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Wealth Preservation Remains a Top Priority

The factors that are most important in HNWIs' decision to invest in commercial real estate have shifted slightly.

Similar to past surveys, the biggest objective respondents identified for HNWI and family offices when investing in real estate was preservation of wealth.

On a scale of one to five, wealth preservation averaged a 4.1 in the current survey. However, that does show a decline in what has typically scored between 4.5 and 4.6. Views on asset value growth and income production, which have been moving in lock step, also dipped from 4.1 last year to 3.8 in the current survey, followed by tax purposes at 3.7 and estate planning at 3.5.

“Particularly for our investors on the 1031 side, there has definitely been a shift to more wealth preservation relative to cash flow,” says Whitson Huffman, chief strategy and investment officer at Capital Square, a national real estate firm specializing in tax-advantaged real estate investments, including Delaware Statutory Trusts (DSTs) and Qualified Opportunity Zone funds.

“That is not to say that they want to give away the farm from a cash flow perspective, but there is definitely more focus on surety and safety,” he says. For example, there is still healthy demand for DSTs and net lease assets, but investors are nervous about being locked into a long-term net lease property given all the destruction they are seeing across the restaurant and retail sectors due to COVID-19. “There is a lot of hesitation about what the post-COVID world will look like, how people will shop and interact with the built environment post coronavirus,” says Huffman.

Wealth preservation remains a major focus for investors due to the uncertainty of COVID-19 and the current economic downturn, agrees Peter McMillan, co-founder of Pacific Oak Capital Advisors, a sponsor of commercial real estate-focused alternative investment programs.

“That is somewhat unfortunate, because we think there are better opportunities today than we have seen since the Great Recession, yet high net worth individuals are probably more concerned with wealth preservation today even though the opportunities for investing are more attractive than they’ve been in close to 10 years,” he says.