The market for real estate secondaries investments in Asia is about to undergo a growth spurt, according to a report by Partners Group published last month.
“There’s a growing and flourishing private real estate secondary market, with existing investors that wish to exit Asia-Pacific-focused programmes as part of a portfolio rebalancing exercise, or who may be fatigued and looking to exit mature real estate programmes, which are seeking extensions,” the firm wrote in its August private real estate research flash.
The firm anticipates that more than $44 billion of real estate assets will come to maturity in the Asia-Pacific region within the next five years, fueling strong secondaries deal flow. Investment opportunities will come primarily from funds of 2005 to 2008 vintage years that are getting close to maturity.
“As a result of the global financial crisis, a number of these funds have fallen short of their originally intended investment objectives,” the firm wrote. “This underperformance to date leaves many 2005 to 2008 vintage portfolios facing maturity the next two years without having fulfilled their investment objectives.”
The vast majority of these funds were closed-end real estate programmes focusing on opportunistic investments with finite life spans averaging eight years and with two one-year extensions on a typical basis. These funds will be terminating between 2015 and 2018.
Some of the best opportunities will be found in Japan, where fatigued investors will seek liquidity and where many assets were acquired at high prices, the firm noted. Partners Group also anticipates attractive real estate secondaries investments will be found in China and India, where investors with local knowledge, existing exposure or familiarity with the underlying assets will be able to acquire assets with strong fundamentals at discounted pricing to net asset value.