Well-Endowed: Conservative College endowments increase allocations to real estate

Despite the crisis on Wall Street and concerns about worsening commercial property fundamentals, many college endowments feel the current economic environment is a great time to invest in real estate.

"Endowments are somewhat contrarian – they see a downturn as a time when efficiencies are created and an opportunity," says Jimmy Hanson, president and CEO of The Hampshire Companies, a private real estate investment fund manager that works with several large endowments and foundations.

With their long-term investment horizon, endowments look beyond current market conditions and are less likely to make knee-jerk decisions regarding their investments. This strategy has served them well – for the past decade, university endowments have outperformed all the major financial indices, earning higher returns on their investments and beating most of their private and public investment fund counterparts.

The schools have increased their allocations to alternative investments, and in doing so, have invested more of their money in commercial real estate, either through real estate-specific funds, hedge funds, private equity or natural resources such as timber, according to the most recent endowment study from the National Association of College and University Business Officers (NACUBO), a non-profit professional organization representing chief administrative and financial officers at more than 2,100 colleges and universities across the country.

"There are more endowments today who are investing in alternative investments, especially commercial real estate," says Herman Bulls, president of Jones Lang LaSalle's public institutions group. He also serves as member of the board of directors for the U.S. Military Academy at West Point and helps manage the university's $150 million endowment.

"Before we just looked at stocks and bonds, but over the past few years we've opened up to hedge funds, private equity, real estate and even timber," Bulls explains. "Today, West Point has somewhere between 15 and 20 percent of its endowment allocated to alternative investments."

-- excerpted from Global Real Estate Monitor, October 2008