Strong Demand for Secondaries Despite (...or Because of?) Corona
What We're Seeing
Appetite for secondary private real estate equity is strong. So much so that conversations with buyers of secondaries in the past few weeks have surprised us. While we expected risk appetite to rebound as the US economy reopens, we anticipated it to concentrate in publicly-traded assets (e.g. REITs) and be muted in private real estate equity due to the typical lead/lag inherent between the two security types (see article below). However, our many recent discussions with buy-side participants have more often than not ended with a request for deal flow, lending credence to Blackstone’s view that alternative assets are a secular force rather than a short-term trend (see article below).
Much of the demand we've witnessed is as one would expect: for positions in multifamily and and industrial assets with stable cash flows throughout the coronavirus-induced crisis or an uptick in leasing demand, respectively. That being said, a significant portion of the buy-side is also looking for distressed situations, even in property types the headlines would have us believe are all but obsolete, such as hotel and retail. Undoubtedly, the reality is that some investors are out shopping in hopes of finding good deals.
Our impression of the impressive buy-side demand is further buoyed by our recent observation of a live secondary LP market, conducted by a known entity in the crowdfunding space. While the volume of positions offered was relatively thin, the velocity was breathtaking: all positions sold in little over an hour.
In our view - despite increasing cases - coronavirus has moved from the category of "unknown known” to "known" known.” Additionally, it appears that we have as a collective accepted risk of illness in exchange for ending economic disruption on an unprecedented scale. Accordingly, we expect corona's adverse impact on investor sentiment to continuously subside going forward. All bets are off however if local, state and even federal governments once again begin to enforce closures and quarantines.
The conclusion we must draw from the foregoing is that demand for real estate equity secondaries is strong despite corona (in the case of investors looking for underlying assets that have shown stability throughout the storm) AND because of corona (for situations that may present opportunity purchases). The buy-side is thus varied, presenting a broad range of deal making possibilities.
Having said that, the economic damage wrought by the crisis is real - and in many cases to many people - devastating. Our hearts go out to those who have worked long and hard to create wealth for their families only to watch it erode in near real time.
What We're Reading
Lesson from the Global Financial Crisis for the Coronavirus Crisis: Public and Private Real Estate by Nicole Funari for Nareit
This article is an excellent resource to understand the variance in valuations between publicly traded real estate and private real estate, particularly in reaction to external shocks/times of crisis. Well researched, based on historical data and timely.
Seeking an Alternative: Understanding and Allocating to Alternative Investments by Blackstone's Alts Lab
Blackstone recently published an insightful white paper that explores the topic of alternative assets (including real estate) and their rise in popularity in recent years. Further, it goes on to establish Blackstone’s view that alternative assets are not just the trend du jour but instead a critical secular holding.
The Future of CRE with Brian Stoffers, Global President at CBRE and MBA Chairman by TreppWire Podcast
This podcast by Trepp has proven time and again to be a great resource to stay current on the state of institutional-grade CRE. The current episode is packed with insights delivered by CBRE's very smart and knowledgeable Brian Stoffers.
How Can We Help?
SyndiGate focuses exclusively on helping Limited Partners exit their real estate equity investments. Working with us:
1.) LPs achieve liquidity events tailored to their objectives.
2.) High-Net-Worth and Institutional Investors access seasoned opportunities.
3.) GPs meet new sources of equity and satisfy their current investors.