Family offices often have different priorities than institutions, and that means different approaches when it comes to real estate investment.
Nicolas Ibanez, president of Drake Real Estate Partners, acknowledges that the family office segment “is opaque and hard to access.” Such family-based firms represent 20 percent to 30 percent of global equity market capitalization, “so it represents a very large segment of wealth and enterprise,” he adds.
“Family firms tend to focus on long-term success rather than shorter-term profit maximization,” says Ibanez. “They think about real impact from a generational perspective. Therefore, for many family groups, IRR is not necessarily the best measure of success; sustainable, good profit is.” He says it is important to be open to changes to the traditional private equity fund construct or to work outside the fund structure in order to partner with family offices and high-net-worth individuals.
Working with family offices is all about relationship building. “It really takes dedication and commitment into building a relationship that is based on listening to their needs, not about a fund pitch,” says Ibanez.
“Because it is relationship based, there must be mutual benefit for the relationship to become long-term and worth it for both parties,” adds Ibanez. “What that mutual benefit is depends completely on the group. But like with any challenge, there is an opportunity behind it.”
He explains family offices rarely have well-defined investment programs. “The challenge of this market is accessing it properly and not knowing with more clarity, especially when compared with institutions, when they want to invest, how much, or whether they will invest at all,” says Ibanez.
In addition, such family office investors may be less sophisticated or less familiar with the real estate asset class. “This means that they need to be educated and guided as they analyze and invest,” says Ibanez. But while there may not be a standardized approach to fundraising — the RFPs, DDQs and consultants of the institutional world — that does not mean there is not a deep due diligence on the manager and the strategy, he says.