The number of limited partners selling stakes in private real estate funds is increasing and is no longer dominated by ‘distressed’ institutions in need of liquidity, according to a report from Swiss private markets investment manager Partners Group.
There has not been a commensurate expansion in the number of buyers in the market however, according to Partners Group vice president of private real estate secondaries Fabian Neuenschwander.
“The opportunity has greatly expanded, and at the same time there are not that many more buyers in the market,” he said. “You can also see this from our deal flow, which has increased quite significantly over the last three years. The opportunity has become bigger.”
As a result, the amount of real estate secondaries opportunities has increased thus driving deal flow. Endowments, insurers, banks and pension funds are now selling for portfolio management reasons, Neuenschwander explained to Secondaries Investor.
“Whereas a couple of years ago we were only seeing ‘distressed’ type sellers, today the pool of potential sellers is much wider.”
Neuenschwander anticipates the number of sellers to continue to shift in the future. “This market, in our view, is still is going to grow quite a bit going forward.”
Avoiding increased competition during this shift is one of the reasons Partners Group has targeted small- and mid-cap real estate portfolios on the market, as non-specialist buyers become increasingly active.
“If you have large or sizeable real estate secondaries portfolios they tend to be brokered,” said Neuenschwander. “They tend to catch the attention of non-specialist real estate secondaries buyers and hence the pricing is different.”
Pricing isn’t as attractive for large and widely-brokered portfolios, but Partners Group can access small- and mid-cap portfolios on an off-market basis, he added.
Earlier this month, Partners Group bought a portfolio of 31 fund interests, representing $120 million worth of original commitments in Trophy Property Development Fund, a Chinese real estate fund managed by Venator Real Estate Capital Partners. the transaction made Partners Group the second largest LP in the fund.