BRIEF: Harvard Considers Selling Real Estate Holdings

Harvard University will attempt to sell off a portion of its real estate assets, a type of investment which has suffered serious losses during the past year, according to a report in the Wall Street Journal yesterday.

The University is seeking to divest about $500 million dollars of a real estate portfolio that includes $2 billion in current assets as well as $3 billion in future commitments.

The value of Harvard’s real estate portfolio fell by over 50 percent in the year ending June 30, 2009, according to the 2009 HMC Endowment Report published in September.

The planned sale would include assets from both current and future obligations and would further reduce the amount of illiquid assets on the University’s books—an effort that has been ongoing for the past year and a half.

According to sources cited in yesterday’s report in the Journal, officials at Harvard grew concerned over real estate and private equity holdings that are difficult to sell and require future cash commitments—the types of holdings that make the University more vulnerable to economic downturns.

During the financial crisis, several media outlets reported that the University scrambled for cash last year and was forced to sell bonds in order to meet operating expenses and pay off older debt.

Harvard and other universities with large endowments have taken several steps to increase liquidity in their endowments. According to the most recent HMC report, the University has added a cash reserve to its policy portfolio—a model for the University’s investment strategy that serves as a baseline against which the actual performance of the endowment is measured.

Reducing the size of the real estate portfolio also improves liquidity, but such sales involve risks as well.

“Recently, the prices available to sell such assets often have been at a sizable discount, and therefore not all announced disinvestments have been completed.” said Chris Cowen, a managing director at Prager, Sealy & Co, referring to Stanford’s recent decision to sell its illiquid assets.

Harvard tried to sell about $1.5 billion in private equity holdings in Dec. 2008, but rejected most bids after garnering lower-than-expected offers, Bloomberg reported last year.

—Staff writer Elias J. Groll can be reached at egroll@fas.harvard.edu. —Staff writer William N. White can be reached at wwhite@fas.harvard.edu.

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