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North America-Based Foundations Investing in Private Real Estate – June 2014

by Brian Chung

  • 20 Jun 2014
  • RE

Preqin’s Real Estate Online tracks 461 foundations based in North America that are currently investing in private real estate funds. These investors have aggregate assets under management of more than $400bn and on average have 6% of their total assets allocated to real estate, below their average target allocation of 7%. This is particularly positive news for fund managers, as foundations look to move towards their target allocations and will therefore commit more capital to the asset class. One such investor is Community Foundation of Abilene, a $97mn foundation located in Texas, which intends to commit to North America-focused core real estate funds in the next 12 months.

Foundations located in North America investing in private real estate funds favour higher-risk strategy funds. Opportunistic funds are targeted by 54% of foundations, while 53% utilize value-added strategies. Twenty-nine percent of North America-based foundations are investing in core strategy funds, while debt funds are preferred by 27% of these investors. Due to the large capital reserves required to invest in alternatives to the traditional blind-pool fund structure, only a small number of foundations are investing through separately managed accounts, joint venture capital structure, or co-investments as each of these are utilized by 2% of foundations or less.

In terms of geography, 90% of these investors will seek funds that are targeting North America-based assets, while 32% will commit to funds focused on European markets. Investments in Asia-focused real estate vehicles will attract 23% of foundations with 5% of investors focusing on real estate assets in regions outside North America, Europe, and Asia.

A large number of foundations investing in private real estate funds are located in California and New York, with 27% of foundations located in the two states combined. Foundations located in California on average have 5% of their total assets allocated to real estate, below their average target allocation of 10%. In New York, foundations on average also have 5% of their assets allocated to the asset class, below their average target allocation of 7%.

In conclusion, as North America-based foundations look to move towards their target allocations, many will commit more capital to the real estate asset class. Higher-risk strategies, such as value added and opportunistic, are likely to continue to be favoured by these investors, with the large capital reserves required for alternative methods of investing meaning that use of blind pool funds is likely to be the preferred route to market for North America-based foundations.

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