NZ Super Fund’s recent $500m portfolio sale – with Partners Group revealed as having bought some of the stakes this week by sister publication PERE – is just one example of the diverse range of reasons sellers are coming to market in this growing sector.
Real estate secondaries has been a hot topic this year, with dealmakers predicting $9.4 billion will change hands, according to a survey by Setter Capital. Indeed, many of the respondents in Secondaries Investor’s recent advisory survey said they’d worked on real estate deals last year, with the asset class accounting for at least 15 percent of the deal volume for firms like Credit Suisse and Greenhill Cogent.
The reasons real estate sellers bring stakes to market are varied. Here are four deal drivers from recent transactions.
LPs are using the real estate secondaries market as a portfolio management tool, as in private equity. The California Public Employees’ Retirement System’s (CalPERS) $3 billion sale to Strategic Partners last year was driven by its larger plans to cull its number of external managers. In real estate, the pension intends to cut the number to 15 from 50 within five years, saying it will invest in the remaining GPs through larger and more strategic relationships.
CalPERS’ sale was also part of a shift in its investment focus to core assets, with the pension targeting at least 75 percent core investments after 1 July, 2017.
Harvard Management Company (HMC), which manages Harvard University’s endowment, came to market with about $1 billion of stakes in early 2015 as it sought to shift away from funds and towards direct real estate investing, and New Zealand’s $19 billion superannuation fund put about $500 million of interests on the block, saying direct investing and real estate investment trusts were a cheaper and more efficient way to get exposure to asset class.
Of course, behind each of these sales is still a desire to reduce fees, in addition to the other benefits of shifting out of fund investing, as Nigel Gormly, NZ Super’s head of international direct investment, told Secondaries Investor in April.
“The secondaries market is one way we can redeploy capital into more attractive opportunities to achieve a better risk-adjusted return,” Gormly said.
Earlier this year, global real estate investor NorthStar Realty Finance announced it was exploring options to sell its entire real estate fund portfolio, worth close to $1 billion, in order to finance buying back its common stock and repay debts. The firm had earlier said it was looking to de-risk its business and was considering a potential sale as a result of a devaluation in its share price.
Though it wasn’t clear at the time, the move may have been linked to the firm’s plans regarding the joint purchase of NorthStar Asset Management (NSAM), a business that spun out of NorthStar in 2013. Last week NorthStar and NSAM confirmed they were in talks with Colony Capital on a joint acquisition.
Stockholm-based GP Sveafastigheter, which is part of Brunswick Real Estate, sold a €450 million portfolio of Nordic real estate assets to Partners Group at the beginning of this year in what was considered a tail-end sale, I’m told. Partners acquired most of the remaining assets in the firm’s third fund, marking an exit for LPs in the vehicle which had launched just six years earlier.
This seems to have worked out pretty well for Sveafastigheter, which said it had achieved an “excellent exit” for its LPs, while continuing to manage the assets, for which it no doubt receives fees.
With reasons for secondaries transactions becoming more diverse, it seems that real estate is following in the footsteps of the more developed private equity secondaries market. Given the size of the private equity real estate market, estimated at around $500 billion in terms of assets under management, we can expect to see more “for sale” signs.
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