RE secondary sales hit record level in 2011

Banks and other financial institutions were the most active sellers of fund interests last year, according to the latest findings from Landmark Partners.

Transaction volume in the global real estate secondary market hit a record level of $2.2 billion in 2011, according to new data from Landmark Partners, a Simsbury, Connecticut-based private equity real estate firm specialising in secondary investments. That volume, which represents the estimated net asset value at the time of sale, is a 20 percent increase from the 2010 volume of $1.8 billion.

Of the $2.2 billion in activity, about 41 percent was concentrated in US real estate partnerships, 32 percent in Asian real estate partnerships and 25 percent in European real estate partnerships.

The expansion of the real estate secondary market “is reflecting growth in parallel with the tremendous expansion of investment in private real estate investment vehicles during the past several years,” said R. Paul Mehlman, a partner at Landmark, which has been compiling secondary market data since the start of the firm’s real estate business in 1996.  “Going forward, we expect the secondary market to remain quite active as the real estate community is developing a good understanding of the role of the secondary market in facilitating investors’ portfolio management needs.”

In 2011, Landmark, which is led by chairman Francisco Borges, completed more than a dozen real estate secondary sales transactions, ranging from $5 million in net asset value to more than $100 million. It also closed on a $700 million real estate fund targeting secondaries during the first quarter of last year.

The Landmark analysis appeared to support last month’s findings fr4om private equity intermediary NYPPEX and broker Cogent Partners on the overall secondary market. At the time, NYPPEX said total deal volume in 2011 reached a record $27.5 billion, up 24 percent from $22 billion in 2010, while Cogent reported total deal volume of about $25 billion last year, “marking one of the busiest periods in secondary market history,” the firm said in a release.

Landmark, however, noted that its own statistics on the global real estate secondary market were not comprehensive, since such trades are private in nature and typically not reported. Also, the firm’s data set excluded deals involving interests in single-asset real estate joint ventures and other private non-fund vehicles.

Banks and other financial institutions – under pressure from new regulations such as Basel III, the Volcker rule and Solvency II to deleverage their balance sheets – drove much of the real estate secondary transaction volume last year, according to Landmark. Other deals in the secondary market resulted from the sale or spinout of real estate fund sponsors by financial companies seeking to unload non-core businesses, as well as sellers looking to better manage liquidity or rebalance portfolios.

“As the market continues to mature, expanding activity among secondary sellers evidences that they are finding secondary market sales to be an efficient way to meet portfolio management objectives,” Landmark said in its report.