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Not all family offices are benefiting from the tech boom – many are struggling

Well documented, the tech boom, accelerated by the Covid pandemic, is making many investors happy, not least family offices. But not all family offices are benefiting. Many, particularly those with portfolios weighed down heavily by real estate and hospitality, are struggling. 

In the last few months, Family Capital has learned of numerous staff layoffs and thinning of operations at family offices. One UK-based family office is understood to have cut its 40-plus staff before Covid down to just two by the end of 2020. 

Not all family offices can rely on other revenues streams to see them out of the pandemic. Many have the wrong type of real estate assets and/or are too exposed to the hospitality sector

This example might be at the extreme end of the struggling spectrum for family offices, but reports of layoffs in the sector are multiple and look to be rising. 

This makes sense given how most of the non-residential real estate sector is suffering from the work from home (WFH) phenomena, the huge hit taken on the hospitality sector, and the demise of traditional retail outlets – all affected by Covid. Now, holding assets like office blocks, hotels, stores, and entertainment outlets look problematic, or at least less alluring than they did before the pandemic. 

The big real estate groups are pretty much all putting on a brave face about the disruption Covid has caused, or worsen for already declining parts of the property sector. Here’s a recent perspective on this from JLL, the huge commercial real estate group, which is pretty sanguine about the sectors it operates in. But these groups all have a vested interest to talk up the real estate market, and no one quite knows how the WFH phenomenon will play out after the pandemic. 

Post pandemic questions about whether entertainment venues and gyms will come back strongly are spooking investors in these sectors. And, did Covid expose a glut in the hotel market as it did in the cruise sector? If so, when will hotel demand come back to its pre-Covid buoyant levels? Few are predicting a big revival in hotel demand to happen quickly. 

Many family offices own hotel assets. Famously, Bill Gates’ Cascade Investment owns a sizable chunk of the luxury hotel chain Four Seasons. 

The big family offices like Cascade Investment and others like Pontegadea, owned by  Amancio Ortega, which has a significant real estate portfolio, can afford to take a hit from any downturn brought about by Covid on their real estate/hospitality portfolios. Gates’ assets are well diversified, and Ortega still has a hugely profitable operational clothing business to ease any pain from his family office’s big exposure to real estate.

Also, not all real estate is in a perilous state because of Covid, as Family Capital outlined in November. The more savvy ones see opportunities in new areas like multi-family communities, green office developments, and data centres. They and others are also likely to be staking out distressed real estate sector assets to buy at bargain-basement prices in the coming months. 

But not all family offices can rely on other revenues streams to see them out of the pandemic. Many have the wrong type of real estate assets and/or are too exposed to the hospitality sector. 

And many will be all too willing to off-load assets to those looking to pick them up cheaply.

 

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