Family Office Real Estate

Family offices increasing want to invest in secondary real estate locations

In 2021, US family offices expressed a strong preference for real estate deals in secondary locations at the expense of prime municipalities.

The view emerged in a survey by Evergreen Property Partners, where nearly 49% of families opted for secondary towns like Denver and Orlando. 

Prime property in cities like New York and San Francisco attracted 30% of respondents. Tertiary regions like Syracuse and Colorado Springs (pictured above) were a magnet to 23%. 

Multifamily apartment complexes were the most popular investment among 71% of respondents, with industrial property second at 53%. 

DJ Van Keuren, co-managing member of Evergreen, authored the Family Office Real Estate Investment survey. He also runs the Van Keuren Institute, involved in providing education and research opportunities to the sector.

He said: “Unlike institutions and foreign investors who prefer to invest in primary markets, family office preferences for secondary markets are considerable.”

Secondary and tertiary real estate has traditionally offered investors a higher yield than prime property and 90% of respondents to Van Keuren’s survey confirmed their preference for extracting an income out of the sector.

Nearly 55% of respondents sought deals worth between $1 million and $10 million, which can be found more easily away from prime locations. 

Developments offer even higher yields for wealthier families who can afford to take the risk, plus growth prospects for up-and-coming locations. 

One of the biggest real estate deals in the US is in Tampa, where Bill Gates has backed a 50-acre mixed scheme, reported by Family Capital.

According to agents, secondary and tertiary regions have become more popular after the pandemic, as investors expressed reservations over densely populated cities with dense populations and rising crime. 

Investors are extremely wary of the tax burden imposed on metropolitan areas where expenditure has been rising. In the survey, 8.2% of respondents say they fear another pandemic and 20.4% fretted over a downturn. But their greatest fear was a change of tax code, expressed by 41% of respondents. Tax efficiency in real estate was seen as important by 66% of respondents. 

Multifamily apartment complexes were the most popular investment among 71% of respondents, with industrial property second at 53%. 

Interest in offices and hotels was pegged back to 30%, just ahead of workforce housing on 29%. Retail investment was popular with 21.5%, similar to self-storage.

Taken as a whole, real estate remains a core strategy for family offices, accounting for 24.4% of their portfolio and providing a return of 11.1% in 2021 against 9.6% the previous year.

Following the pandemic, no more than 4% of respondents reined back their investments. According to Van Keuren: “Family offices have learned from the great recession and stayed invested.” Around 36.8% are holding firm with their plans. Around 27.6% are seeking distressed deals and 26.3% want to invest across the board. 

Funds managed by third parties failed to attract much interest in 2021, with 51% of family offices expressing a desire to control events. This led to a clear preference for direct or co-investing.

Around 75% of respondents said they would consider investing in a fund offering a direct deal. Other respondents said they wouldn’t consider funds at all and nearly 30% of respondents are currently raising cash for their own deals. 

Nearly 38% of family offices carry out due diligence on real estate transactions, and their sponsors, with 20% putting faith in a trusted adviser. When they form partnerships, 93% of families take care to conduct due diligence on their partners. 

In backing real estate, the number one priority for family offices for 64% of respondents, involves establishing generational wealth.

Impact and social deals, which really matter to next generations, has been considered by 58% of respondents. 

Around 36% of respondents said the next generation needed to learn more about real estate, given the importance of the sector, although 26% conceded current generations could also benefit from better education. 

 

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