Shining a light on two winners (and some emerging questions)
Winner 1: StepStone Group
When the rest of the real estate world was focused on maturity walls and apocalypse narratives, StepStone made a big call: the next wave wouldn't be direct distress, it would be secondaries. StepStone then launched its 5th secondaries fund, pulling in $4.5 billion (the largest secondaries fund ever).
Winner 2: CBRE Investment Management
Although CBRE markets itself as an operator, it's most successful recent fund stems from putting StepStone's observations into action. CBRE Real Estate Partners 2 just had its final close, raising $1.6 billion in a relatively short period of time.
Evolving questions...
1) Is the secondaries explosion a good or bad sign for the broader market?
As StepStone's head of real estate told PERE last year: “What’s really driven it has been the illiquidity in the market...”
“The secondary market is a great substitute for liquidity. It can replace transaction sales, it can replace debt funding and it can replace fundraising in a time where transaction volume is down because the bid-ask spread problem continues to prevail.”
2) Will StepStone and CBRE be able to meet strong investor demand?
Throwing around billions can move the needle relatively quickly and have a stabilizing effect on real estate values, pushing down excess returns.
3) How will dominant real estate firms react to these shifts?
CBRE sells itself to investors as operational specialists. StepStone sells itself to investors and clients as capital specialists. Will these two approaches combine? CBRE is a $50B company with virtually no debt and cheap cash. StepStone is an $8B company that falls somewhere between pension consultant and fund manager but also has a strong retail investor platform. Would it be surprising to see these two profiles merge or at least begin to compete more squarely in the coming years? If so, expect meaningful leadership shifts.
4) How will other real estate firms react to these shifts?
A handful of smaller firms have built successful secondaries platforms over the last few years. E.g., Velocis its on its third fund, having delivered strong returns, but these are more the exception than the rule. If you didn't launch a secondaries platform a few years ago are you too late to the party?
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