The Future for Family Offices Involves Real Estate

Family Offices have one consistent goal: to help wealthy families preserve and grow their wealth across generations. Increasingly important to that goal is an allocation to real estate investments. The trend favoring exposure to real estate began a few years ago, but the pandemic is accelerating the situation. With plenty of dry powder and a long-range goal in mind, many family office investors are taking another look at real estate as a viable option for wealth management.

Why Real Estate?

Over the last several years, family offices have been turning more toward real estate in their investment strategies, and since the pandemic has begun, this idea has been gaining momentum. The numbers echo the findings. According to the Real Deal, family offices’ share of investment in real estate has grown from 12 percent in 2015 to 20 percent today.

There are several reasons for this trend. The bottom line is that this class of assets has been making money. Family offices are trying to make money for the long haul, and they need a diverse investment strategy in order to do so. Real estate is a key aspect of that diversification. Real estate offers a consistent, reliable source of cash flows, as well as long-term capital appreciation.

Not everyone is on board yet. LinkedIn reports that 47% of family offices had no real estate interests at all. With the current climate trending toward real estate, more family offices will likely jump on board.

Making it Work

Richard Wilson, founder and CEO of the Family Office Club, said, “More people want income coming in right now, and want to make sure that there’s steady return of capital to put it to the next opportunity.” During the pandemic, having a safe and assured income is more important than ever.

Investing in real estate is more important because other types of investments are also changing. Excluding the extremely volatile public equity markets, other investment strategies are struggling to produce yield.

Family offices are making some big deals and joining other family offices to invest along with them. While family offices’ main goal: wealth preservation and long-term growth, is consistent, the manner in which family offices achieve that goal can take many forms. Some family offices prefer the hands-off approach of investing through private equity firms. Others take a more active role by directly investing in real estate. Both strategies have a track record of yielding successful results.

Avoiding Missed Opportunities

Although sometimes overlooked in large portfolios, real estate has grown into a stalwart investment and continues to grow in popularity for investors. Forbes Magazine reports that “Real estate continues to provide good risk-adjusted returns with less correlation with other asset classes, so the urge to continue investing in real estate is justified. Property's ability to continue to deliver better returns relative to other asset classes is likely to continue.”

Family offices are trying to right a wrong they experienced in the Great Recession of 2008. Many were slow to jump on the real estate band wagon. By the time they got interested in investing in real estate, the moment had basically passed. They do not want to make the same mistake again.

With the uncertainty caused by the pandemic, real estate is experiencing significant re-pricing, and family offices moving to capitalize on that value. Real estate will stand the test of time and can be passed down to generations in the family portfolio, and there are many good deals to be found as businesses are forced to close. By looking to real estate and avoiding the mistakes of the past, family offices will be able to build a strong portfolio for generations to come.