Real Estate Investing: A Private Foundation’s Approach

Presented by:

D. Ellen Shuman

Vice President & Chief Investment Officer

Carnegie Corporation of New York

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“My desire is that the work which I hav [sic] been carrying on, or similar beneficial work, shall continue during this and future generations.”

Andrew Carnegie, November 10, 1911

First Letter of Gift

Carnegie Corporation of New York

Perpetuity as a Mandate

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Carnegie Grants with Impact

• TIAA-CREF (1915)

• Gunner Myrdal, An American Dilemma: The Negro Problem and American Democracy (1944)

• Sesame Street (1969)

• New York City small schools initiative (2003)

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Carnegie Corporation of New YorkActual Asset Allocation by Fiscal Year

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Real Estate

Private Equity

Absolute Return

Marketable Equities

Fixed Income

Cash

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1% 0% 3% 7% 11% 11% 14% 15% 11% 10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Real Estate

Other

Carnegie Corporation of New YorkActual Real Estate Allocation by Fiscal Year

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-30%

-20%

-10%

0%

10%

20%

30%

40%

1999 2000 2001 2002 2003 2004

Real Estate

MSCI World

Total CCNY

Carnegie Corporation of New YorkAnnual Performance (FY ending 9/30)

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0%

10%

20%

30%

40%

50%

60%

70%

Multi-Family

Hotel Industrial Land Office Retail RE Loans

CCNY NCREIF Index

Carnegie Corporation of New YorkCurrent Property Exposure by Type

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Carnegie Corporation of New YorkPrivate Real Estate Portfolio Characteristics

• 20 private real estate managers

• 40 commingled funds

• $200M market value (out of total Carnegie portfolio value of ~$2.1B)

• 55% average property level leverage

• 230 individual properties

• 1/3 in Southern California

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Carnegie Corporation of New YorkTop 10 Properties by Equity Exposure

CCNY EquityProperty Location Type MV ($M)John Hancock Center Chicago Mixed Use 13.6Oakland City Center Oakland Mixed Use 10.2Prudential Plaza Chicago Office 6.8The Galleria Los Angeles Mixed Use 4.3Brandywine Center Delaware Retail 4.0Warner Center Los Angeles Office 4.0450 Lexington Avenue New York Office 3.3100 Wilshire Boulevard Los Angeles Office 3.1The Shores Los Angeles Apartments 3.01901 Avenue of the Stars Los Angeles Office 1.8Total 54.1

Three managers own these assets that represent 27% of total value of the real estate portfolio

While a Few of Our Holdings Are Landmarks…

…Much of the Portfolio Is Far Less Glamorous

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Carnegie Corporation of New YorkManager Selection Criteria

• “Local sharpshooter”– Focus on property type and/or geographic market

• Proper alignment of interests– Meaningful co-investment– Back-ended incentive compensation widely distributed

among the team

• Principal ownership of the firm• Qualitative factors

– Principal mentality– Investment discipline w/ ability to assess risk as well as

return