Deal volume in the real estate secondary market hit a record $2.6 billion in 2012, marking the fourth year in a in a row where transactions have reached peak volumes, according to a new report from Landmark Partners, a Simsbury, Connecticut-based private equity and real estate firm focused on secondary investment. The aggregate figure is an estimate of net asset value at the time of sale.
Last year was the second year in a row where real estate secondary trades grew by 20 percent, the report noted. In 2012, the $2.6 billion of volume represented 48 transactions, compared with $2.2 billion of volume that consisted of 47 transactions in 2011.
Of the $2.6 billion in activity, about 37 percent was concentrated in US real estate partnerships; 40 percent in European partnerships; 18 percent in Asian partnerships; and 5 percent in global partnerships. By comparison, about 41 percent of 2011’s $2.2 billion in activity was concentrated in US partnerships, 32 percent in Asian partnerships and 25 percent in European partnerships.
As with 2011, banks and other financial institutions were the main drivers of real estate secondary sales in 2012, as a result of regulatory pressures and balance sheet objectives. Foundations, pension funds and insurance companies seeking to rebalance portfolios were among the other active sellers.
Going forward, portfolio management issues are likely to drive up real estate secondaries transaction volumes even further. “Landmark expects a growing number of institutional investors to transact in the secondary market in order to rebalance legacy exposures and meet portfolio management objectives,” the firm, which is led by Francisco Borges, said in its report. “As the market cycle continues to evolve and a global recovery takes form, the secondary market will enable investors to free capital to invest in the latest strategies while also meeting their allocation targets.”
The Landmark findings drew similar conclusions to a report on the real estate secondary market released last week by Partners Group, although Partners noted that foundations were far less active sellers than they had been just three years ago. Partners did not provide transaction volume for the real estate secondary market in 2012, but it reported about $2 billion in trades in 2011.
Landmark, however, said its data was not comprehensive given the private nature of most transactions and the fact that many deals typically go unreported. Additionally, the firm’s statistics exclude deals involving interests in single-asset real estate joint venture partnerships and other private non-fund vehicles.