Foundations Investing in Real Estate – March 2013

by Forena Akthar

  • 20 Mar 2013
  • RE

Preqin's Real Estate Online database currently tracks over 500 foundations investing in the real estate asset class. Being smaller in size than other investors, a significant proportion of these institutions (42%) allocate less than $10mn to property and only 17% have real estate allocations exceeding $100mn.

Many foundations have a preference for indirect real estate investments as they often lack the resources to allocate directly to the asset class. With regards to private real estate fund investments, 51% of foundations have an appetite for opportunistic vehicles and 51% are interested in value added vehicles. Thirty-two percent are interested in core funds, 22% in debt vehicles, and 17% have a preference for distressed strategies. These statistics reveal a bias towards the higher-risk strategies which is explained by the fact that foundations aim to continually pay grants to the organisations they support and therefore need to maximise the returns on their investments.

There is little difference between foundations and all other real estate investors when comparing whether they are above or below their target allocations to property. Fifty-one percent of foundations are below their target allocations to real estate, which is similar to that of all other real estate investors, with 54% being below target. However, when comparing the proportion of foundations that are at their target allocations with all other real estate investors, it can be seen that a higher percentage of foundations have reached their targets. A significant 32% of foundations are at their target allocations to property compared to 23% of all other real estate investors.

When comparing foundations’ appetite for first-time funds with that of all other property investors, there is little difference in the proportions that do not invest in vehicles raised by new managers (66% of foundations vs. 61% of all other real estate investors). However, only 10% of foundations will invest in first-time funds, compared to 19% of all other real estate investors, which is likely as a result of these investors having fewer resources to commit to conducting due diligence.

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