Real estate secondaries is still a relatively young asset class, meaning it still has plenty of room to grow. Regardless of the fact that buyers and sellers continue to wade through uncertainty looking for a clearer picture on pricing, market participants expect volume will be strong in 2025.
Like the private equity market, real estate secondaries started with LP stake sales before adopting GP-led deals and bringing in new technologies. Now, as the GP-led side begins to grow, buyers and sellers alike are navigating a bid-ask spread that’s typically pretty wide.
LP-led real estate deals consistently traded with the highest discount as a percentage of NAV, according to a January Jefferies report. Last year, real estate pricing sat at 72 percent of NAV, up slightly from 71 percent in 2023. The highest pricing figure was 83 percent in 2019.
But despite a wide pricing gap, buyers are still bullish on the long term as more investors look into real estate as a sector.
Last year, an Ares Management report estimated that real estate secondaries transactions reached $14.6 billion of volume, up 49 percent from 2023. Both LP- and GP-led transactions saw 45 percent and 52 percent year-on-year increases, respectively.
The Ares report said it expects “significant potential for continued secondary volume growth”, as the need for liquidity grows and more capital is raised for the strategy. Ares co-head of real estate secondaries Michelle Creed said she expects volume to land somewhere between $20 billion and $25 billion by 2029.
Earlier this year, StepStone Group closed on its $4.5 billion StepStone Real Estate Partners V, the largest ever dedicated real estate secondaries fund. During an episode of the Second Thoughts podcast, StepStone’s head of real estate, Jeffrey Giller, said he expects the broadened use of the secondaries market to drive even larger fundraises in the future.
Pricing impacting deals
While tariffs and macroeconomic trends sent the market into uncertainty in early April, Creed said LPs were still exploring the secondaries market to try and “combat pent-up demand for distributions” from RE funds.
However, the bid-ask spread remains wide, making deals a little more challenging. This has led to fewer deals getting completed in the first few months of the year than expected. Discounts for quality fund interests are typically priced at around 20 to 25 percent of net asset value in the market currently, with more challenged investments going north of 50 percent, Creed said.
A North American LP, who wished to remain anonymous, said they recently tested the market for a RE portfolio and ended up being disappointed with the pricing that came back, citing too steep a discount.
This was especially disappointing since the LP ran a secondaries sale for private equity stakes in 2024 and ended up being very pleased with the pricing there.
The exact reason as to why discounts on the RE sale were so steep is unclear to the LP, who was unsure if it was due to market conditions, timing, RE appetite or the stakes they were offering.
Despite a slower start to the year, however, Creed still expects LP deal volume to increase in the back half of the year, which is typical of the secondaries market as a whole in any given year.
