Real estate secondaries hit $5.3bn in 2013

More than 14% of all secondaries deals last year were real estate purchases, according to Toronto-based advisory firm Setter Capital.

Real estate is gaining ground in the secondaries market. Last year, $5.1 billion of real estate fund stakes changed hands, making up roughly 14.2 percent of total secondaries deal volume across alternatives, according to secondaries broker Setter Capital.

Furthermore, volume is expected to continue at high levels in the real estate asset class. Some 30 percent of the 70 buyers surveyed by Setter said they planned to broaden their focus beyond private equity to other alternative asset classes.

“2013 was a big year for real estate,” said Peter McGrath, founder of Setter Capital. “Almost all of the major buyers we spoke to said they had experienced significantly higher volumes in 2013 in real estate secondary purchases, and those firms expected that 2014 would have similar volumes. One firm said they thought it would be even higher.”

Taking buyers’ responses into account and extrapolating full market activity from that, Setter estimated total secondaries market volume last year hit a record $36 billion. Private equity made up the bulk of that activity – accounting for 62 percent, or $23.1 billion. That was followed by real estate, then hedge fund side pocket purchases ($1.6 billion), infrastructure funds ($700 million) and timberland funds ($200 million).

Setter assessed volume as defined by total exposure (NAV and unfunded) purchased by the respondent during the year, with reference to closed deals or deals with binding agreements.

“It shows that a lot of sellers have been looking at sales through the downturn, and pricing got to a level where they could transact,” McGrath said. “I would agree with what the firms said, that this looks set to continue into 2014.”