Real estate deals drive family office direct investing

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 institutional and retail investors pulled money from UK property funds over concerns about the deterioration of the local real estate market following the vote to leave the European Union.

Persson’s family office Ramsbury Invest manages a big property portfolio in Europe, especially in London, Stockholm and Paris. But it’s not just the big cities that interest the billionaire, a few years ago Persson brought a whole village in the UK for £25 million in 2009.

Investors like property because it’s the easiest asset to understand.

Another deal done recently was the purchase of a Munich hotel by the family office of the Dallmayr family, which control one of Europe’s largest delicatessen businesses. The deal was put together by TGR Immobilien Vermögensverwaltung, a family office that specializes in real estate deals. Specialist property family offices like Ramsbury and TGR are not uncommon. Others include the UK-based Evans Property Group and J. Leon. And others like TY Danjuma often have subsidiary property investment groups.

Recent big property deals involving family offices include the Safra Group, the family-controlled investment group of one of Latin America’s wealthiest families, which bought one of London’s most recognizable office blocks, the Norman Foster designed Gherkin, for an alleged sum of £700 million.

Investors like property, as one family office manager told Family Capital, because: “It’s the easiest asset to understand.” A study of 200 US single-family offices last year reckoned that on average family offices allocate around 18% of their portfolios to property. Although, as the research pointed out, a mean average isn’t a particularly useful guide given the wide spectrum of allocations, with some family offices allocating as much as a 100% of their portfolios to real estate and others zero.

What is more convincing is the returns possible in real estate, which is certainly going to attract family offices. Stephen Blyth, the head of the Harvard Management Company, which manages the university's huge endowment, recently said the Harvard direct real estate portfolio returned 35.5% in 2015.