Secondaries deals in private equity real estate hit $3.7 billion in 2013, up by 50 percent on 2012, according to Landmark Partners. Connecticut-based Landmark said the figure represented the fifth straight year that deal volume had risen charting the significant expansion of the asset class.
Landmark explained the tally was an estimate of net asset value at the time of sale and that it had direct knowledge of 56 transactions in 2013 as opposed to 48 in 2012. Approximately 53 percent of activity was concentrated in US real estate partnerships, 31 percent in European real estate partnerships, 7 percent in Asian real estate partnerships, 6 percent in global real estate partnerships and 3 percent in Latin American.
“US and European pension funds were the most active sellers through 2013 as there was an increasing desire to rebalance portfolios and to reduce the number of GP relationships,” said the company. “Motivated by regulatory factors and balance sheet objectives, banking institutions and insurance companies also continued to be active sellers through 2013. Other active sellers included endowments, foundations, and family offices that were focused on liquidity needs and portfolio rebalancing objectives,” it stated
Landmark’s dataset does not include the entire volume of LP-to-LP trades, and therefore may understate the aggregate volume of activity, Landmark said. Such trades are private in nature and not typically communicated in the marketplace, Landmark cautioned. In addition, Landmark’s data excludes transactions involving interests in single asset real estate joint venture partnerships and other private non-fund vehicles.
According to the company, growth in the real estate secondary market is set to continue as an “expanding number” of institutional limited partners and other market participants look to secondary transactions as way to manage portfolios. The study shows that in 2000, 2001 and 2002, volumes were below $400 million. A spike occurred in 2006 when levels broke $1 billion but the next year saw volume reduce again though still higher than 2003. Since 2007, every year has seen volume significantly rise.
This is the second study so far this year to highlight growth of trades. According to secondaries broker Setter Capital, deals hit $5.3 billion in 2013, though the company was counting slightly differently to Landmark, explaining the disparity in the headline figure. It said real estate was gaining ground in the secondaries market: Last year $5.1 billion of real estate fund stakes changed hands, making up roughly 14.2 percent of total secondaries deal volume across alternatives.
Setter said volume was expected to continue at high levels in the real estate asset class; Some 30-percent of the 70 buyers surveyed by Setter said they planned to broaden their focus beyond private equity to other alternative asset classes. “2013 was a big year for real estate. Almost all of the major buyers we spoke to said they had experienced significantly higher volumes in 2013 in real estate secondary purchases, and in unison those firms expected that 2014 would have similar volumes. One firm said they thought it would be even higher,” said Peter McGrath, founder of Setter Capital.