In my last two blogs, I went through why family
offices are not investing in opportunity zones…………….at least to the extent that
everyone thought they would be. So who
are the ones who are investing in these real estate opportunities? That is the institutions and the high net
worth individuals. But I see a problem
coming down the road with these high net worth investors. I don’t think they know what is coming down
the pike in the next seven years. Let me
give you an example. So I have $500K in
capital gains that I invest. Well, in
year 5, 10% of my capital gains are forgiven.
In another two years another 5%.
So in total, 15% is forgiven on the $500K, which is a total of 75K. So now I am left with a tax bill of $425K. So where is that money going to come from for
them to pay the taxes???? Remember these
are high net worth investors, not family office type capital. Now some sponsors say “well we will
refinance and they will be able to use that money” Well let's say that doesn’t happen…….now
what??? I suspect that many of these
investors, and I think a majority of them will not have the money to pay this
tax bill. Then what? Well, that is where I see them coming after
the sponsors because for sure there will be lawyers lining up to file class-action
lawsuits saying “they didn’t understand” (which personally is a whole another
topic that I feel strongly about.), but this will happen. I don’t think the sponsors see it coming
either but when there was a downturn which was coming after the sponsors? The retail clients, high net worth clients,
not the family offices, and the number of lawsuits were considerable. You heard it here; first, there will be issues when it comes time to
pay the taxes by high net worth investors.
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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