General
When Property Investors Want Out, These Bargain Hunters Rush In
Investment firms are raising record sums for real estate secondary funds that cut private deals to buy assets from investors who can’t otherwise exit.
Investors in private real estate funds have a problem: Even as the prices of office buildings and other commercial properties tumble, their holdings are locked up, possibly for years.
Wall Street has an answer. They’re called secondary funds, and they exist to buy out private stakes that otherwise might be hard to sell — but at a substantial discount. Lately, secondaries focused on real estate have become a hot ticket.
Goldman Sachs said in June that it had raised a record $3.4 billion for its third real estate secondary fund, Vintage Real Estate Partners III — the largest such fund in Wall Street’s history. (For the fund’s predecessor, which closed in 2020, Goldman Sachs raised $2.8 billion.) Another firm, StepStone, is raising money for its fifth fund and says it has already exceeded the $1.4 billion that it raised for its last fund in 2020.
The new funds follow the $3.3 billion that Ares raised for its Landmark Real Estate Fund IX, which closed in December, and the $2.6 billion that Blackstone completed in November for its Strategic Partners Real Estate VIII fund.
The very concept of a secondary market embodies Wall Street’s impulse to profit on changing asset values regardless of whether they’re rising or falling. Financiers will package up and sell to investors anything with economic value. If the value of those assets drops, or investors need to cash out and are willing to take a haircut to do it, the same financiers will pounce and buy the discounted assets on behalf of others.
In the private equity and venture capital industries, secondary markets are a long-established fixture. They give people with shares in start-ups or stakes in private funds a way to cash out early by flipping their holdings to other buyers, who get access to investments not otherwise available for purchase.
