Publications

- January 1, 2013: Vol. 25, Number 1

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Round Two: Secondary Market Offers Noncore Returns with Core-Like Risk Profile

by Marc Weiss

Secondary market transactions are on the rise — and with good reason. These transactions are often consummated at a discount to the net asset value of the underlying assets and provide investors with some special advantages.

With a typical property fund owning 10 or more assets, a real estate secondary investment strategy generally provides investors with broad diversification. Given that you are buying in at a later stage, investors will have less duration risk as capital will be churned quicker than if invested in a blind pool commingled fund at inception. Furthermore, in contrast to a blind pool commingled fund, buying into an existing portfolio allows the investor to substantially mitigate the risk of a J-curve. To the extent you can buy into a noncore investment program that is four to five years into its typical 10-year life, you can often acquire such interest at a point in time when a substantial portion of the value creation endeavors of the sponsor are lar

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