Partners Group has been investing in real estate secondaries transactions for years, but it is now more focused on pursuing a non-traditional path in the investment space.
The Zug, Switzerland-based investment manager noted that a significant uptick in demand for real estate secondary deals has increased deal flow, but also has driven up pricing expectations and created a greater mismatch between real estate secondary pricing and underlying property fundamentals.
In a report released Monday, Partners said a wave of 2005 to 2008 vintage funds and other investment programs will start to mature beginning this year. These maturities are expected to generate new opportunities outside of traditional portfolio sales on the real estate secondary market, primarily involving the extension of the programs’ hold periods in order to maximize the value of the remaining properties in those portfolios.
“Term extensions are now often the rule rather than the exception and some investors are likely to become fatigued and motivated to sell out of these programs,” the investment manager said in its report. “These investors will increasingly offer new opportunities for secondary ‘spin-out’ scenarios or a formal tender offer.”
Indeed, in March, Partners closed on one such deal, involving a 2005 vintage real estate portfolio comprising 28 retail, mixed-use, office, industrial, hotel and parking properties located throughout Norway. In transacting on the portfolio, which has a 5 percent vacancy rate and annual net operating income of €34 million, the firm made a tender offer to provide liquidity to existing investors in the portfolio.
The investment manager noted in its report that because of heightened competition for traditional real estate secondary deals, large offerings were attracting buyers with return targets of less than 10 percent. “We believe our competitive advantage lies in our ability to find suitable solutions for complex transactions that align interests to provide LP liquidity and offer Partners Group an attractive entry point to maximize the value of existing projects,” the firm said.
Partners raised the largest-ever real estate secondaries fund, Partners Group Real Estate Secondary 2013, closing the vehicle at its hard cap of $1.95 billion last October.