MIPIM: ‘Secondaries trading is habit forming’

Investors in private real estate vehicles are engaging in secondaries as a way to managing their engagement with the asset class, delegates at the annual MIPIM conference were told.

Growing numbers of institutional investors are using the secondaries market to manage their exposure to the real estate asset class, delegates at property conference MIPIM heard on Wednesday.

The practice of buying and selling positions in existing investment vehicles was the topic at the morning session of a seminar hosted by the Association for Investors in Non-listed Real Estate Vehicles (INREV) in Cannes.

It has become increasingly widespread, according to Thomas Kallenbrunnen, head of real estate and alternative investments at German investment management firm Heleba Invest, pictured.

“Secondaries trading is habit forming,” he said. “I think we’re at a stage where about one in every four funds included in INREV has now experienced secondary trading.”

According to research by secondaries specialist Landmark Partners, while the annual volume of trades decreased from around $8 billion recorded in 2015 to close to around $5 billion last year, the number of trades increased notably. The firm tracked 99 deals last year, an 8 percent rise to record territory from the year before.

Responding to a question on volume from sister publication PERE, Kallenbrunnen said: “Volumes decreased because there were less US portfolio sales, but the number of transactions increased and that is the relevant bit.”

He pointed out that engagement with private real estate secondaries trades with a view to obtaining significant discounts to net asset value was rare. “Most trades are happening within a 5 percent premium or discount to NAV [net asset value] now. We’re not talking about a super discount party anymore.”

He added that the average discount to NAV achieved was 3 percent and the average premium 1 percent.

“There aren’t many distressed sellers around now, although there are some regulated sellers who require a speedy execution to get a situation done and that can lead to a discount, but nothing like five to seven years ago,” he said.

Johan Temse, investment manager for Sweden’s First Swedish National Pension Fund, said AP1 was increasingly using secondaries, regarding them as a faster, more reliable way to get capital deployed “when we need it deployed. With a blind pool we could be looking at two to three years.”

He was unperturbed about lower discounts available in today’s market. “A big discount is not the same as a great investment return,” he said.

Michael Siefert, managing director of secondaries firm Madison International Realty who took part in a panel at the event, added: “It is great to see forums like this dedicated to secondaries – 10 years ago, it would have been a footnote.”