Investors - FEBRUARY 20, 2014

In-Depth: Secondary markets address the needs of investors and portfolios

by Andrea Waitrovich

In January, Landmark Partners released its annual tally of secondary interest transactions. The firm tracked $3.7 billion of closed transactions in the global market for secondary interests in real estate limited partnerships during 2013, representing the fifth straight year of record transaction volume.

The secondary market is growing and is expected to continue to grow, says R. Paul Mehlman, a partner at Landmark Partners. The market will be driven by the large base of private real estate assets now in place in institutional investors’ portfolios and the potential for higher turnover as limited partners continue to gain comfort with utilizing the secondary market to address portfolio management needs.

"We look at the 'seasoned' net asset valuein closed-end real estate funds which we define as net asset value that derives from capital contributions made two or more years ago," says Mehlman. "Seasoned NAV, has grown to to approximately $350 billion.  This represents a large asset base that now drives the secondary market.  Over time an investor’s circumstance may change due factors such as shifts in portfolio strategy, new personnel or regulatory changes.  The secondary market is a resource that enables investors to actively manage their portfolios."

Landmark’s statistics show that trades of secondary interests are up a billion dollars since 2009. Mehlman adds the growth is really a reflection of the secondary transaction market coming into its own.

Through secondary transactions, investors are getting exposure to large amounts of assets, which provides diversification. Secondary interests also can offer short duration exposure as a strategy.

Landmark is a longstanding investor in real estate secondaries and has compiled market statistics on secondary interests since 1996. 

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