A new startup advisory firm has launched recently, with the goal of creating liquidity for those in the real estate market. The startup is called ACRE Solutions LLC, short for “Alternative Capital Replacement,” and was founded by Phil Barker and Sam Khatib, two former executives of CBRE Capital Advisors.
ACRE’s goal is “to serve the secondary market for limited partnership positions in open- and closed-end real estate funds and direct assets.” The secondary market refers to the market in which investors buy and sell securities they already own, as opposed to the primary market, which is where a general partner (GP) issues shares or units for the first time and sells directly to investors, often in the form of a limited partnership (LP).
A primary market transaction usually occurs between the investor purchasing the units and the general partner issuing it. Proceeds from the issue of shares in the primary market go directly to the company that issued the units.
In the secondary market, however, these initial investors are selling their own stake in the venture — or their actual units. These transactions occur between individual investors or LPs, and not the general partner, so proceeds of each sale go to the investor selling the share.
ACRE is a “boutique real estate advisory” that aims to create and serve a secondary market for these ownership stakes.
“We operate only in the area of real estate,” said Phil Barker, CEO and Managing Partner of ACRE, “and we provide third-party liquidity solutions for investors that have some form of real estate, real estate security, limited partnership, partial interest, or joint venture that has some liquidity issues or requirements.”
Essentially, Barker and Khatib hope to help secondary market investors monetize their investments. For instance, in the case of a limited partnership investment, if the limited partner wants out of the investment but is unable to because of the structure of the agreement, ACRE will help solve that problem by finding an alternative investor to take their stake, and get the original investor their money.
“For any investor that has a position in some of these partnerships, it’s not really certain what it means for them to sell,” Barker said.
ACRE will help figure out what financial impact might occur, should the investor attempt to leave their partnership early, and present pricing options these real estate investors might not have considered or even known to be possible.
In recent years, according to ACRE’s press release, the secondary market has been growing, enabling investors to have more control over their portfolio allocation. This trend has naturally led to more limited partnership transactions among investors.
However, sometimes the limited partners and general partner’s goals and timelines do not align — especially in this past year, with the COVID-19 pandemic changing so many people’s financial circumstances. This misalignment in goals is where ACRE Solutions comes in, serving as an intermediary to come up with solutions and help liquidate investment positions.
One reason Barker and Khatib started ACRE, said Barker, “is that we saw a need for liquidity in very illiquid situations.”
Often, said Barker, “there are individual investors … who own a minority percentage interest in a single asset, or office building, or retail complex — or maybe a small real estate portfolio — and they’re seeking exit liquidity, which is very difficult to source and price, as in many cases these minority interests are totally passive, without any control rights.”
So far the team at ACRE has proven successful in that role. For example, Barker managed to place a minority partial interest in a large New York City mixed-use office building, valued at $1.6 billion. They found a buyer for this passive interest, providing liquidity for the seller. Barker said the hope for ACRE is to find “opportunities for sellers to realize and monetize their holdings during times of uncertainty, as well as providing for more efficient portfolio management in more normal conditions.”
“We have a strong stable of potential buyers and sellers to engage each other for the right opportunity,” Barker said, adding that “ACRE has partnered with Silverpeak and Capstone Equities — two prominent NYC-based real estate private equity managers to source and originate deal flow for the platform.”
ACRE finds potential buyers to help the seller liquidate their investment.
Barker said there can be a complex process of negotiation with the GP for the transfer of the LP ownership position. Once they have reached an agreement between the buyer and seller of the stake, ACRE takes care of that process and ultimately arrives at a solution that accommodates the needs of all parties involved.
Since their recent launch, ACRE Solutions has completed two deals for approximately $75M, with more currently in the works.
During their time at CBRE, Barker (CEO and Managing Partner of ACRE) and Khatib (Senior Director of ACRE) specialized in secondary markets, capital raising and investment advisory. According to ACRE’s estimates, “the annual U.S. secondary volume in the real estate market is projected to be in excess of $5 billion in the next few years,” so ACRE provides real estate investors with a much-needed service.