Family Office Real Estate Blog

So “family offices” are increasing, but are they??  What is the classification of a family office?   From spending the last five years working for a family office, I think I can tell you.  An this is not just from my understanding but from seasoned veterans who were in this space before anyone outside of the “club” ever heard the word family offices. $250MM in assets and they not only have investments to deal with (which I like to call the hard side (investment side) but also the soft side which deals with the family issues.     Governance, generational issues, tax planning, legal planning, internal family issues per se.   All of the things great wealth can bring outside the investment side. Outside of the net worth number ($250MM), I also think you can distinguish if they are a real family office by asking the question.   Are investments made from a company checkbook or the personal checkbook of the family??    If it is...

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. ...

 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 2 nd 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 al...

In a study that I did at the beginning of this year, I asked over 100 family offices what their plans were for investing in opportunity zones.  The results were staggering.  17% said they were going to invest into an opportunity zone deal, the remainder reported no or maybe.   Now at the time, the regulations were not out, so that was a huge reason for many families to be sitting on the sideline, but now that they are out why are these numbers still holding up?   Well, I think there are a few reasons.  The first is I don’t think there is a distinct understanding of the nuances of opportunity zones by family offices.   I have spoken on this topic so much, or written articles or been interviewed on shows and podcasts and I have an excellent understanding of what these include and the benefits, but there are still nuances I don’t understand exactly.  One of the things that come up in sales is if something is hard to understand the person ...

A few weeks ago I ran across this article that was from July 14, 2016 from Family Capital. This focuses on family offices real estate investing in the UK, but still though it is relevant to the trends by family offices. The number of deals involving real estate is a big part of the current direct deal boom driven by family offices, as the world’s wealthiest investors bet on strong property demand in the top real estate markets. Just this week the family office of Stefan Persson, Sweden’s wealthiest individual and the chairman of the fashion chain H&M,  was reported  to have purchased a retail property complex in central London for a massive £400 million. If the deal goes through, it will be a big vote of confidence in the London commercial property market after the recent turmoil brought about by Brexit. It will also be indicative of how family offices are often able to take riskier investment bets than their institutional counterparts. After Brexit, many institu...

For family offices new to the investment arena I thought I would share some insight as to the types of real estate investments that are available.   These types are defined as Core, Core Plus, Value Add, and Opportunistic.  Most commercial real estate investors will focus one or two of these strategies when investing.  Core: These are fully stabilized properties with credit quality tenants on long term leases.  These investments are well located in primary and secondary markets.  Usually these properties are purchased by institutional investors that are looking for a a safe reliable return.  Core investments in commercial real estate are often purchased as a way to diversify an investment portfolio. Core Plus:  Investors who generally want a safe return, but are looking for a little bit of upside prefer Core Plus.  These properties are match the physical description of Core investments, but usually have some opportunity to increase ...

Article by Russ Alan Prince - Contributor to Forbes Insights Directly investing in small and middle-market companies is becoming more appealing to family offices . While many still commit monies to private equity and venture capital funds, there is a strong and growing interest in doing direct deals. While some of these are “ club deals ,” the majority of direct investment opportunities are brought to family offices through the financial and legal professionals in their networks. “Family offices make much higher allocations to alternatives in general, and private equity in particular, than typical high-net-worth investors or wealth management firms,” explains international family office authority Hannah Shaw Grove , a founder of Private Wealth magazine . “Many times the source of wealth behind a family office is a privately-held company, so family members know how important these types of investments can be and are accustomed to the unique nature of private equity deals.” ...

Takeaways from the Handler Thayer Family Office Forum! The Anatomy of a Family Office: 1. Families will not perceive all the risks they are vulnerable to, so many times they are not prepared. Sit down yearly to measure risk appetite 2. A person can be technically proficient – but not a good culture fit          a. Create a plan - Think in the long term – maintain consensus, 1. Families will not perceive all the risks they are vulnerable to, so many times they are not prepared. Sit down yearly to measure risk appetite 2. A person can be technically proficient – but not a good culture fit a. Create a plan - Think in the long term – maintain consensus, 2. A person can be technically proficient – but not a good culture fit a. Create a plan - Think in the long term – maintain consensus,         a. Create a plan - Think in the long term – maintain consensus, alignment and planning    ...

In a recent article by R. Byron Carlock Jr. from PricewaterhouseCoopers, Byron discusses how philanthropy has an impact with economic development.  With many family offices being involved in various philanthropic endeavors,  I thought it would be good to share this article so that they may gain a greater understanding of the impact they make above and beyond the financial commitment from themselves or their foundation. This year there has been a lot of talk about the 125th anniversary of the opening of New York’s Carnegie Hall. Bequeathed to the city by famed industrialist Andrew Carnegie, it’s the most famous example of real estate philanthropy by the great industrialist, in a portfolio that included the creation of some 3,000 public libraries and the founding and support of several colleges. While Carnegie’s philanthropy helped transform infrastructure (not to mention culture) in numerous cities, more modern exam...

A lot of people want to access the family office market . The reason is because they believe that it's an area which they can raise a lot of capital and often in a manner that is much easier. Although the check size might be bigger there's many many things that people don't realize when dealing with a family office.  In my past I had the ability to raise capital from individuals to family offices to private equity funds, insurance companies and institutions. The biggest difference with institutions or institutional capital is that their decisions are typically made based upon parameters. They have a box or boxes in which they are to invest into. In addition, it's not their own money so because of that they are often removed from any emotions. Sure they want to do a good job but let's face it its not their own money!!  Family offices, however are different. I would say that family office investors are much more like individual investors. In many ways very si...

Thought I would share this great family office article from Russ Alan Prince at Forbes Insights One of the strengths of the very wealthy is the depth and breath of their personal and professional contacts . What are even more powerful are their core relationships – advocates for the affluent often enabling them to garner key resources and generate new business opportunities. The non-family senior executives of single-family offices are increasingly working to gain significant advantages by adopting the same approach the self-made wealthy have in developing results-driven professional networks. A crucial component of this process is building solid relationships with senior executives at other single-family offices. In a survey of 78 single-family offices, about 85% of the senior executives report that they’re making concerted efforts to expand and strengthen their relationship with their peers in other single family offices. The two principal reasons for this are access to...

Presidential elections aren’t known for cooperating with commercial real estate fluctuations. The current wave of uncertainty, however, has this ballot feeling particularly ill timed. So how do the major candidates’ policy proposals fit in for commercial real estate investors? They’re already having an impact as we are seeing many investors pulling the trigger on acquisitions and dispositions now to get in front of what may come, depending on who they think will be elected to office, says Eric Wohl , EVP at Hanley Investment Group .   “Every presidential election creates new uncertainty about the direction of the economy,” said Wohl. “The goal is to have a clear picture on how each presidential nominee, if elected, will impact the commercial real estate industry. While some policy details may be vague or change, all we can do is to interpret the provided information at this time to the best of our ability.”   So, with that in mind, what are the candidates’ poli...

Chart from John Burns Consulting For Family Offices investing into real estate  there is one demographic that can't be denied and that is the aging population.  Many first generation patriarchs are part of this wave but more importantly 2nd and 3rd generation investors need to be aware of this continual trend to capitalize on the opportunities in the future.   Lesley Deutch, a principal with john burns real estate consulting summarized this surge in a recent write up below. Only 10 years ago, 2.2 million people were turning 65 each year. That number has surged to 3.5 million this year and will grow to 4.2 million in 2025! Tomorrow’s retirees will completely transform the housing industry. We have done a tremendous amount of research on this group, all of whom were born in the 1950s. We call them the Innovators  because they have created so many innovations throughout their lives. They are: Tech savvy, which began with their space race fascinatio...

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 jo...

Many family offices and investors for that matter wonder how Brexit will affect real estate.  In a recent New York Post article by Steve Cuozzo provides some good insight. Brexit sent British real estate markets reeling, but how it will impact New York is hard to predict. A poll of leading power players found lots of high expectations, but with a few marked exceptions. Douglas Elliman chairman Howard M. Lorber forecast, “New York City will move to the No. 1 global city in the world, a spot that London currently holds. In addition, because of Brexit, interest rates have dropped to 30-year lows, causing mortgages to also drop significantly, thus raising the value of both residential and commercial real estate.” Developer Douglas Durst was most emphatically negative. He said, “The quick-buck types will extol the benefits of the flight of capital to New York, but as long-term players, we know that Brexit is bad for all.” But Cushman & Wakefield dealmaking whiz Tara Sta...

INTRO DUCTION Ten   m onths  ago our family office made a decision to become part of the family office community. During that time I have had the chance to attend nine  different conferences put on by seven different conference organizers, and I have had the chance to meet close to three hundred families. By going through this process I have learned a number of things, the most important item and one that makes 100 percent sense to me is that there is a major family office   investment trend. Family offices are moving away from funds as a result of fees, transparency, nonalignment   of interests, and the inability to understand all of the investments within the fund. Because of these issues (and a few others), family offices are moving toward   direct investments, coinvestments , and partnering with other families in the specific area in which each family created its w ealth   . A TREND IN DIRECT INVESTING In a recent article by Mar...

A few weeks ago I had the fortunate opportunity to attend two great conferences where I was asked to sit on panels for.  The first was the IMN Conference in California regarding real estate and family offices and the second in Chicago which was a family office private equity conference held by the law firm Handler Thayer. At both conferences a common theme came up which I have noticed for quite a number of months that I have been attending these conferences, and that is  1) family offices are fee conscious and the 2 and 20 doesn't work for all family offices, and 2) that family offices are partnering with other family offices on investments more and more.  For me that makes perfect sense.  In fact 9 months ago in our family office we were going to launch a fund to endowments and family offices with the expectation of me managing it.   After really digging into the family office community I ended up recommending that we don't start a fund that we focus ...