Family offices control a staggering amount of wealth globally, and they have a strong appetite for commercial real estate. And although a growing number of private equity funds and sponsors are counting family offices among their investor bases, getting a foot through the door to reach those investores remains no easy task.
Family offices have become a popular catchphrase over the last few years, notes DJ Van Keuren, co-managing member of Evergreen Property Partners, a private real estate investment platform created for family offices to invest together. Definitions of a “true” family office vary with the minimum threshold for wealth between $100 million and $250 million depending on the source. According to the Global Family Office Report 2019, published by Campden Research, there are 7,300 families globally and 3,100 in North America with estimated wealth greater than $150 million.
“As funny as it sounds, if you get a family that is worth $50 million or $100 million, they are really just ultra-high net worth. So, it has become a bit of a loose phrase, but everyone wants to find those big whales,” says Van Keuren. “There also is a misperception on how much a family office will invest. Everyone thinks they are going to write a $15-million to $25-million check. It does happen, but it is not the norm,” he adds.
Yet there is no mistaking the growing interest family offices have for commercial real estate. According to a report sponsored by Evergreen Property Partners, real estate makes up an average of 22.7 percent of family offices’ investment portfolios. WMRE recently talked with family office industry veteran Van Keuren, to hear more about family offices views of commercial real estate investment. Van Keuren also is a proponent of education to the family office space. In addition to sponsoring the FORE magazine and annual report, he has endowed the recently launched Van Keuren Family Office Real Estate Institute (FOREI), which features faculty from Harvard University, the Wharton School and the University of Denver along with family office industry experts.
This Q&A has been edited for length, style and clarity.
WMRE: U.S. family offices already have a substantial amount of wealth invested in real estate. Do you have any sense on whether family offices are planning to increase/decrease allocations in the near term?
Van Keuren: One of the questions we asked families in our latest survey (conducted at the end of 2020) was whether they were looking to change what they were doing based on COVID. The majority were going to either keep plans the same or invest more—27.6 percent said they were going to invest more in real estate in 2021; 39.5 percent were going to keep their plans the exact same; and only 3.95 percent were going to cut back.
WMRE: Do you think current stock market valuations and potential inflation ahead is driving more demand for CRE investments?
Van Keuren: Over the last few years real estate has increased in a family office portfolio. A lot of families don’t necessarily look at using real estate as a hedge but more of an asset class that they like, and they want a certain amount of exposure to it. Real estate is now the fifth largest asset class from an investment perspective as a whole. Performance has done very, very well since we came out of the recession, and it’s a hard asset. Real estate also plays a big part in portfolios because it’s looked at as a way to create or maintain a legacy for the family office. So, it is viewed a little differently because of the benefits that real estate has from a long-term perspective and all of the tax benefits.
WMRE: What types of CRE investment structures are families interested in these days?
Van Keuren: Where families are not allocating hardly anything—just over zero percent—is crowdfunding. That’s been a continual trend as a whole. About 70 percent of families want to invest direct into deals. A handful of families do real estate ETFs, and there is not much exposure into real estate mutual funds. We do have a good portion of families wanting to get into lending. That is something that has been shifting over the last three years where families are saying they want their real estate allocation in an area that is secured by assets and they can get higher yield, because they are not necessarily getting yield in other areas.
It also depends on the type of family office. There are really four categories of family offices. The first is where a family created their wealth in real estate, and they are going to have maximum exposure of investments in that areas. Second is a family that creates their own internal platform. They might build out a small team to buy and manage their own assets. The third type of family doesn’t have the real estate expertise. They will invest alongside operators or sponsors and partner to invest. The last type of family doesn’t have any true knowledge or anyone to spearhead that type of investing. So, they will primarily invest in funds.
WMRE: Aside from debt, are there any specific property types that are attracting more attention these days?
Van Keuren: For the third year in a row in the annual FORE study, the number one property type is multifamily with 76.4 percent of families that like to invest into multifamily. This year, the second area of focus is industrial among 55.5 percent of families. Then you fall into hotels behind that at 28.6 percent—likely hoping for distress—and then office at 27.3 percent Everything else is below that.
WMRE: How do you get your foot in the door with these family offices?
Van Keuren: The biggest difficulty with family offices, hands down, is finding them. There are some legitimate families on all of the lists that are out there. But it is not going to happen through a list. It’s about relationships. You either run into them or are referred into them.
When you do find them, families usually like to work with four or five sponsors. You might start with a small amount of money, anywhere from $250,000 to $2 million or $5 million. Once they feel comfortable with you, then that number will go up significantly. And once they get comfortable with you, they will tell other families, because families love to talk to other families and piggyback off of a great experience.
WMRE: What are family offices demanding of their real estate partners these days, i.e. greater transparency, emphasis on data & analytics, etc.?
Van Keuren: According to the FORE study, transparency is definitely important as are fees and track record as a whole.
WMRE: You sponsored the Van Keuren Family Office Real Estate Institute. What were some of the drivers behind creating the institute?
Van Keuren: I was asked about a year ago by Professor Glenn Mueller about what I thought about having a family office institute at the University of Denver. (Glenn R. Mueller, PhD, is a well-known professor at University of Denver’s Burns School of Real Estate and real estate investment strategist at the Black Creek Group.) I’ve worked for a number of single family offices, and I had started doing some education with a quarterly magazine, some podcasts and videos, and I also wrote a book for families. So, I was asked to help put together the institute and I ended up sponsoring the institute.
The whole purpose is to help families in various components. There are different executive education programs at places like Harvard, Wharton or Stanford that do have some family office executive education courses, and there also are executive courses that do real estate, but no one brings them both together.
WMRE: What is your role in the institute?
Van Keuren: A big part of my involvement is to help with the programming. Family offices have a lot of issues that others don’t have. Because of the wealth, you have nuances within the family. For example, if you have a patriarch or matriarch dies and you have all of this property, how do you deal with that and pass your wealth to the next generation? How do you underwrite a sponsor, or how do you build portfolios with proper allocations? So, we’re going to have that type of programming, and eventually we would like to have the largest family office real estate conference in the world.
WMRE: What makes the program offerings different than other executive education programs?
Van Keuren: The programs at the institution are all executive education programs. The first program is June 2,3, 8 and 9 with eight different classes within the four days. The first program will be online due to COVID, but in the future these are planned on being on-campus events at the University of Denver or the University of Colorado-Boulder. A big part of this is an opportunity for families to meet other families. So, we are going to have programs where it is strictly for families, and we also are going to have programs for professionals that want to learn more about how to work with families and their real estate portfolio.
There will eventually be certificate programs through the institute, and we also will partner with other universities to offer other certificate programs in the U.S. and globally. We are putting the FORE magazine inside the institute, and we’re going to have the annual study be conducted by the institute. The Market Monitor, which identifies what happens with real estate market cycles, also will be moved into the institute. Eventually, we would like to have the largest family office real estate conference in the world and also to create the FORE Index, which would be similar to the NCREIF property index (NPI), which provides returns for institutional grade real estate for fiduciaries.