Engineering firms are increasingly being targeted by private equity. 

Why? Because the U.S. government has set aside at least a trillion dollars to address the country’s desperately needed infrastructure demands over the next half-decade.

In 2023, private equity took notice and aggressively pumped more than $4.5B into engineering and construction acquisitions. This year is on pace to be the fourth year in a row with more than 400 M&A deals in the architecture, engineering and environmental space — and more than 40% of that activity was backed by private equity.

The phones are ringing off the hook for industry leaders Bisnow spoke to recently. 

“We get approached two or three times a month,” Stephen DeSimone said about private equity interest in his firm, Manhattan-based DeSimone Consulting Engineering. 

“It used to be once a year, maybe twice a year. They used to be pretty discreet about it. Now they just leave voicemail messages.”

While some see this gold rush as beneficial for long-term growth, others are raising concerns about PE’s effects on competition and the potential loss of specialization — and a human touch — within an industry that pivots on personal relationships.

“From the outside looking in, it’s like, ‘Oh, private equity has entered the game. This is going to be a disaster,’” said CHA CEO Jim Stephenson, whose company was acquired by private equity earlier this year. “... The old days of, ‘Let's really clamp down on costs and wring every last dollar and then set on a path to sell it,’ that's not the playbook that I'm accustomed to.”

Read the full story here.

— Kayla Carmicheal, Catie Dixon, Jay Rickey and Mark F. Bonner

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On Our Radar

• Hurricane Beryl made landfall as a Category 1 storm in Texas this morning. Houston is being hit with heavy rain and powerful winds — and more than one million residents and businesses are without power. High water from storm surge has already shut down huge swaths of the low-lying city.

• The June jobs report was released on Friday. The U.S. Labor Department report shows it was another strong month of hiring, adding 206,000 jobs. The data suggests that the U.S. economy is still robust despite high interest rates.

• CoStar is facing a lawsuit from a competitor. Realtor.com alleges that one of CoStar’s recently hired employees stole trade secrets. The complaint claims that this former employee, now an editor at CoStar-owned Homes.com, stole confidential information and accessed its computer systems dozens of times up to June.

• New hope for UK property? The UK property market is experiencing a resurgence of optimism as a new Labour government takes charge for the first time in 14 years. 

The Mailbag

Following Bisnow’s CRE Halftime Report last week, First Draft readers are still writing in with their suggestions to replace the “survive till '25” war cry — and they share a few thoughts on how CRE activity is going in their neck of the woods:

“Survive until ’25, celebrate in '28”

Chris Maling

Principal for Capital Markets, Avison Young 

Los Angeles

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“As a designated workforce hub for advanced manufacturing by the White House, the Phoenix Industrial market stands to be more resilient than other metros as users in the sector look to enter or expand. Slower demand for consumer goods will cause distributors to pivot from just-in-case to a just-in-time inventory model.”

Rob Stephens

Managing Director, Newmark 

Phoenix

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“My colleagues and I have a new saying in CRE since March 2024, which is 'In the mix in ‘26.”

Kinnery Clinebell

Pinnacle Financial Partners

Chattanooga, Tennessee

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“Here in Dayton, Ohio, we’ve seen significant growth in aviation related industries (and logistics too), yet our announcements rarely make national news. Most recently, Sierra Nevada Corp built a new MRO facility at the Dayton International Airport, with a second hangar under construction. They were just awarded a $13B to retrofit the federal government’s ‘doomsday’ planes. This is part of Dayton’s (and Ohio’s) long term focus on aerospace tech.”

Keith Klein

Senior Economic Development Specialist, City of Dayton  

Dayton, Ohio

RETAIL — Saks Owner To Acquire Neiman Marcus (WSJ): After months of negotiations, the owner of mega-retailer Saks is set to acquire competitor Neiman Marcus in a deal facilitated by Amazon, creating a substantial $7B property portfolio. Browse the terms of the deal.

LEGAL — Equity Residential Faces $400M Rent Control Lawsuit (Hudson County View): Equity Residential is being sued by a New Jersey tenant association, along with four individual tenants, over allegations related to rent control violations at Portside Towers apartment complex. Get into details about the suit.

CAPITAL MARKETS — Regional Bank With Heavy CRE Exposure Gets Investor Infusion (Bisnow): Heavyweight investors aren't done betting on the Lone Star State. Dallas' First Foundation Bank landed a $228M injection of cash from investors, including Fortress, Canyon Partners, Strategic Value Bank Partners and North Reef Capital. Learn what's next for the bank.

INVESTMENT — Main Street Funds Limiting Withdrawals (MarketWatch): The phenomenon of investors rushing to withdraw from commercial real estate funds, previously limited to non-traded REITs, is now spreading to more mainstream "Main Street" funds due to liquidity pressures. Find out who else is pulling out of CRE funds.

POLITICS — U.S. Voters Are Not Happy About Housing (Reuters): U.S. voters are urging congressional candidates to prioritize and address the worsening housing crises in their platforms. See how the rental crisis is affecting key states.

HOUSING — Apartment Demand Surges Across The U.S. (RealPage): The demand for apartments spiked nationwide in Q2, narrowing the gap between supply and demand and bringing stabilization to the market. Get caught up on the analytics.

FINANCE — Big Banks Are Struggling With Real Estate (WSJ): "For commercial real estate loans involving properties that aren’t owner-occupied and are held by banks with over $100 billion in assets, more than 4.4% were delinquent or in nonaccrual status in the first quarter. That was up over 0.3 percentage point from the prior quarter.” For banks below $100 billion in assets, the Q1 rate was below 1%. Take a look at the dichotomy of the two.

INFRASTRUCTURE — Street Performers? To Revitalize Downtowns? (WSJ): Cities are spending a significant amount of cash to employ street performers in an effort to invigorate lifeless downtown office areas and improve ambiance. Here's who they're turning to.

OFFICE — 2 To 4 Days In Office Each Week (CBRE): Hybrid office attendance expectations have stabilized, according to a new report from CBRE. People are expected to work at the office from two to four days per week, and organizations not requiring in-office work have maintained a real estate footprint. Clock in to the latest office attendance trends.

CONSTRUCTION — Employment Hits Near All-Time Low (Associated Builders and Contractors): Construction employment has expanded by 3.8% over the past year, growing over twice as fast as the broader economy. Hiring is expected to continue to grow.Read more here.

HOUSING — Apartments … The Next Oh Sh%$ Moment? (NYT): With demand slowing and interest rates rising, some owners in the Sun Belt are struggling to get by, leading some to wonder if the apartment sector may become the next segment of the real estate market to face significant financial challenges. Are these the warning signs?

CONSTRUCTION — Construction Costs Are Rising (RLB): Construction costs have increased by 1.12% from the first quarter and 5.41% year-over-year, according to the latest RLB quarterly cost report. Get into the report.

RETAIL — Mod Pizza Nears Bankruptcy (Bloomberg): Mod Pizza, which has more than 500 locations across the U.S., is reportedly preparing to file for bankruptcy. Discover why the chain is struggling.

PROPERTY MANAGEMENT — British Monarchy Internalizes Property Management (CoStar): The Crown Estate is bringing its London property management in-house. Properties include its buildings on St James and Regent Street. The services were previously provided by JLL. Find out more.

LEGAL — Vatican Official Testifies On Real Estate Deal (Crux): Archbishop Edgar Peña Parra, the pope’s chief of staff, becomes the first Vatican official to testify at a trial in a foreign court over the infamous "London deal". Discover the nitty gritty about the deal.

REITs — Silver Star REIT's New Acquisitions (Silver Star Properties REIT): Silver Star REIT has acquired 16 Walgreens and three self-storage assets for a total of $101M. Here's what else is going on at Silver Star.

FINANCE — Bain Capital's New Venture (Bain Capital): Bain Capital is set to acquire a controlling stake in investment firm Archwest, which has originated over $700M in business purpose assets across nearly 1,200 units nationwide since 2022. Learn more about Archwest.

PERSONNEL — Gunjan Soni Appointed To CBRE Group Board Of Directors (CBRE): Soni, CEO of Southeast Asia fashion e-commerce platform Zalora, brings more than 20 years of experience in tech, strategy and the Asian business landscape to her new role, according to CBRE. Read more about Soni's background.

HOUSING — Commercial Property Index On The Rise (Green Street): The Green Street Commercial Property Price Index increased 0.7% in June, with apartment prices increasing 5%. Check out the numbers.

FINANCE — Data4's Major Financing Move (BNN Bloomberg): Brookfield-backed data center group Data4 is exploring a $2B debt deal to expand its operations. Discover where the cash would be going towards.

ENTERTAINMENT — Inside The World's Largest ScreenX Auditorium (B&B Theatres): B&B Theatres is set to open the world’s largest ScreenX auditorium – which extends the screens onto the surrounding walls of the auditorium – at the American Dream Mall. Take a look at the new setup.

INDUSTRIAL — This Is The U.S. Boomtown Of Warehouses (Bloomberg): The rise of online shopping has transformed Shippensburg, Pennsylvania, into a new American boomtown, dominated by warehouses that fulfill internet orders. Learn why it's so popular.

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The First Draft is produced by Director of Newsletters Jay Rickey, Managing Editor Catie Dixon, Editor-in-Chief Mark F. Bonner and Deputy Newsletter Editor Kayla Carmicheal, with an assist from ChatGPT. We’d love your feedback! Email us at firstdraft@bisnow.com. 

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