First Quarter 2022 Review & Outlook Secondary Markets for Alternative Funds Worldwide

Real estate office defaults increase, bids decline for leveraged secondary funds, offshore investors reduce allocations to European funds

NYPPEX, one of the world’s leading providers of liquidity and data for interests in alternative funds, today announced its First Quarter 2022 Review and Outlook for the secondary markets worldwide.

In summary in the 1Q2022, NYPPEX estimates real estate office defaults increased, its bids declined for leveraged secondary private equity funds and some offshore investors sought to reduce allocations to European funds.

NYPPEX expects these trends to continue in the 2Q2022 as interest rates increase and some secondary buyers retreat to the sidelines.

1. “Walkaway Defaults” Increase in Commercial Real Estate held by Funds

NYPPEX sees increasing investment risk in older office buildings in secondary locations for private equity funds. This trend is driven by work from home trends, resulting in tenants leasing less office space and doing so in newer office buildings.

When private equity fund owners elect to default, we call this a “walkaway default” as the owner typically has the capital resources to continue making mortgage payments, but elects to return the office building to the lender. Some recent examples:

  • Blackstone Property Partners, LP, its first Core Plus open-ended fund, defaulted on its $605 million investment in the 601,000 square foot office building at 1740 Broadway in New York City in March 2022.
  • PIMCO and Hicks Ventures defaulted on its investment in the 381,327 square foot office building at Two Westlake Park in Houston. At a foreclosure auction sale, the building sold for approximately $18 million. NYPPEX estimates that investors in these funds suffered an approximate 82% loss after fees and expenses.
  • Goldman Sachs Mortgage Securities Trust defaulted on its investment in the 428,000 square foot office building at Three Westlake Park in Houston. Once valued at approximately $121 million, it sold at a foreclosure auction sale for approximately $20 million. NYPPEX estimates that investors in the Trust suffered an approximate 88% loss after fees and expenses.  
  • Brookfield Asset Management defaulted on its approximate $305 million investment in the 1.4 million square foot office building at 175 West Jackson in Chicago in November 2021.
  • AmTrust Realty is expected to default on its $188 million investment in the 1.3 million square foot office building at 135 South LaSalle Street in Chicago sometime in the 2Q2022.

NYPPEX expects commercial real estate default trends to continue as tenants down size over the next years.

As a result, NYPPEX secondary market bid-offer price spreads widened in the 1Q2022 for interests in real estate funds, depending on the risk profile of investments.

2. Lower Bids for Highly Leveraged Secondary Private Equity Funds

For several years in a low interest rate environment, certain large secondary private equity funds have leveraged 10-30% or more of their portfolio’s value. Generally, we believe this has helped boost returns.

In the current rising interest rate environment, we expect leveraged secondary funds to generate lower returns as they deleverage or as their loan rates increase.

As a result, NYPPEX secondary market bid-offer price spreads widened in the 1Q2022 for interests in secondary private equity funds, depending on their leverage.

3. Offshore Limited Partners Reduce Allocations to European Private Equity Funds

As a result of the Russia-Ukraine conflict, some offshore investors expect European economic growth to decline and seek to reduce allocations to European private equity funds.

As a result, NYPPEX secondary bid indications declined in the 1Q2022 for interests in certain European private equity funds.

4. For the 2Q2022, NYPPEX Expects Current Trends to Continue

NYPPEX expects current trends to continue in commercial office defaults, lower bid indications for secondary funds and secondary sales of European private equity funds.

Further, as interest rates increase, we expect some secondary buyers will retreat to the sidelines. As a result, NYPPEX expects lower secondary bids and less liquidity overall for interests in private equity funds in the 2Q2022.

For further information or to schedule a confidential call with a Principal at NYPPEX, please contact Kelly Londono at +1 (914) 305-2825 or

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About NYPPEX Holdings

NYPPEX Holdings operates a global private marketplace that provides price data and the opportunity for qualified investors to access secondary liquidity in alternative investment funds in a fair and ethical manner. Its clients include alternative investment funds, financial institutions, endowments, foundations, institutional investors, family offices, private clients and their respective advisors worldwide.

Since 2004, the NYPPEX QMS™ has been formerly recognized by the U.S. Internal Revenue Service as a Qualified Matching Service for private partnerships though a private letter ruling under Internal Revenue Code §1.7704.

Its private securities are privately offered only to qualified investors through NYPPEX, LLC and only in jurisdictions were permitted. NYPPEX is regulated in the U.S. by the SEC and FINRA. Member FINRA, SPIC.

Disclosure: This information is market commentary by NYPPEX and is not a solicitation of private securities transactions which may only be done through private offering documents and in jurisdictions where permitted. Investors should not rely on the information in this commentary as the basis for making investment decisions. This commentary is provided for informational purposes only. You are strongly encouraged to consult with your own independent advisors regarding any issues discussed in this commentary.  

Private placements are illiquid, speculative and investors may lose their entire investment.