Over the past 10-years we have successfully executed 1536 secondary trades in unlisted property funds. Whilst we have sold multiple portfolios over the decade, most trades are single fund transactions, with trades having been agreed in funds across the Globe and across the risk spectrum. Whilst many may associate secondary trades with closed-ended/value add funds, the reality is that the majority of trades have actually been in core open-end strategies where investors are seeking “best execution” both in terms of time and price, rather than simply subscribing or redeeming.
Individual trades have ranged from $100,000 to $100s millions. There is simply no rule of thumb. The current average trade size is a c.$20m, but the median trade size would be lower, the mean is skewed by a smaller number of very substantial transactions.
The total volume traded in the first 10-years totalled $13.448bn (by transaction value), with average annual volume having tripled to c.$1.8bn annually. The growth stems principally from broadening our footprint from our humble beginnings as a UK business, to Continental Europe, the US and now APAC.
It is impossible to measure our market share of the real estate secondary market today on a regional or Global basis, simply because there is no comprehensive record of what has traded. Definitions of what constitutes a secondary trade also differ depending on whom you talk to. Some would include a GP led buy-out as a secondary trade; some would include “matched bargains” where Managers match redemptions against subscriptions as a secondary trade. All we can say is that whilst such transactions have occurred within the CBRE Capital Advisors business, none is recorded in these figures.
There is no doubt that liquidity increases when the market price is close to, or exceeds, the Fund NAV/unit: the decision making for both buyer and seller is easier when the variance is small. Notwithstanding this, over the decade we have traded at prices between +22% to NAV and -70%.
The large discounts are often associated with tail positions, liquidity issues, or when the nominal value is so small. However, more often than not, when the market price is at such a steep discount to the NAV, positions seldom trade regardless of the fundamental economics. Likewise, whilst we have on occasions traded at significant premiums to book value, the way these assets are typically held (NAV) means that any premium has to immediately be written off which often deters buyers from paying up even when the risk reward is compelling.
Since inception we have represented 273 counterparties, the majority of whom have both bought and sold interest through PropertyMatch. In practice this significantly understates the number of investors we have acted for: this is because we only count the intermediary we face, whereas in practice the consultants and multi-managers executing represent a far larger universe of investors.
Participation today is truly global. Over the years we have represented capital from all Western European and Nordic regions; North American interest has tripled over the last 3 years. Increasingly investors from the Asia Pacific region are active on the platform both as buyers and sellers and in 2019 YTD investors from outside Europe were involved in over 40% of the transactions by volume.
With real estate and infrastructure increasingly merging under a “real asset” umbrella we are increasingly being asked to source/sell positions in infrastructure funds. Whilst infrastructure remains a small part of our business today (about 10% of transaction year to date by volume) have involved infrastructure funds as we look forward to the next decade, we hope that infrastructure funds will feature more prominently in our future trade list.
Transparency & Data
When we set out to create PropertyMatch we had a simple mantra: Transparency & Efficiency equals Liquidity.
We have remained true to those founding principles. Every trade we have done has been disclosed on our PropertyMatch terminal: the volume traded; the reference NAV; and the premium/discount to NAV. The last 100 trades posted can be seen. For compliance reasons there can be a delay in the release of that data, but we have always sought to remain transparent and we regularly provide email updates on pricing, interests and trades.
In the UK, where we started, the data series is now extensive, and we can plot graphically the movement in NAV over the past 10-years against actual trade prices. You can visualise the liquidity, the volatility, and the impact gearing has on both and can begin to answer questions about whether secondary pricing lags or leads changes in NAV. Sadly, such transparency brings its own challenges – trading with hindsight. It is very easy looking at these graphs to say “why did I sit in a subscription queue”; “if only I offered a bit more”; “if only I had accepted a bigger discount” – it’s easy to be right with hindsight!
As time goes on and the breadth and depth of data continues to grow, we hope that PropertyMatch will in no small measure allow real estate to sit proudly admis the other asset classes.