Properties & Pathways

What family offices should look for in commercial real estate


05 September, 2022

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Commercial real estate is a flagship investment for many family offices and their wealth managers.

But when teaming up with a property investment company to secure low-risk and high-yielding investments, there are a few things they should look for first.

These Ultra-High-Net-Worth (UHNW) investors, usually led by private wealth management advisory firms, typically look for passive investments which can produce safe, secure, and prosperous returns on their hard-earned wealth.

Commercial real estate investment is just one of these targets for family offices. But it can also be one of the most crucial. That’s because it offers robust returns which stocks, bonds, deposits, and residential property typically can’t match. We’re talking annual yields of between 6 per cent and 9 per cent (and sometimes much higher if the property is purchased well and the right property management strategy is applied).

For family offices to team up with a professional commercial real estate firm, it’s important for them to know what to look for in the partnership.

Family offices, both newly and long established, should consider the below before throwing their capital at a commercial property investment company.

1. Find a partner with skin in the game

If partnering with a commercial property investment company, family offices could do worse than investing alongside an outfit which has skin in the game.

A company which invests in its commercial assets proves their belief in the future performance of the investment. Although rare, it’s not unlike some property trusts to take risks which may not suit the best interests of the investment members. But when the experts invest their own capital alongside their investors, trust and transparency is naturally created.

2. Be more than just a number

family office investment

Investing with the big boys comes with its pros. Family offices know they’ll be investing with trust managers who have experience and (we’d expect) a healthy track record.

But the large downfall that the large investment companies have is their inability to keep track of all their investors. Unit holders become exactly that. Just another unit holder. They’re not a name, but a number.

But investing with smaller, more dynamic commercial property firms means UHNW investors have more face time with the decision makers and can build a relationship with the company’s directors. Fund managers of family offices can pick up the phone and speak directly with the professionals, instead of getting an answering machine or having their message taken by the front desk.

3. Be rewarded by having a say

If they’re looking for a partnership, family offices and their fund managers should be able to have a say in the investment strategy. While it’s very important to establish who the primary decision maker is, the predominant funding is coming from the family office itself. They should be able to influence the decision to acquire, hold, or divest a particular commercial property investment.

This is another benefit of investing with a smaller operator. While the big property firms tend to tell their investors the strategy, dynamic commercial property investment firms will listen to their members before making a decision. Now, that’s a partnership.

4. Seek out transparency

For us at Properties & Pathways, nothing beats trust and transparency in commercial real estate investment. Transparency, after all, is one of the pillars our company stands by.

For an investment partnership to work between a family office and a commercial property investment company, the investment mandate should be discussed before any agreement is made. Both parties should be comfortable with the terms of their venture, including the fee structure, the property’s financial modelling, and the structure of the investment itself (if proceeding with a unit trust investment structure).

Transparency begets trust. And trust is one of the most crucial factors in a unit trust investment into commercial property.

5. Receive constant communication

family office investment

Along with transparency, family offices deserve to be the recipient of constant and consistent updates on their investment.

Commercial real estate means more than simply buying a property and waiting for the right time to sell. There are many events during the holding period of a commercial asset which an investor will want to be kept in the loop about.

Maintenance and repairs are common stories during an investment’s lifetime, as are lease negotiations, and value-add opportunities. All of these events can greatly impact the value of a commercial property (for both better and worse), and every party with an interest in the investment should be made aware of them, if and when they arise.

But most importantly, the investment strategy – which should be a plastic plan of action, able to adapt to the changing environment of the economy as well as the property and leasing markets – must be communicated consistently to the stakeholders of the property investment. This means when, for example, an opportunity arises to make a considerable profit on the divestment of the asset, or perhaps a major decision is hanging in the air about a vital tenancy agreement, then the family office must be kept in the loop.

After all, communication is one of the most important aspects of a successful relationship.

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Past performance is not indicative of future returns. Any information provided on this website has not considered the objectives, financial situation or needs of any investor; investors should consider whether it is appropriate to them to partake in a commercial property investment prior to investing, in light of their objectives, financial situation or needs. Every investor should obtain and consider the investment’s Information Memorandum before making a decision in relation to the investment.