While investors are taking great advantage of the secondaries market to manage their portfolios of private equity fund stakes, they continue to be more tentative when it comes to secondaries on the private real estate side.
Transaction volume in the secondaries market across alternative asset classes has been growing at a fast pace – a total of $74 billion was transacted in 2018, up from $58 billion in 2017, according to data from advisory firm Greenhill & Co. This was driven mostly by buyouts and venture capital.
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However, real estate secondaries activity has been more subdued: in 2019, real estate secondaries transactions totaled $6 billion, according to Greenhill.
More than half of investors polled – 52 percent – say they have no plans to either buy or sell fund stakes in the next 12 months, while 33 percent are unsure about their plans.
Only 7 percent plan on both selling and buying, 7 percent plan on buying only and
1 percent plan on selling only.
According to Andy Nick, managing director at Greenhill & Co: “From our perspective, transaction activity of investor sales in the real estate space has been somewhat choppy historically, given the timing of a few very large transactions that have accounted for a meaningful portion of real estate volume.
“Whereas the sale of a portfolio over $1 billion is still big in the buyout space, it’s exceptionally big in the real estate space where total annual volume has never exceeded $10 billion globally.”
In fact, there have not been yearly multi-billion-dollar portfolios of real estate fund stakes in market since the $3 billion sale from the California Public Employees’ Retirement System to Blackstone’s Strategic Partners in 2015.
GP-led secondaries
However, the manager side of the secondaries market is more vibrant. Manager-led deals include fund recapitalizations, restructurings and tender offers, and represented about 35 percent of total volume in 2019.
“Part of what’s been driving volume is sponsor-led transactions,” says Nick. “Historically, direct players were focusing on underlying properties or portfolio recaps, but that part of the market is now being capitalized in part by secondaries buyers. Manager-led [secondaries] transactions are nothing new, but they are becoming more and more prominent in the real estate space.” As holding periods are getting longer across the real estate market, manager-led secondaries should continue to see strong activity. “Managers are going to want to find a way to continue to manage those assets while at the same time providing investor liquidity,” says Nick, who adds that it should continue to slowly fuel growth of the overall real estate secondaries market.
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