UC Regents explores creating in-house real estate operating company – Pensions & Investments

The University of California Board of Regents could create an in-house real estate operating company as part of a push to expand its real estate investing over the next 10 years, said Jagdeep Singh Bachher, CIO and vice president of investments at the board’s meeting Tuesday.

He said building a real estate operating company will allow the UC’s investment team to invest in “a more methodical way” rather than buying assets and having an outside company manage properties at high fees.

Mr. Bachher said his team is particularly interested in real estate with high expected demand, including data centers and other types of digital properties, and senior housing and student housing, particularly properties adjacent to University of California campuses, Mr. Bachher said.

The investment staff is currently taking a closer look at its real estate portfolio, which has lagged its benchmark. Mr. Bachher said his staff will try to determine how best to invest in real estate going forward, how the UC Board of Regents’ investment office can differentiate itself as a real estate investor and where it has a competitive advantage.

The UC Board of Regents’ investment office owns properties that are adjacent to UC campuses that could be sold for someone else to develop, he said.

“We decided to hold onto them … put a structure in place, recruit talent,” Mr. Bachher said. Owning a real estate management company that has development capabilities or relationships with developers is “how money is made in real estate,” he said.

Within the board’s $90.8 billion defined benefit plan, its $4.3 billion real estate portfolio’s best-performing period was for the 10 years ended Sept. 30 when it earned the same return as the benchmark at an annualized net 9.3%. The portfolio underperformed the benchmark in all other time periods ended Sept. 30, according to the investment office’s most recent report.

The $19.1 billion general endowment pool has a $1.2 billion real estate portfolio, which outperformed its benchmark for the one year, three years, five years, seven years and 10 years ended Sept. 30. The best-performing period was the five-year annualized net return of 8.4%, compared with the 6.9% benchmark return.

When asked during the meeting to explain the difference in performance, Mr. Bachher said, “I asked the same question and candidly, I don’t like the answer” because if the UC Board of Regents’ invests in private real estate it should do better than a real estate investment trust U.S. index, he said.