Family Offices Shift Focus: Investing in Real Estate Through Multifamily Models
In recent years, family offices-investment entities managing the wealth of high-net-worth families-have increasingly turned their attention to real estate as a viable investment avenue. This trend is particularly evident as these offices explore multifamily models, allowing them to pool resources and expertise to capitalize on larger investment opportunities.
The Rise of Multifamily Offices
Multifamily offices are designed to serve multiple wealthy families, enabling them to collaborate on investments while sharing knowledge and resources. This model has gained traction, especially in the realm of commercial real estate (CRE). According to Travis King, CEO of Realm, a multifamily office investment platform managing over $12 billion, the typical family involved has around $200 million in investable assets.
King emphasizes that collective investment strategies yield better results than individual efforts. “We are better investors collectively than we would be individually,” he stated. This collaborative approach allows families to leverage their combined capital and industry insights, leading to more informed investment decisions.
Institutional Trends and Family Office Allocations
Historically, institutional investors have significantly increased their allocations to real estate, often moving from low single-digit percentages to as much as 10% or more. However, family offices have been slower to follow suit, despite a strong desire to diversify their portfolios. King notes that the next frontier for these offices will be finding ways to access direct real estate investments, which can offer diversification benefits that have been elusive for those who prefer not to manage properties directly.
The multifamily office model addresses this challenge by providing a structured way to invest in real estate without the burdens of direct ownership. This is particularly appealing given the time and resources required to manage real estate investments effectively.
Navigating the Real Estate Landscape
The real estate market is complex and ever-evolving, influenced by macroeconomic cycles and localized trends. King points out that while the adage “location, location, location” remains relevant, the multifamily office model allows for a broader perspective. “We move across property types and geographies,” he explains, highlighting the advantage of having access to diverse deal flows.
Understanding the cyclical nature of real estate is crucial. King advises against swimming against the tide of market trends, emphasizing the importance of recognizing both macro and micro cycles. This nuanced understanding enables multifamily offices to make strategic investment choices that align with current market conditions.
Current Investment Focus: Office Spaces
When asked about the sectors of commercial real estate that are currently appealing, King expressed interest in office spaces. He believes that pricing in this sector has reached a bottom in many areas, making it an attractive investment opportunity. “We know it’s cheap. It’s intrinsically cheap,” he noted, referring to instances where properties are available at a fraction of their replacement costs.
This perspective aligns with broader market trends, as many investors are beginning to see value in office spaces that were previously overlooked. The pandemic has reshaped the office landscape, leading to a reevaluation of what constitutes a desirable workspace. As companies adapt to hybrid work models, the demand for flexible office solutions is likely to grow, presenting new opportunities for investment.
Caution in Investment Strategy
While King is optimistic about certain sectors, he also advocates for caution. He advises against making broad categorizations about entire sectors, such as research and development or industrial spaces, as these markets can fluctuate significantly. For instance, while data centers have attracted considerable investment, King suggests that the market may be nearing saturation.
Realm focuses on lower middle-market deals, typically around $50 million and below, where they believe they can find unique opportunities that larger investors may overlook. This strategy allows them to carve out a niche in a competitive landscape dominated by larger players.
The Impact of Interest Rates
Interest rates play a pivotal role in the real estate market, influencing transaction volumes and property values. King asserts that a reduction in interest rates would generally benefit the real estate sector. “It provides a wind to the sails of transactions,” he explains, suggesting that lower rates could stimulate activity and increase property values across the board.
As the Federal Reserve continues to navigate economic challenges, the implications of interest rate changes will be closely monitored by investors. A favorable interest rate environment could lead to a surge in real estate transactions, further solidifying the role of family offices in the market.
Conclusion
The shift of family offices toward real estate investment through multifamily models marks a significant evolution in wealth management strategies. By pooling resources and expertise, these offices are better positioned to navigate the complexities of the real estate market. As they adapt to changing economic conditions and market dynamics, family offices are likely to play an increasingly influential role in shaping the future of commercial real estate investment.
With a focus on collaboration, strategic investment, and a keen understanding of market cycles, multifamily offices are poised to capitalize on emerging opportunities in the real estate sector, ensuring that they remain competitive in an ever-evolving financial landscape.
