Valuing GP / LP Stakes (RE Secondaries)
Is anyone really well versed in the RE Secondaries market, I would love to speak to you. What are the key skills in the space, is it moreso understanding the value of real estate and management teams or is there a more formulated process to valuing the secondary market? I am a complete amateur in the space and would love some guidance on the modelling skills I'd need to perform well in the role!
Bump!
It's more about understanding the asset you would be investing in and the business plan for that asset. If a sponsor is having really aggressive assumptions in their underwriting then you would take their model and layer in more realistic/conservative assumptions to see where the deal pencils out. Then you would add in the waterfall structure that you would be investing with to see what you level of returns are.
Everyone in the capital stack is basically just underwriting the same deal (senior/mezz lenders, LPs, and GPs) but with assumptions that they are comfortable making. Once you have assumptions that you feel are reasonable you make your investment decision based off that. For instance, if you were only comfortable taking a deal up to 70% with pref as an LP at 10% return based on the model you underwrote and the GP wanted to only give 8% return and taking the deal up to 85% leverage then you would pass on that deal or negotiate down to your comfortability. The same way that a lender would underwrite a deal and only feel comfortable lending with a higher interest rate, higher DY/DSCR, and less leverage to get their risk under control.
Curious about the space as well. Are there opportunities to capitalize upon distress here or is the space more so dominated by GP led transactions where you are recapping a portfolio whose business plan has been executed and thus are generating core or core plus returns? Do RE secondaries players also purchase stakes in debt funds ? It seems a bit different in the sense that in traditional acquisitions you deal with a buyer and negotiate a PSA. In this case, you are removed from the ground level markets and are instead negotiating between a fund manager and LP’s in that fund? Do you think this is a good niche to go into and build a career in? It seems almost as if you are a capital allocator. Are the deals you work on in this space interesting ? If I’m purchasing a stake that is 50% invested and 50% capital has not yet been called, can I still lever the whole stake I am purchasing?
Anyone have feedback on this question or slew of questions above? Also saw Ares , Landmark shit the bed on fundraising compared to their target? Does this bode poorly for future of the industry?
I knew a guy that worked in this space, was basically a broker for people looking to liquidate their interest in a fund early or help funds find replacement investors during the fund life. The math is basically taking the NAV of the portfolio * the % of the ownership interest, and using a more de-risked discount rate since the assets are probably all stabilized core/core-plus further along in the fund life, and then applying an additional discount on top since the seller is probably pretty desperate to liquidate which buyers can take advantage of (I think this is where all the juice comes from, and is the whole point of buying secondaries vs just investing in a new core fund). Seems like a very relationship driven business since you gotta prospect for HNW-types that are interested in secondaries and also get on as many funds radar as possible if they have a need.
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