Q&A: Paul Parker, Landmark Partners on real estate secondaries

How has the real estate secondaries landscape evolved in recent years?
The real estate secondary market is in the midst of an expansion that has seen approximately 60% annual growth in global secondary trading volume since 2009. In 2020, despite disruptions from the COVID-19 pandemic, we observed a record year with US$8.5bn (€7.1bn) in transaction volume. Investors, general partners (GPs), consultants and other industry participants generally have a greater awareness and engagement with the secondary market than at any prior point in time since Landmark commenced acquiring real estate interests through secondary transactions in 1996. 

A notable trend that has fuelled this growth is the significant increase in fund and portfolio recapitalisations. GP fund sponsors have more proactively looked to the real estate secondary market as a means to create liquidity for LPs, while providing a structure to retain assets and drive further value. GP recapitalisations accounted for just 5% of total activity in 2013 and have grown to 66% of total activity in 2020, a substantial rise from prior years. 

How has investor appetite and perception of real estate secondaries evolved?
Institutional investors and GP sponsors have increasingly utilised the secondary market to identify solutions to accomplish their portfolio-management objectives, leading to significant growth in the market. Real estate secondaries were once perceived as an episodic strategy, with opportunities only available during times of market distress. However, the secondary market has evolved and matured with both investors and sponsors seeing it as a productive environment to explore and achieve solutions to a variety of portfolio circumstances.

“The real estate secondary market has evolved and matured” - Paul Parker

Has 2020 and COVID-19 had an impact on that evolution?
The dislocation experienced across many property sectors as a result of the COVID-19 pandemic has been an added catalyst for secondary deal flow. Similar to what was experienced after the global financial crisis of 2008, we expect the dislocation and associated uncertainty to result in a variety of near-term and longer-term opportunities. Only weeks into the crisis, we saw an influx of distressed opportunities from LPs. These LP-driven situations were focused on both upfront cash and, perhaps more telling, relief of unfunded commitments.

Over the longer term, we believe transaction opportunities will become even more pervasive once private-market valuations have corrected, thereby enabling institutional investors to address larger, more holistic portfolio-management solutions. We also expect to see continued growth in GP recapitalisations, given that the dislocation has extended the timeline of already mature funds to finish business plans and harvest assets.