The Changing Investment Landscape
Amidst low interest rates and ample liquidity, family offices are reevaluating their investment strategies and looking for fresh opportunities. According to the UBS Global Family Office Report 2023, family offices are making significant changes to their investment portfolios. The report highlights a decline in direct private equity exposure and an increase in allocations to hedge funds. However, one asset class that is attracting the attention of family offices is real estate.
Rising Trends in the North America Real Estate Market
Family office participation in the United States real estate capital market is on the rise, with 19.8 % of family office assets allocated to real estate, according to FINTRX. A survey conducted by BlackRock and Illuminas involved 120 single-family offices overseeing $243 billion in assets between November 2022 and January 2023. It revealed that 63% of their investments were allocated to real estate.
Families with extensive real estate backgrounds are also sponsoring other family offices and ultra-high-net-worth individuals. This enables them to invest directly in projects and share risk, often with attractive co-general partner economics.
Real Estate as an Attractive Investment
Real estate offers several advantages that make it an attractive investment option for family offices. First, it provides stable and predictable cash flows, making it an attractive asset for generating regular income. In addition, real estate offers potential tax benefits, such as depreciation deductions and the ability to defer capital gains taxes, and real property investments provide a hedge against inflation.
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Changing Demographics and Lifestyle Trends
The rise of the millennial generation and their increasing preference for urban living is driving demand for multi family housing. Millennials are reaching their peak earning years and are looking for affordable and convenient housing options in urban centers. This demographic shift has created significant demand for multi family real estate, making it an attractive investment opportunity for family offices.
Resilience of the Multi Family Sector
The multi-family office sector has demonstrated resilience during economic downturns. This quality makes it an attractive investment for family offices seeking stability. Even during periods of economic volatility, people still need housing, and demand for rental properties remains relatively stable. This stability, combined with the potential for steady rental income, makes multi family real estate an attractive investment option.
Diversification and Risk Management
Family offices are also attracted to real estate for its potential to diversify their investment portfolios and reduce risk. By investing in different types of properties in different geographic locations, family offices mitigate the impact of local market fluctuations and reduce overall portfolio volatility. This diversification strategy helps protect wealth and ensures a more stable long-term return on investment.
