Why Investors Are Turning to Private Real Estate Secondaries—and How Insurance Can Secure Returns

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Key Takeaways

• Global real estate secondaries hit significant scale with USD 16.4 billion transacted through Q3 2024, propelled primarily by GP-led deals and a smaller total real estate AUM that increased market activity.
• Investors seek secondaries for liquidity and agility as fundraising tightens. Shrinking price differentials and property repricing open more interesting entry points.
• Sellers range from institutions confronting liquidity or rebalancing pressures to sponsors with maturing or underperforming funds to those reacting to regulatory or tax pressures.
• Secondary buyers enjoy a buyer’s market, reduced duration and business risk, access to portfolios or platform growth assets, and discounts or profit-sharing structures.
• Successful secondary transactions for others demand bespoke valuation methodologies, intensive diligence on potential legal and asset-level risks, and transparent structuring to ensure proper incentive alignment and liability management.
• Things you can do: leverage more sophisticated underwriting tools and data analytics, cultivate multidisciplinary teams, incorporate insurance and contingent payment mechanisms, define allocation limits and periodic rebalancing.

About: secondaries in private real estate.

Secondary market transactions occur when existing investors sell interests in private property funds or portfolios. These transactions provide both liquidity and price discovery to holders and offer purchasers the opportunity to access seasoned assets at discounted cash flows.

Sellers often seek capital reallocation or balance sheet relief. Buyers receive shorter hold periods and more transparent income profiles.

The remainder of this post breaks down how secondaries work, key terminology, and typical risks.

The Secondary Market

How the secondary market for private real estate became a cornerstone for investors seeking to mitigate risk, unlock liquidity, or extend vintages beyond fund lives. Activity climbed markedly in 2024, with approximately $16.4 billion of global real estate secondaries transactions in just the first three quarters. That volume represents not only increasing demand for customized liquidity but the emergence of increasingly sophisticated deal types, including GP-led restructurings that allow sponsors to recapitalize or roll assets into continuation vehicles.

GP-led deals now lead GP-led transaction volume. This volume outpaced LP-led activity by almost two times, propelled by continuation funds and re-capitalizations, which provide managers increased control over timing and value realization. These structures allow GPs to hold on to conviction assets while providing existing investors with an exit or some liquidity.

Think of continuation funds that package stabilized assets for fresh capital or structured secondary bids to buy out late-stage LPs at bespoke prices.

Geography counts. North America leads the pack, with U.S.-based partnerships representing around 62% of activity in 2023. That demonstrates robust institutional demand, mature secondary markets, and a wide range of sellers and buyers. Europe and Asia-Pacific are active but smaller markets, frequently influenced by local regulatory and tax factors that impact deal structure and timing.

Why now: supply and portfolio stress. Aggregate real estate assets under management declined to approximately $4.1 trillion, and closed-end fund distributions remain at levels not observed since the Great Financial Crisis. That puts pressure for liquidity and makes secondaries a practical portfolio rebalancing tool. Instead of being driven largely by distress, selling motivations have changed.

Today, much of the activity is from intentional portfolio management – capital recycling, strategic shifts, or term flattening.

Pricing and perception are subtle. Buyers frequently are able to take positions at a discount to NAV, which can enhance reported returns. That discount doesn’t necessarily indicate real value creation; it can be a function of timing or illiquidity or information asymmetry. Some critics claim secondaries are a route to dump low-quality assets, yet many deals represent sophisticated solutions: continuation funds, preferred equity tranches, and structured buys that address specific liquidity and risk needs.

Looking ahead to the secondary market. The private equity secondaries market has expanded at a compound annual rate greater than 20% since 2009, fueled by increased allocations to private markets and innovative forms of transactions. Real estate secondary volumes continue to be dwarfed by other asset classes but may reach 2 to 3 percent of the approximately $1 trillion in unrealized private real estate value.

Secondaries are not a fad. They are a durable, dynamic instrument for today’s portfolio management.

Why The Surge?

Secondaries in private real estate have experienced a pronounced surge as participants pursue optionality and liquidity in a more challenging fundraising environment. Valuation gaps between buyers and sellers have tightened, which makes the entry points attractive for new investors. Property repricing has already taken values down from 2022’s peak, and buyers can get assets at a lower basis even with recent gains.

Institutional portfolio rebalancing is generating a steady stream of secondaries opportunities as allocators cut or adjust exposures.

1. Seller Motivations

Liquidity needs head the list. LPs have redemption pressures, capital calls in other places, or just need liquidity for new strategies. A lot of sellers are rebalancing because private market holdings have become a bigger portion of portfolios following public market decreases.

Secondaries for sale restore target weights. Maturing funds drive action. An increasing inventory of 10+ year-old funds forces sponsors and LPs to seek exits or life extensions, frequently through continuation vehicles. Others trim underperforming assets or legacy positions to reduce risk and streamline the portfolio.

Regulatory and tax reasons come into play. Reporting or capital or tax timing changes can make selling a good idea. Sellers prefer the sure cash of a secondary sale to the uncertain road of continued operations.

2. Buyer Advantages

Buyer’s market. Front-end sales have decelerated and inventory has increased, resulting in a buyers’ market in numerous categories. This creates cheap and clever structures that share upside between buyers and sellers.

Secondaries cut duration and cut business risk. Buyers thereby often receive both near-term cash flow and shorter hold periods, which help mitigate the J-curve and accelerate distributions relative to traditional PE. Historically, secondaries funds investing for five years have returned at least 50 percent of commitments by year five, a big attraction.

Diversified portfolios access comes from LP-led deals. GP-led continuation funds allow buyers to access growth assets that may otherwise be inaccessible. Profit-sharing and earn-outs further boost returns profiles when managers remain aligned.

3. Market Dynamics

GP-led deals have expanded as sponsors design bespoke liquidity options. Valuation resets and property repricing drive deal flow. Many assets change hands well below 2022 highs, shaping price discovery.

By maturities, approximately USD 2.2 trillion in CRE loans are due to mature by 2028, fueling recapitalization needs and refinancing activity. Small sponsors with fundraising challenges are more frequently turning to secondaries to monetize assets.

The addressable market for tail-end secondaries has grown, and if secondary activity tracks private equity’s trajectory, volumes may continue to grow.

4. Maturing Funds

A wave of fund maturities imposes decisions. Sponsors can sell, recap, or extend holds. Continuation vehicles benefit LP exits and retained upside. Loan maturities make refinancing complex.

Recapitalization becomes the logical solution to preserving assets while creating liquidity.

5. Sophisticated Tools

That’s why The Surge. Data analytics assist in modeling past cash flows and projecting distributions. Technology platforms accelerate execution and minimize friction.

Multidisciplinary teams take care of the legal, tax, and regulatory work to ensure deals are closed cleanly.

Navigating Transactions

Private real estate secondaries are secondaries because you understand what about these transactions separates them from primaries. Pricing tends to be opaque, timeliness is variable, and counterparty dynamics are important.

What follows are subsections on valuation, diligence, and deal structure so readers can proceed with more confidence.

Valuation Nuances

Contrast secondary prices against NAV and against any recent third-party appraisals to determine if the market is offering a discount or a premium. Compare side-by-side transaction price, NAV and appraisal value to identify disconnects.

A 10% discount to NAV with flat appraisals indicates buyer caution, while a premium to NAV might mean aggressive asset repricing or limited supply.

Consider recent property repricing and market volatility. Check out same-market index moves over 6 to 24 months, rent growth, and cap-rate shifts.

If cap rates are 150 basis points higher in 2 years, a price that appears close to NAV may conceal downside risk. Sponsor quality and asset mix drive valuation.

Top‑quality sponsors with repeatable exits capture narrower spreads. Core office assets act differently than logistics or multifamily and apply different stress tests.

Fund performance history, loss reserves, and trajectory of cash flows should feed into a discount rate.

Diligence Checklist

Legal structure review: Confirm vehicle type, transfer restrictions, and approval thresholds. Verify LP consent requirements, assignment rules, and any redemption windows.

Asset quality: inspect recent physical reports, capex history, tenant concentration, and lease roll schedule. The risk changes materially if you have one big tenant and the lease expires in 18 months.

Sponsor track record: verify prior exits, sponsor commitments, alignment of interest, and any undisclosed related-party deals.

Fund documents and side letters: Read the limited partnership agreement, offering memoranda, fee schedules, and side letters that may grant preferential terms to some investors.

Tax and regulatory: Run tax modeling for different jurisdictions, consider withholding and confirm compliance with any cross-border reporting rules.

Checklist

• Legal: vehicle type, transfer rules, consent needs, governance.
• Property: condition reports, leases, capex history, occupancy trends.
• Sponsor: background, prior fund outcomes, conflict checks.
• Documents: LP agreement, PPM, side letters, fee schedules.
• Tax/regulatory: tax structure, reporting, cross‑border issues.

Structuring Deals

Align terms with investor goals: set preferred returns, hurdle rates, or carried interest splits that match target returns. For yield-seeking buyers, choose a fixed preferred return.

For total-return buyers, negotiate upside splits. Negotiate reps, warranties and indemnities to limit unknowns.

Need sponsor reps on title, lease is good, no environmental liens. Tail liability caps and survival periods to the size and age of underlying assets.

Earn-outs or contingent payments can be a way to bridge price gaps. Put some of the consideration due on future cash flow milestones or asset sales.

Draft a clear waterfall: define priority distributions, catch-up mechanics, and fees. Set fee offsets and fee caps with modeled cash flow examples to prevent disputes down the road.

The Insurance Angle

At the heart of addressing risk in private real estate secondaries is insurance, providing a realistic means to bolster deal certainty and contain downside. Secondaries have benefitted from the wider growth in private market assets that now stand at over USD 10 trillion. Buyers regularly purchase positions at discounts of anywhere from a few percentage points to more than 30 percent depending on market and asset class. That opening discount and day-one mark-to-market uplift assist returns, but they don’t eliminate legacy risks.

Insurance bridges that gap by insuring title defects, environmental liabilities, and transactional exposures that would otherwise stall or derail a transaction. Title insurance is for defects in ownership, easements, liens, or recording errors, which typically don’t show up in due diligence. For a sub-NAV buyer, LP-led portfolios closed at around 89% of NAV on average in 2024. Title insurance turns a potential ambiguity into a specific, contractable expense.

Environmental insurance includes coverage for historical contamination, soil or groundwater issues, and pre-existing remediation obligations. Legacy assets typically bring these unknowns with them, and an insurance policy can both cap future remediation costs or provide funds to settle claims without disrupting portfolio cash flow or debt covenants. R&W insurance is worth considering for even smoother closings.

In lots of secondary deals, sellers fight against long tails of indemnity. R&W insurance enables parties to minimize escrow holdbacks and close deals quicker. This is especially valuable where the seller is an LP-led group that desires liquidity quickly. R&W policies can be customized to cover breaches that would otherwise be contested in court and they eliminate the demand for long holdbacks that drown out the day-one uplift buyers desire.

Insurance increases lender/investor confidence. Lenders view insured title and environmental risk as reduced LTV volatility, which can mean narrower spread and greater leverage. Investors looking at a secondary portfolio that gains from targeted insurance are more likely to accept valuation marks and commit capital. This is relevant considering how much less mature real estate secondaries are than private equity secondaries, where transaction volume is about ten times bigger.

Market data indicate real estate secondaries were approximately USD 9 to 10 billion in 2023, albeit actual activity encompassing non-public deals is likely two to three times higher. Additionally, USD 8.5 billion of dedicated capital was raised this year. The insurance packages make those pools more investable.

Practical steps include running gap analyses early to spot insurable exposures, budgeting premiums into acquisition models, and negotiating seller contributions to cover insurance costs. Benchmark your pricing to the market and customize the terms of each policy to each asset’s jurisdiction and use.

Strategic Allocation

The secondary market has evolved over the last 25 years and has now become a key allocation for many institutions. It demonstrates what strategic allocation to private real estate secondaries looks like, why it matters, where to focus, and how to put practical limits and rebalancing in place.

Secondaries allocation shortens the J‑curve associated with primary private real estate commitments. Purchasing mature positions translates to more near-term cash flows and a shorter path to yield. Thereby, portfolios receive distributions earlier and capital is deployed with more transparency. That assists when deal flow decelerates or when the denominator effect increases private allocations beyond plan due to public markets outpacing private valuations.

Secondaries offer a means to introduce liquidity and manage risk exposure without having to induce new primary commitments. Diversification across LP-led, GP-led, direct, and credit secondaries engineers risk and returns. LP-led trades generally provide transparent, diversified exposure to fund portfolios and can be valued at significant discounts when sellers are compelled.

GP-led restructurings offer control over timing and strategy but may introduce sponsor continuation risk and fee resets. Therefore, diligence should emphasize track record and alignment. Direct secondaries — single asset or portfolio deals — can provide focused exposure to assets with high operational upside, although they require more extensive asset-level due diligence.

Credit secondaries, such as preferred equity and mezzanine, provide downside protection via priority claims and yield. They can be compelling where lending markets are tight or rates are elevated. This approach blends these types to smooth returns and concentration risk.

Track sector trends to make focused stakes. Data centers and multifamily are where secular demand, such as cloud services and housing supply shortfalls, pulls cash flow resilience. Retail and office markets can present dislocations linked to local oversupply or work patterns, which can be potential plays if pricing captures actual repositioning requirements.

Use market signals, such as leasing trends, cap rate movement, and transaction volumes, along with stress scenarios to size allocations. Sector-specific dislocations have provided great secondary entry points historically, so watch for those opportunities.

Determine firm allocation limits and a rebalancing ruleset. Establish a secondaries band target as a percentage of both total private real estate exposure and total portfolio risk budget. Use infrequent rebalancing, such as quarterly or semiannually, to trim overweight positions following strong mark-to-market moves and to add to discounted sectors.

Consider hard caps on concentration by sponsor, asset type, and geography. Monitor reasons to sell generally in the market. Sellers span from distress to normal portfolio pruning, so care should distinguish driven firesales from strategic ones.

Future Outlook

Secondaries in private real estate look set to grow as investors seek alternatives to primary deals. Continued liquidity needs and hands-on portfolio management are causing more LPs and GPs to employ secondaries. Volume will likely increase through 2025 as both LPs and GPs prioritize producing liquidity high on their agendas.

Secondary volume is small relative to the entire market today, but sustained demand and savvy utilization signal an increasingly significant role for secondaries in the near future.

Predict continued growth in real estate secondaries as investors seek alternatives to primary transactions.

Real estate secondary transaction volume is projected to continue growing as investors seek methods to shift exposure without fund lifecycle delays. Pragmatic considerations, such as rebalancing, tax planning, and changing risk appetites, draw LPs to secondaries.

One pension fund, for instance, may sell vintage fund stakes to release cash for infrastructure, while a family office may purchase a late stage asset with a flat performance profile. As investors seek to sidestep fresh blind-cycle commitments, secondaries provide more transparent visibility on asset-level cash flows and shorter-term returns.

Anticipate increased deal flow from institutions lowering real estate allocations in 2025.

A lot of institutions are going to cut allocations or rebalance in 2025, which ought to turn into more sell-side supply. When big public funds or insurers cut positions, they like to use secondaries to shift assets.

That opens some doors for buyers to price concentrated stakes or jump into continuation vehicles. With latent value in private real estate of approximately 1,026 billion (all markets same currency), even a small increase in secondary share from 1 to 2 percent to 2 to 3 percent would bring significant incremental transaction volume and liquidity to the market.

Expect further innovation in deal structures and risk mitigation tools as the market matures.

Deal design is already changing. GP-led continuation funds, preferred equity, and bespoke earn-outs have become commonplace. These tools assist in aligning divergent time horizons and risk tolerances between buyers and sellers.

Since 2019, GP-led volume increased by approximately 19% each year, illustrating how fund managers are exploiting secondaries to wind up maturing vehicles or recapitalize portfolios. Look for additional bespoke structures that leverage tranche pricing, asset-level guarantees or insurance overlays to accommodate valuation gaps and timing mismatches.

Warn that expertise and robust processes will be critical for capturing opportunities and managing risks ahead.

As deal formats get complex, skillful due diligence and clear governance will matter more. Firms lacking robust asset-level analytics, legal frameworks or execution playbooks risk overpaying or mispricing hold periods.

Operational discipline, including valuation models, stress tests and exit plans, will distinguish winning buyers. Investors should create teams that combine real estate operations, structuring and secondary-market expertise to capture opportunity and manage downside.

Conclusion

Secondaries in private real estate provide faster access, more transparent pricing, and fewer blind spots than new transactions. Investors get the benefit of mature assets, consistent cash flow, and abbreviated hold times. Sellers reduce risk and unencumber capital for fresh gambits. Active managers and insurers offer mechanisms that reduce transaction risk and increase transparency. Real examples include a fund investor selling a late-stage apartment stake and redeploying into a core office retrofit, and an insurer wrapping a loan to bridge a complex buyout. Anticipate increased volume, narrower spreads, and more seamless transactions as data and technology proliferate. Survey holdings, map liquidity needs, and align objectives to transaction type. Secondaries for your next move?

Frequently Asked Questions

What are secondaries in private real estate?

Secondaries are transactions where existing investors sell their stakes in private real estate funds or portfolios to new buyers. They give sellers liquidity and provide buyers access to mature assets at possibly discounted prices.

Why has activity in the secondary market increased recently?

Activity increased, driven by investor desire for liquidity and portfolio rebalancing, as well as attractive pricing for buyers. Market uncertainty and longer hold periods in primaries forced more owners to sell positions.

How do buyers value secondary private real estate assets?

Buyers look at asset cash flow, residual lease term, property condition, and fund-level fees. They discount for illiquidity, execution risk, and any capital calls. Due diligence is key to making sure you value it correctly.

What are the main risks for secondary buyers?

Risks include unknown liabilities, asset misvaluation, concentrated portfolios, and future capital calls. Careful diligence and legal review mitigate these risks considerably.

How can sellers benefit from using secondaries?

Sellers obtain liquidity, decrease exposure to certain assets, and can lock gains or cut losses. Secondaries can streamline estate planning or satisfy regulatory or strategic requirements.

Do insurers play a role in secondary transactions?

Yes. Insurers offer tail risk solutions, reps and warranties coverage, and political or title insurance. These products aid in shifting targeted risk and deal certainty.

How should investors allocate to secondary private real estate?

Invest according to liquidity requirements, risk appetite, and expected returns. Think of it as a tactical allocation within alternatives, gaining exposure to diverse vintage years and shorter hold periods.