Who’s buying RE secondaries?

CBRE’s recent stake sale highlights some new buyers popping up in the real estate secondaries arena.

It’s been a few years now that we’ve been hearing people say they expect real estate secondaries to boom as the primary market continues to mature.

While it’s definitely been on the up – broker Setter Capital estimates 14 percent ($5.3 billion) of last year’s secondaries deals were for real estate – it hasn’t exactly boomed, either.

There have been a few notable marquee deals, like New Jersey’s $1 billion portfolio clear-out, but they’ve mostly been the purview of a small group of buyers. Goldman Sachs and Northstar, which together picked up the NJ portfolio, are among the ‘usual suspects’, as are groups such as Landmark Partners, Partners Group and The Carlyle Group’s Metropolitan Real Estate Equity Management. But the list beyond those well-known buyers isn’t a long one. It gets smaller still when you exclude investment houses that buy extra units in funds they are already invested in. 

One East Coast-based fund manager told me he remains surprised by how few private equity secondaries managers have developed real estate arms. It of course requires different types of due diligence and investment expertise, but would seem like a natural extension for many firms active in private equity secondaries. Perhaps this will change as real estate’s primary market matures further still.

One thing that is changing though is the entrance of institutional investors as buyers, not just sellers, of real estate fund interests—something that’s only recently started happening in the private equity asset class, too.

This week, CBRE Global Investors finalised the sale of its stake in its Dutch Office Fund. One of the interesting things about the deal was that the buyer wasn’t one of the usual suspects, but the Blue Sky Group, which manages the assets of three corporate Dutch pensions.

Blue Sky stayed tight-lipped about most of the deal’s details (and did not return requests for comment), but indicated its motivation to buy was part of a broader real estate portfolio modification and diversification process.

European corporate pensions aren’t the only ones finding secondaries a short cut to portfolio management. Earlier this year, the Maine Public Employees’ Retirement System sealed its first real estate secondaries purchase – a $25 million stake in Westbrook Real Estate Fund IX – noting the strategy had served it well in private equity and was expected to do the same for real estate.

And, in a further example, the national pension service of Korea last week mandated the Townsend Group to supplement its direct Asian real estate investments with $400 million of smaller, indirect outlays, including – you guessed it – secondaries.

The market still has a way to go before it can be considered ‘booming’, but the fact that limited partners are engaging directly now on the buy-side gives even greater validity to a marketplace for real estate secondaries—and perhaps even makes the need for so-called traditional buyers less acute.

What do you think? Drop me a line at Chelsea.s@peimedia.com.

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