Eyeing higher returns, family offices to amp up real estate investments

They are increasingly cutting out private equity firms
May 04, 2017 11:30AM

New York skyline (credit: Getty)

From TRD New York: Family offices are increasingly cutting out the middle man and directly investing in real estate and operating businesses.

A new survey by the Family Office Exchange found that 81 percent of family offices have at least one person scouting out direct investments, Bloomberg reported. Driving this focus is the feeling that hedge funds, bonds and stocks will produce lackluster returns. Family offices reported an average 7.2 percent return in 2016.

“The one place family offices think they can still generate double-digit returns is in operating businesses and real estate,” Kristi Kuechler, president of the Family Office Exchange’s private-investor center, told Bloomberg.

Returns on real estate averaged 9 percent last year, according to the survey. By directly investing in real estate and the like, these offices can also avoid fees charged by private equity firms (2 percent for annual management and 20 percent of profit).

Last year, average allocations to hedge funds dropped to 10 percent from 12 percent in 2014, according to the survey. Most of the families surveyed indicated that they didn’t plan to increase such allocations going forward.

The family office of Michael Dell, MSD Capital, has been an active investor in New York City real estate in recent years. It purchased a stake in Grand Central Terminal and participated in the $219 million Sharia-compliant loan Sharif El-Gamal landed last year for the shaky condo project at 45 Park Place.

Billionaire Steve Cohn has a personal fund — Point72 Asset Management — that plans to lease 175,000 square feet at 55 Hudson Yards. [Bloomberg]Kathryn Brenzel