Although the private equity real estate industry has dramatically expanded in recent years, the market for secondary interests has been much slower to develop. Last month, however, San Francisco-based secondary investor Liquid Realty acquired an interest in a portfolio of UK partnerships for £435 million ($775 million; €615 million). According to the firm, the deal is the largest secondary real estate acquisition ever completed,
“This deal should serve as a bellwether for the industry,” says Scott Landress, managing principal and chief executive officer of Liquid Realty. He adds that the limited development of the secondary market thus far has been “a matter of confidence and awareness, both of which are easily resolved with the closing of this transaction.”
As part of the transaction, Liquid acquired units in ten different Jersey Property Unit Trusts (JPUTs), which are limited partnerships in UK-based private equity funds. The underlying assets of the JPUTs include 200 retail, office and industrial core properties located throughout the United Kingdom currently managed by fund managers Schroders, British Land, Lend Lease and Grosvenor.
“We were attracted to the transaction because of the exceptionally high quality of the assets,” says Jeff Giller, managing principal and chief investment officer of Liquid. “And we were also attracted by the attributes of the UK real estate market.”
In addition to the size of the transaction, another notable feature of the deal was its global breadth: a San Francisco-based firm buying offshore interests in a number of different UK property funds. Landress, however, notes that such attributes are not uncommon in the secondary business.
“Institutional investors are located globally and they own assets globally,” says Landress. “Prior to this transaction, over half of our underlying investments were non-US. So we're a global fund by default. It's a shoe leather business. There are no geographic boundaries on [our] activities.”
If the secondary market continues to develop the way Landress and Giller predict, the may need to buy an extra pair of shoes. As private equity real estate GPs seek out opportunities in emerging markets and investors around the world put more and more money into real estate partnerships, a truly liquid, global secondary market may not be far behind.
“We have the ability to buy and price something in any market,” Giller says. “We'll make the trade regardless of the price or geography.”