EXPO REAL 2009 BLOG 5: Don't give up on secondaries

Paul Parker, managing director, real estate Europe and Asia for secondaries firm Landmark Partners was out in Munich.

 

I mentioned on Tuesday how I ran into a US professional involved in the same sector who said his firm was looking at a European transaction.

 

Well, Paul and Landmark Partners have an encouraging take on buying partnership interests too.

 

The firm recently sent clients a briefing sheet headed “Real Estate Secondary Market Historic and Projected Transaction Volume”.  

 

In it, Landmark says over the course of the past year, it has been approached by numerous investors and market participants asking about the true level of activity and opportunity to acquire real estate fund and partnership interests through the secondary market.

 

“The simple answer,” says Landmark, is that the dislocation, which has impacted the global economy and specifically the real estate sector, has stimulated activity.

 

It has interesting data regarding historic transaction volumes within the real estate secondary market.

 

The data reflects the fact that the market has been growing in parallel with the increasing base of private real estate fund commitments. 

 

“In 2008 and 2009 market growth continued as institutional investors became increasingly motivated to sell real estate. Annual volume over these two years averaged $850 million. The market is now poised for significant growth as the base of seasoned private real estate fund commitments continues to increase and seller motivation is at an unprecedented high.”

 

Here is some more interesting data. The firm says under normalised conditions private equity secondary trading volume in a given year typically falls in a range between 2.5 percent and 5 percent of average annual commitments made to funds in the prior 3 – 7 years. 

It is notable that pure private equity trading as opposed to real estate volumes since 2006 have trended above this range, reaching 9 percent of prior commitments in 2008.

 

A graph Landmark has produced shows a marked up-tick in transaction volumes.

 

It says volumes assuming a 5 percent turn over rate could hit almost $4 billion by 2012.

 

Bear in mind levels are less than $1 billion this year.

 

Wishful thinking you might say.

 

Nevertheless, Landmark insists it sees this playing out in its current pipeline. Also worth noting, the firm is seeing more global opportunities. Fifty percent of current potential sellers by reported value are from Europe and Asia and 38 percent of the underlying funds are non-US.

 

In conclusion, it says: “2008 and 2009 have already generated historically significant trading volume, and it is likely that the volume will continue to increase.”

 

I wonder if there were many investors at Expo who wanted to sell. My guess is there were.

 

They were not walking around with adverts on their suits, that's the problem.

 

This sector is very opaque.