Secondaries: Really for real this time (it seems)

January 15, 2014 admin

It seems like every year is declared to be the year that real estate secondary markets have their coming out party. After secondary transaction volumes rose from a yearly average of around $200 million in the early 2000s to more than $1 billion in 2008, it seemed like the table was set for the secondary market to explode, as was outlined in “For Real This Time: Transactions in the Real Estate Secondary Market Set to Grow,” a 2008 article in The Institutional Real Estate Letter. By 2009, projections for global real estate secondary transaction volumes went as high as $10 billion to $20 billion.

But, like an ill-planned surprise party, the big moment never happened — until now. Though each year from 2008 to 2012 produced a record volume of secondaries transactions, the increases never quite matched the projections, as the $1 billion from 2008 increased to only $2.6 billion by 2012. While this year’s transaction volumes didn’t hit the lofty projections we’ve seen in years past, they did have a record setting year, and one that saw transaction volumes double, as outlined by Setter Capital in its annual Volume Report:

“Secondary Market Volumes for 2013 are estimated to have hit a record $36b across Private Equity, Real Estate, Infrastructure, Timber and Hedge Fund secondaries, as reported by Toronto-based Setter Capital. Real estate secondary purchases amounted to $5.1b (~ 14.2% of total volume).”

$5.1 billion! Again, not the $10 billion to $20 billion projected in year’s past, but still a figure that doubles the transaction volume of real estate secondaries in 2012.

While the large number may be slightly skewed by the nearly $1 billion in secondaries the New Jersey Division of Investments sold to a partnership of NorthStar Realty Finance Corp. and Goldman Sachs Asset Management last June, this still accounts for less than half of the spike.

What does this all mean? Well, it seems that the pessimism surrounding the market since the crash has finally started to wane, meaning that the price points between buyers and sellers are closing in on one another.

“I think that people were generally much more optimistic last year, and so buyers reflected that in their pricing,” says Peter McGrath, managing director with Setter Capital. “Pricing was stronger last year, and I think that finally got sellers to pull the trigger and agree to sell.”

If so, real estate secondaries may have finally found their time to shine — for real this time.

ReggieClodfelter91x119Reg Clodfelter is a reporter with Institutional Real Estate, Inc.

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