Real estate secondaries deal volume fell more than $3 billion in 2016 as the mega-deals which drove a record 2015 dried up, according to a report by Landmark Partners.
In its annual assessment of global real estate market activity in the strategy, the Connecticut-based secondaries firm said just over $5 billion-worth of deals closed last year, down from $8.2 billion in 2015.
The steep decline in value comes after some market-watchers forecast that 2016 values could beat 2015. In February 2016, a survey of sellers by advisory firm Setter Capital anticipated $9.4 billion changing hands. However, mega-deals, such as Strategic Partners’ record $3 billion portfolio purchase from California Public Employees’ Retirement System, did not materialise in 2016.
Large deals in 2016 included Stockholm-based manager Sveafastigheter, part of Brunswick Real Estate, selling a €450 million portfolio of Nordic real estate assets to Partners Group, and New Zealand’s sovereign wealth fund selling a $500 million portfolio.
While volume was down, the number of deals hit a record with 99 transactions closing or under contract during the period, Landmark reported.
Fund sponsors, funds of funds and other asset managers were the most active sellers in 2016, responsible for at least $1.8 billion of deals, a sixfold year-on-year increase.
US pension funds accounted for a fifth of deal volume, with non-US comprising 15 percent. US funds accounted for 65 percent of the aggregate net asset value which changed hands, a 16 percent increase on 2015. The majority of sellers were also US-based, at 73 percent, with notable increases in sellers from Europe (20 percent) and Canada (6 percent).
Some market participants have expressed doubts about real estate secondaries’ potential growth, including Christophe Nicolas, a managing director at AlpInvest Partners.
“The private equity opportunity still dwarfs anything else,” Nicolas said, speaking last Wednesday in Cannes at the IPEM 2017 conference. “Real estate I think is an interesting market. In my view it will never be a big market, just because the primary real estate fund market has not been as deep as the private equity market,” he said.
Landmark is raising its eighth real estate fund for which it is targeting $2 billion, Secondaries Investor revealed in November, the largest amount ever sought for the asset class. Partners Group, Aberdeen Asset Management and Metropolitan Real Estate Equity Management are also in market seeking capital for the strategy.