In the last blog that I wrote I discussed how family offices
are not investing into opportunity zones, and based upon a study I did through
the Family Office Real Estate Magazine – ONLY 17% of the family offices said
they were going to. The first reason I mentioned
was a lack of understanding of the zones 100%.
The second reason and the purpose of this blog is to explain the 2nd
reason why family offices are not investing in opportunity zones. The deals aren’t that great. For example I was looking at a ground-up constitution
(great opportunity for higher returns than an in-place asset), of a Class A apartment
(great property type for demand) in
North Hollywood (great location) with a seasoned operator (great experience)
who was well personally invested (great alignment of interest) and yet the deal
didn’t make sense. The target was 16.5%
with a 13.5% preferred return to an investor.
On the surface, this all looks great, but then when you start to dig in,
a slight change in cap rates on the sale drives the IRR down
significantly. Also, you should be
seeing high teens low 20’s on a development deal for your risk. And of course, the question is what about
the opportunity cost??? In the end, the
tax benefits didn’t outway the benefits of the investment as a whole. These deals that family offices are being
presented aren’t that good, or as good as people thought they would be. Family Offices have patient capital so they
can afford to wait until they find something that makes 100% sense. Until then,
they will not be investing.
Harvard's Endowment commits to a target investment range into real estate between 10% to 17% for 2016
Years ago, before the downturn I was paying very close attention to the investing allocation of my Alma Maters Endowments Investing Strategy HMC (Harvard Management Company), especially in the area of real estate. I believe that not only was Harvard a great place to understand the importance of investment allocation strategies before the downturn but even more so since the downturn. In fact, investors who are looking to enhance the performance of their investment portfolios probably won’t find a better investment model than the one used by the $37.6 billion endowment for Harvard University. The entity in charge of managing the endowment, Harvard Management Company (HMC), has accrued an impressive investment track record across its 41-year history. As of fiscal year 2015, the endowment had produced an average annual return of 12.2% – 290 basis points higher than the average 9.3% return of a typical U.S. 60/40 stock and bond portfolio. The methodology behind HMC’s success i...
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