Real Estate Advising for Family Offices

I have long touted the value of having a real estate advisor on your team. And I think this is especially important for family offices.

Family Office Approach

A family office is a family with considerable wealth who invests in a number of different areas, with real estate investment becoming increasingly common. However, real estate is unlike any other common investment—as I point out in “Family Offices: Do Your Due Diligence.”

Family offices often take a longer-term approach to investment; in other words, they favor long-term wealth growth over immediate cash returns. Therefore, it makes good sense to strategize with a real estate advisor rather than focus on individual transactions.

Investing in Real Estate

I firmly believe family offices could benefit tremendously if they were to hire an advisor to help them become savvier about their real estate investing. Advisors can develop and execute a long-term strategy, which includes ongoing management—based on market trends, property dynamics, government policies and changing family needs.

Furthermore, hiring a real estate professional as an advisor on your team makes more sense than relying on your accountant for real estate advice or working with a brokerage firm, who is transaction-focused and not aware of your “big picture.”

Avoid These Mistakes

Because most family offices and high-net-worth individuals are so wealthy and are not severely hurt by one bad investment, they tend to make several critical mistakes when it comes to real estate investing. 

Here are a few examples of possible missteps:

• Following the herd. When your buddies at the club are investing in something, you do not want to be left out.
• Investing in something highly speculative but promises a huge return. It seems the fear of not winning is greater than fear of a loss, which doesn’t put much of a dent in the balance sheet.
• Not wanting to pay for holistic strategic advice when you can “pay as you go” for transactions.
• Failing to do the proper due diligence on a sponsor or a transaction.
• Investing in distressed real estate without proper due diligence. (Sometimes it cannot be fixed.)
• Following a tax-driven strategy without regard for real estate fundamentals.

Some people would rather invest in property that looks “hot” or follow the “pied piper” than partner with a professional who is working on their behalf. Perhaps they think that’s boring or that they don’t need professional investment advice since they’ve already created much wealth without it. But as I mentioned before, real estate investments are unique.

If you still don’t think these mistakes happen, just read the book “Bad Blood: Secrets and Lies in a Silicon Valley Startup” about Elizabeth Holmes and Theranos or remember those who invested with Bernie Madoff.

The World We Live In

We live in a rapidly changing and unpredictable world. Everybody has an opinion, and social media allows him or her to project it with authority. Real estate has become more mainstream, but that does not negate the fact that it requires a large investment, is often highly leveraged, and is ALWAYS illiquid.

If you make a mistake, it is a big one that you live with for a while.  

Consult With a Team Player

Family offices need a team player who can identify opportunities and combine market and product knowledge with their “big picture.” Think about this the next time you are presented with a deal that seems too good to be true—it probably is.