A Spanish residential property from the Lazora portfolio

Partners Group has acquired an office portfolio from San Francisco-based Swift Real Estate Partners, PERE has learned.

The nearly 2-million-square-foot portfolio, which has a total value of $600 million, consists of four Class A office properties in California. Three of the assets were previously held in Swift Real Estate Partners Fund I, while the fourth was held in a joint venture, according to a source familiar with the matter. Swift is actively harvesting the assets in the fund, which is at a mid-to-late period of its life, the source said.

In acquiring the portfolio, PERE understands that Partners has bought out the fund investors’ equity stakes in the four assets. Partners will fund the acquisition through multiple vehicles, including its recently closed secondaries fund, Partners Group Real Estate Secondary 2017. Swift will stay on as manager of the portfolio and maintain a small equity position funded by its own balance sheet.

The transaction gives Swift’s existing partners liquidity and a clean exit while allowing the firm to pursue further upside, according to Swift chief executive and president Christopher Peatross. Partners believes there is more work to be done on the properties. The firm expects to benefit from the assets’ cashflow and additional growth by adding value through lease-up and developments. One of the office assets includes excess parking space, and the two firms have considered repurposing the space to construct a residential building, according to a source.

The two firms did not disclose any terms of the deal. Accord Capital Partners advised Swift on the transaction.

Partners’ non-traditional secondaries acquisition follows a similar deal by CBRE Global Investment Partners and Madison International Realty, which closed earlier this week. A joint venture between the two firms acquired a Spanish residential portfolio that was previously held by the investors of Madrid-based Azora’s Lazora fund. Like Partners, the joint venture bought out 100 percent of the investors’ equity stakes and the seller, Azora, will maintain a small equity position funded by its own balance sheet.

“This fund [Lazora] was really coming to the end of its life,” CBRE GIP head of continental Europe Sander van Riel told PERE. “The question for the existing investors was whether they’d sell the assets unit-by-unit and take a number of years to realize that, or if they sell it to us all in one go and speed up that process.”

Tail-end fund transactions have increased over the last few years, according to Madison co-chief investment officer Derek Jacobson. He believes the elongation of the business cycles have created situations where vehicles have gone on for many years and LPs might seek liquidity while GPs still see further value. While he has seen other deals like the Azora transaction – where only the GP maintains its equity stake and all of the LPs exit the investment – Jacobson noted that it is more common for the GP and a few LPs to maintain their interests in the asset.

On the buy-side, an increasing number of firms are recognizing that they need to be creative and differentiate their entry point into a deal, Jacobson said. Firms can no longer simply wait for a broker to initiate contact, and an end-of-life deal offers an off-market opportunity.

A string of funds nearing the end of their lives could create additional opportunities for tail-end fund acquisitions.

Forty-four funds with a combined asset value of €9.6 billion are set to terminate over the next two years, according to the INREV Funds Termination Study 2018. Peak activity for secondaries over the next 10 years is expected in 2022, when approximately 22 funds could be reaching the end of their lives.

While van Riel believes many asset managers may be keen on doing tail-end fund acquisitions, he believes there are fewer opportunities now than a few years ago when he observed a wave of 2006-2008 vintage funds coming to the end of their lives. There are fewer 2009-2012 vintage funds because it was “almost impossible to raise capital in Europe” after the global financial crisis, and most of these funds may not have reached the liquidation stage yet, he said. Opportunities may become more readily available in about four years, rather than the next 1-2 years, according to van Riel.