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How A Family Office Can Add Quality Real Estate To Their Portfolio

Family Office Elite - Spring Issue 2016

Real estate is an important part of any portfolio, especially for family offices. Real estate has many benefits––from the use of leverage, tax-free growth, and tax deferment to depreciation and mortgage interest deductions, and especially the opportunity for families to build legacy wealth. A good property in a good location can be a long term family asset, providing cash flow, appreciation, and
tax benefits for generations to come. Because of these benefits, the question then becomes:
How can a family office invest in real estate and maximize the benefits that real estate has to offer?

The options available to family offices are:

1) direct investing, (or a subset of direct investing),

2) fund investing, and

3) investing through publicly traded entities such as REITS or individual stocks of real estate
and real estate-related companies.

For the purposes of this article, we will focus on direct investing through joint ventures, separately managed accounts, limited partnerships, and club investing rather than when the family or family office invests directly and manages the property themselves.

Choosing the right real estate asset to invest in is more of an art than simply investing in what appears on the latest broker flyer or what is offered during a phone call from a real estate operator. To choose the proper asset and opportunity, one of the best ways to add real estate to your portfolio is to partner with another family office that has created its wealth through real estate. After all, as a family office, this group will also understand the challenges facing your family or family office related to estate planning, transferring wealth to subsequent generations, building a business, and creating or preserving wealth. The question then comes down to: How does a family office evaluate a potential real estate partner?

Although you may want to add a few more items to your list when evaluating a potential partner, the following are five items that real estate investment banking firms and institutions consider before investing with a real estate partner. This should help with your evaluation of a partner as well as touch on some of the areas that should be explored by the family office during the due diligence process.

The five areas are: partner’s experience, partner’s strengths, partner’s track record, the economic viability of the investment(s) or opportunity, and alignment of interests with your potential partner.

Partner’s Experience

What is the partner’s experience? Does the real estate partner have experience in similar types of deals, property types, and geographic markets for the asset that the partner is asking to invest into? Does the partner reputation in its field, a focused investment strategy, a proven track record, and management by a team of experienced professionals?

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