The real estate market is a favorable territory for family offices, individual investors, and institutional investors around the world. Utilizing our leading family office data and research tool, FINTRX continues to highlight family offices making direct investments in real estate ventures. This unceasing expansion is likely driven by the many benefits the property ownership has to offer - favorable, steady returns and tax benefits, to name a few.
According to the 2019 UBS Global Family Office Report, 73% of family offices invest in real estate - both residential and commercial. While this increase extends across all continents, those domiciled in Europe demonstrated a larger tendency to allocate to the space - as they generally show a higher inclination to real estate investments internationally.
Why are real estate investments advantageous compared to other asset classes?
Real estate investments provide the unique opportunity to maximize investment returns with financing - while stocks, bonds and other investments do not allow for the same financing opportunities.
"Over a 30 year period from 1977 to 2007, close to 80% of total U.S. real estate return was derived from income flows. This helps reduce volatility as investments that rely more on income return tend to be less volatile than those that rely more on capital value return. Real estate is also attractive when compared with more traditional sources of income return." - Barclay Palmer
Additional benefits listed below...
Cash Flow - Investing in real estate is a great way to accumulate wealth over time. Its long term, steady nature provides comfort to investors knowing they have a reliable source of passive income. Many family offices will leverage real estate investments for the transfer of assets across generations. Furthermore, real estate presents the unique opportunity to continuously generate stable cash flow.
Appreciation - A major benefit of investing in real estate is its appreciation predictability. Unlike most other asset classes, family offices view real estate as a safe haven for capital. With less downside potential than most other forms of investment, real estate provides family offices with a sense of stability, tangibility and comfort.
Control - Family offices and individual investors share a common desire for hands-on control of their capital assets. Having the freedom and flexibility to make independent investment decisions based on personal wants and needs makes real estate all the more attractive.
"If they have the interest, the experience, the team and are entrepreneurial, then they can do it on an individual basis...if they don't have the bandwidth, it's better to invest with big, specialized real estate funds." - Joseph Janiczek, CEO and founder at Janiczek Wealth Management
Tax Efficiency - When executed properly, real estate investments typically allow for several tax-deferring benefits, making the industry an even more attractive one for family offices and individual investors.
Portfolio Diversification - Due to its limited correlation with equity markets, real estate is often seen as valuable diversifier for investors. Adding real estate to a portfolio of diversified assets can lower portfolio volatility - ultimately providing higher returns, with reduced risk.
Benefits the Community - Family office investors are forward thinkers - continuously reevaluating traditional approaches to investing as a means to grow wealth. Real estate provides the unique opportunity to increase value and benefit the community. This phenomena is ever present with the recent advent of opportunity zone investing.
How are family offices exposed to real estate?
According to UBS and Camden Research, allocations to real estate among family office investment portfolios has increased by 17% over the last year - a 2.1 percentage increase from 2018. Likely driven by the continuously favorable returns, family offices have the knowledge and experience to generate such results. Family offices with sticky capital and a high level of sophistication have been increasing their direct investments in the real estate space and actively pursuing co investment activities with other family offices.
“Some of the family offices which have pursued their own direct investment opportunities are now keen to widen their range of investments and share their risks by inviting others to join them.”
- Catherine Grum, KPMG’s Head of Family Office Services.
Why is real estate investing specifically advantageous to those in the family office space?
Real estate investing is specifically advantageous to family offices for a number of reasons. Unlike institutional investors, family offices focus on producing long term returns, as opposed to their institutional counterparts. Being a hard asset, it is more easily understood and gives families the ability to make local investments. Family offices regularly allocate to local real estate investments. This is likely due to the physical nature of these investments and the families’ comfortability within the local market. Not only does real estate offer tangible investments and tremendous returns, but it also provides an avenue to invest responsibly and an increased opportunity to work alongside other families to maximize returns.
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