A total of 127 real estate secondary transactions representing $7.2 bn (€6.5 bn) of net asset value closed or were placed under contract in 2019, according to new data published by Landmark Partners.
The volume of secondary transactions - involving the buying and selling of an investor's stake in a privately held company - represents the second highest volume Landmark has recorded, behind the $8.2 bn of aggregate volume in 2015.
Activity during 2019 represents a 36% increase from the $5.3 bn transacted in 2018 and puts the last three-year average volume at $6.2 bn. The increase in activity during the past year was achieved without any single transaction exceeding $1 bn. Comparatively, 2015 volume included two such large scale transactions by U.S. public pension plans.
The robust volume last year was driven by an increase in the total number of transactions and continued growth in fund and portfolio recapitalizations.
For the first time, recapitalization of funds and property portfolios accounted for more than 50% of total volume, reaching $3.9 bn in 2019. This activity increased significantly from the $2.1 bn of recapitalization transactions in 2018, which in turn was a material increase from the $1.4 bn recorded in 2017.
Mature 'pre-crisis' vintage funds (raised prior to 2009) that have exceeded their legal termination dates continue to be a source of such recapitalization activities. However, the market activity in 2019 reflects an increasing number of transactions involving more recent fund vintages. Such recapitalization opportunities often see a subset of limited partners seeking liquidity for portfolio management reasons, with other limited partners and sponsors desiring to retain assets to drive further value creation.
'As demonstrated by the surging volume of recapitalization transactions over the past three years, the real estate secondary market has established itself as an efficient and effective way to manage the liquidity, duration and growth needs of fund vehicles and portfolios,' the company said in a statement.
The volume of core funds that traded in the secondary market last year reached $1.5 bn globally, up from the $940 mln transacted in 2018. Although many of these core vehicles are open-ended funds with redemption mechanisms, the secondary market continues to be an effective tool for investors to navigate redemption and investment queues to better manage their core allocations.
During 2019, US-weighted partnerships accounted for 49% of volume, European-weighted partnerships accounted for 31%, Asia-weighted partnerships accounted for 11%, and global partnerships or other funds accounted for 8%. These concentrations were generally in line with prior year weightings.