University of Michigan Endowment Adds to Real Estate Investments

  • Public school invests in funds founded by alumnus Sam Zell
  • Michigan's endowment is valued at $10 billion as of June 2015

The University of Michigan’s $10 billion endowment is adding to its real estate holdings, with five new commitments to private equity funds in the U.S., U.K. and Turkey.

The Ann Arbor-based school plans to allocate 25 million pounds ($36 million) to Mercer Real Estate Partners II, a London-based real estate fund that will invest in office and mixed-use properties in the U.K., according to a public filing in advance of a Board of Regents meeting scheduled for Feb. 18.

The school is also adding undisclosed amounts to three funds at firms it allocated money to last year, including SSC V LP. The fund, sponsored by Spear Street Capital of San Francisco, will “exploit office investment opportunities in areas with significant technology and media tenants” in cities including San Francisco, Seattle and Boston.

U.S. commercial-property prices have surged since the recession, with values in major cities such as San Francisco and New York exceeding the 2007 peak by about 36 percent, according to an index by Moody’s Investors Service and Real Capital Analytics Inc.

Strong Performer

Private equity real estate investments gained an average of 9.9 percent in fiscal 2015 for endowments, down from 12.6 percent the previous year, according to a survey by National Association of College and University Business Officers and investment manager Commonfund. The category was the second-best performer after venture capital in a year when average returns were 2.4 percent, according to Nacubo.

Michigan is committing funds to Istanbul-based Galataport/BLG Capital Fund II, a co-investment opportunity in the redevelopment of real estate in Istanbul along the Bosphorus strait that includes a luxury hotel and a passenger cruise port.

The school also is adding more money as a co-investor to two emerging markets real estate funds founded by Sam Zell, a Michigan alumnus who last year pledged $60 million to the school.

Michigan, the third-largest fund among public universities, had a 3.5 percent return for the fiscal year ended June 2015.

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