The intent of this whitepaper is to discuss the role of tangible real estate in a family office investment portfolio, and the processes for maximizing its value within the confines of the risk tolerance and overall investment strategy of the family office.
Executive summary
Diversification into alternative asset classes can serve to mitigate portfolio risk and allow it thrive over a market cycle subject to varying macroeconomic conditions that may impact returns across various asset classes.
One strategy that many family offices have historically embraced is an allocation to tangible real estate assets, which should be differentiated from pooled fund investments and real estate securities such as REITs. This strategy involves the direct ownership and management of investment real estate, as opposed to simply purchasing shares of a third‐party managed pool of assets traded on the public markets.
The ownership of tangible real estate assets allows for greater control over investment performance and returns. This strategy also requires much more active oversight than investment in more passive asset classes.
According to a FOX Investment Survey, the average family office allocates 12% of its assets to real estate — a meaningful number when one considers that the mean investable assets were reported to be $384 million in the same study. Based on these figures, the average family office holds approximately $46 million in real estate investments.
Active real estate portfolio oversight, or asset management, requires the attention of a dedicated team of real estate professionals who understand real estate dynamics, finance, capital markets, and market trends. Equally important, that team must be able to develop strategies to ensure that the real estate portfolio is aligned with the overall objectives of the family office investment portfolio. Key to the successful implementation of this strategy is strong collaboration with internal stakeholders and other third‐party advisors to the family office.