Foundations in Private Real Estate

by Clare Bowden

  • 02 Mar 2011
  • PE
  • RE

Despite their smaller size when compared to other types of investor, foundations are frequent investors in the real estate asset class. Of the foundations that invest in real estate, 35% have less than $250 million in assets under management and almost two-thirds have less than $1 billion in assets. 9% of foundations have $5 billion or more in assets under management. An example of a foundation of this size is W.K. Kellogg Foundation, which has total assets of $7 billion and a real estate allocation of 3%. The foundation committed to one private real estate fund during 2010 and will consider making further commitments during 2011 should it identify suitable opportunities.

In terms of the real estate allocation of foundations, 36% have allocations of less than $25 million. Over a half of foundations have an allocation of between $25 million and $249 million, while 13% allocate $250 million or more to the asset class. An example of such an investor is Church Commissioners for England, which has an allocation to real estate of £1.5 billion. The foundation invests in direct and listed real estate, as well as through private real estate funds.

The majority of foundations (80%) are based in North America. Europe is home to 18% of foundations, and 2% are located in Asia and Rest of World, including Hong Kong Jockey Club and the New Zealand-based Eastern & Central Community Trust.

Foundations have a particular preference for vehicles with opportunistic, core and value added strategies. Children's Healthcare of Atlanta Foundation is an example of a foundation with a preference for opportunistic private real estate funds. It has a 10% allocation to real estate, which is split equally between REITs and opportunistic private equity real estate vehicles. Debt and distressed strategies are the next most popular with 30% and 28% of foundations having a preference for these investment types respectively. Fund of funds and core-plus are the strategies least favoured by this group of investors.

Also, 91% of foundations use a real estate investment consultant while only 9% rely solely on in-house advice. As mentioned previously, many foundations are relatively small in terms of the amount of assets they manage, and so may not have the internal resources required to undertake fully the necessary investment search and analysis, and thus prefer to outsource some of the workload to an external firm.

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