Landmark Partners‘ latest report on transaction volume shows real estate secondaries surpassing the prior year’s record, thanks in particular to the growth of large recapitalisations.
The secondaries division of Ares Management tallied 153 real estate transactions closed or in contract in 2021, totaling approximately $10.6 billion of net asset value – a 24 percent increase over the previous record of $8.5 billion in 2020, according to the report dated 25 January.
The number of transactions also reached an all-time high, up materially from 114 in 2020 and the previous high mark of 127 in 2019.
The report noted the strong growth of fund and property portfolio recapitalisation transactions, coupled with a rebound of LP interest transactions, driving the record results.
As in the private equity secondaries market, the rapid growth of GP-led transactions has lifted up transaction volume.
GP-led recaps of funds and property portfolios reached $7 billion, 66 percent of overall volume, up 25 percent from $5.6 billion in 2020.
Over the last five years, GP-led transactions in this segment have grown at an annualised rate of 38 percent.
Transaction of LP interests in value-added and opportunistic funds rebounded in 2021, reaching $1.9 billion, nearly doubling the low of $1 billion recorded in 2020. This was driven by a number of small- to mid-size portfolio sales and large interests in a logistics fund.
As investors gained better visibility of the pandemic’s uneven impact on property fundamentals and valuation, a number of LPs returned to the secondary market. Landmark anticipates more LPs will come back to the market in the months ahead.
Just over $1.6 billion in open-end core funds traded in 2021, down slightly from the $1.8 billion recorded the year prior. Investors continue to utilise the secondaries market as they rebalance their core portfolio toward optimal sector exposure, given an unprecedented divergence in performance between resilient in-favour sectors and sectors facing headwinds.
The Landmark data set does not include the entire volume of bilateral LP trades, and may understate the aggregate volume of that activity, the report notes.
While US-weighted partnerships still accounted for the majority of deployment activity at 53 percent, Asia-weighted partnerships have seen rapid growth thanks to several large transactions in the data logistics area.
On the sell side, outside of fund and portfolio recapitalisation transactions, insurance companies and non-US pension funds were the most active sellers of LP interests, each accounting for 7 percent of volume. US-based sellers made up 55 percent of transaction volume.