012 and in the first quarter of 2015, when it was replaced by Citigroup. Goldman Sachs swapped with Morgan Stanley in 2012 and Deutsche Bank (DB) had a strong showing in 2011-2012, but fell out of the top five the subsequent two years. The industry is dominated by these large banks because of the quantity of underwriting deals REITs require—and the amount of capital needed to allow REITs to continue to invest. Some of the world's largest private equity firms also have a strong presence in the industry.

The Bottom Line

The revolving capital needs of the real estate industry, particularly REITs, makes it a ripe area for investment banks (which are all too happy to gather fees generated from underwriting the deals). Managing the risks inherent in real estate investing—risks which became rather apparent during the last housing crisis—is a top priority for investment banks, which have to make enormous capital commitments to the sector.