Pre-crisis funds are popular in real estate secondaries

Many of the RE secondaries portfolios being brought to market have a heavy weighting towards pre-crisis funds.

Most of the real estate secondaries offerings that sellers are bringing to market are heavily focused on 2005- to 2007-vintage funds, which were used to buy real estate immediately before the global financial crisis.

“In our view, institutional real estate investors today are highly focused on addressing their exposure to commingled funds of the 2005 to 2007 vintages,” Mark Burton, head of Strategic Partners’ real estate business, recently told sister publication PERE.

“In an effort to optimise their illiquid portfolios and re-allocate capital to fresh initiatives, we see real estate portfolio managers who are increasingly embracing the secondary market as a key portfolio management tool.”

Burton says that at this stage of the real estate cycle, investors appear increasingly motivated to simplify their portfolios and move forward with a smaller set of managers who align with their current strategic objectives.

“The seller motivation remains consistent: active portfolio management of a real estate allocation through disposing of legacy fund exposures,” he said.

The upshot is a growing marketplace for buyers. Strategic Partners has seen real estate secondaries volume growing from less than $500 million in 2005 to more than $6 billion last year. The firm predicts a 2015 transaction volume of more than $10 billion as portfolios get bigger and bigger.

“For secondaries buyers, this should represent an opportunity to purchase stable, cash-generating real estate assets in gateway markets at reasonable pricing,” says Burton.

Reporting by Florence Chong.