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Action Item 2 – Selection of Real Estate Investment Managers, UM

Action Item 2 – Selection of Real Estate Investment Managers, UM. University of Missouri System Board of Curators June 16, 2011 FINANCE COMMITTEE. b. Overview - Real Estate Portfolio. Real Estate investment program began in 1994 Retirement Plan Current Allocation (invested capital) – 4.4%

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Action Item 2 – Selection of Real Estate Investment Managers, UM

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  1. Action Item 2 – Selection of Real Estate Investment Managers, UM

    University of Missouri System Board of Curators June 16, 2011 FINANCE COMMITTEE b
  2. Overview - Real Estate Portfolio Real Estate investment program began in 1994 Retirement Plan Current Allocation (invested capital) – 4.4% Sector Allocation Target – 6.0% Endowment Fund Current Allocation (invested capital) – 3.4% Sector Allocation Target – 7.5% UM has outstanding commitments to Blackstone of $13 million that are expected to be funded over the next 24 months c
  3. Overview - Real Estate Opportunity Set d
  4. Commercial Real Estate Price Indexes Since the first quarter of 2010, capital has flooded back to the core real estate market and several core funds have multi-billion dollar entry queues. Core buyers have aggressively bid on stabilized properties in search of yield, driving up prices closer to historical highs as evidenced by the line marked “REIT Owned properties” in the chart above. Assets with financial or physical problems continue to see fewer bidders and valuations remain 40-60% below peak pricing indicating an opportunity for knowledgeable investors. e
  5. Recommended Firms – Real Estate Contrarian Distressed Real Estate Debt Fund II, LP $350 Million Target Seeks small to mid-sized real estate debt opportunities with no intent to acquire control of properties Target return of 15% net Internal Rate of Return (IRR) Fund I showed a gross IRR on 23.8% with a multiple on investment of 1.6x Focus is similar to existing opportunistic manager, Blackstone, except that Blackstone targets larger deals f
  6. Recommended Firms – Real Estate CrossHarbor Capital Partners II, L.P. $500 Million Target Seeks debt and equity opportunities of middle market real estate assets with intent to acquire control of properties Target return 18 – 20% gross IRR Fund I has a gross realized IRR of 71.5% and a multiple on investment of 1.5x (as of 9/30/2010) g
  7. Recommended Firms – Real Estate Oaktree Capital Management Fund V, L.P. $1 Billion Target Seeks debt and equity opportunities in large market real estate assets with intent to acquire control of properties Target Return of 20% Gross IRR Fund IV has a gross IRR of 20.4% (11.2% net) and a multiple on investment of 1.2x h
  8. Recommended Firms – Real Estate Opportunistic ManagersRetirementEndowment Contrarian II $15 million $5 million CrossHarbor II $20 million $10 million Oaktree V $20 million$10 million Total $55 million $25 million Redeployment from Core (RREEF) to Opportunistic $15 million $5 million Additional commitment to Real Estate sector $40 million$20 million Total $55 million $25 million i
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