Investors - DECEMBER 23, 2014

University of Michigan commits to real estate and energy

by Reg Clodfelter

The $9.7 billion University of Michigan Endowment has committed $84.1 million to real estate, divided between four separate investments, and $30 million to energy, according to board documents.

The largest commitment was a €25 million ($30.6 million) commitment to BLG Turkish Real Estate Fund II, an opportunistic fund managed by Bilgili Holding. The fund invests in hospitality, residential, student accommodations and mixed-use properties in Turkey with a focus on Istanbul. The fund, which is reportedly targeting a €200 million ($244.4 million) haul, is looking to take advantage of market opportunities presented by Turkey’s young, growing middle class.

The Related Energy Focused Real Estate Fund, managed by New York-based The Related Cos., received another $30 million from the endowment. The fund, which received a $50 million commitment from the Arizona State Retirement System, invests in multifamily assets in regions of the United States where there is a lack of adequate work force housing to meet demand created by the recent U.S. energy boom. The fund will primarily develop new assets in North Dakota, but it will also look to add value to existing assets in more developed areas where opportunities present themselves.

The endowment also committed $20 million to Thackeray Partners’ Realty Fund IV, which launched earlier in 2014 and closed in December after reaching its $300 million hard cap. The fund targets multifamily and industrial properties, and to a lesser extent, retail strip centers in the United States. The manager targets investments that range in size between $5 million and $25 million where there is less demand among institutional investors and thus less efficiency in pricing. At a fund-level, the core-plus fund will use a combination of a longer-term buy and hold strategy and a shorter-term value-add strategy, depending on the opportunities presented by an asset.

There was also a $3.5 million follow-on commitment from the endowment to the Phoenix Asia Real Estate Co-investment with the potential for an additional $500,000 to be funded in early 2015. The original commitment was for $10 million in February 2012. Phoenix Asia Real Estate Investments III originally offered the co-investment, which is for a mixed-use project in Shanghai. As a result of unexpected delays, the project required additional capital to meet its obligations and the University invested its pro-rata share of the required amount.

The final commitment was $30 million to PetroCap Partners II, which makes control investments in non-operated working interests alongside operators in on-shore oil and gas projects in the United States. Investments range in size from

$5 million to $50 million and returns will be derived from the income from oil and gas production as well as capital appreciation from increased reserves. The fund just received a $100 million commitment from the Virginia Retirement System.

As of June 30, 2014, the endowment had 12.6 percent of its assets invested in real estate, just above its 12 percent target allocation, and 8.4 percent of its assets invested in natural resources including oil, just above its 8 percent target to the sector.

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