CBRE Capital Advisors’ real estate secondaries trading volume grew by a fifth last year, with Brexit fears driving a significant increase in UK volume during the second half.
The investment banking arm of CBRE Group advised on 187 fund interests that were transferred during the year, with deal volume brokered by the firm hitting a record $2.4 billion, according to its Real Estate Funds Secondary Market Review. CBRE’s deal volume figure, published for the first time, includes trades in both open-ended and closed-ended funds across the Americas, Europe, the Middle East and Africa, Asia-Pacific.
The report notes four factors drove market activity, including:
- an increased familiarity with and participation in secondaries trading, making it a preferred route to liquidity for many market participants;
- investors’ ability to determine for themselves when they want capital deployed and returned;
- the maturation of the market and evolution of dedicated brokerage services, improving the ability of participants to execute larger trades more cost-efficiently; and
- improved transparency giving investors greater confidence they are executing “at market”, which stimulates activity.
Events which drove a record year included the UK’s June vote to leave the EU, with large discounts to both last traded price and net asset value emerging after the referendum. CBRE said the vote pushed trading volume up nearly 80 percent in the second half of the year as the prospect of Brexit impacted investor sentiment toward future risk and returns.
Paul Robinson, executive director at CBRE, told Secondaries Investor that this was unlikely to continue as “the world has adjusted to the new reality and the market is stable and gradually recovering the losses”.
Price varied over the course of the year, with trades executed between a 25 percent discount and a 6.5 percent premium to NAV. The strongest pricing emerged in pan-European core funds and those in alternative sectors, such as residential and student housing, as well as industrial and logistics.
The weakest pricing came from funds with traditional retail exposure, according to CBRE’s report.
From a capital structure perspective, funds with either no gearing or substantial gearing were most heavily traded, the report noted.
Robinson said the principal drivers which drove a record 2016 “look set to continue into 2017” as more participants enter the market, although the firm is forecasting an increase in the incidence and quantum of discounts, and a widening in the dispersion of pricing in the lower return environment.