Q&A: Founder of the Family Office Real Estate Institute discusses real estate investing to secure generational wealth
- May 1, 2023: Vol. 10, Number 5

Q&A: Founder of the Family Office Real Estate Institute discusses real estate investing to secure generational wealth

by Mike Consol with DJ Van Keuren

While many families have earned their fortunes through savvy investments in real estate, others lack familiarity with the asset class. And even those who did earn their fortunes through real estate are lacking in detailed knowledge about governance, portfolio management and generational wealth transfer.

That is what prompted DJ Van Keuren, who has worked with families for many years, to head down the path that eventually led to the founding of the Family Office Real Estate Institute.

How did the Family Office Real Estate Institute get its start? 

The Family Office Real Estate Institute actually started by accident and has grown into a platform for families, family offices and industry professionals. While working for my first family patriarch, I realized many successful and wealthy people were knowledgeable in the line of business where they created their wealth but weren’t necessarily proficient in all of the various investment opportunities, from venture capital to private equity to hedge funds and real estate and so on. For that reason, I started to provide education on a simple website. That turned into writing a book on family-office real estate investing, then doing podcasts, speaking at conferences, starting a family office real estate magazine, a real estate investing study, a family office real estate consortium, and now the formation of the institute, which includes all of the items I just mentioned as well as online and on-campus executive education programs held at the University of Denver.

What is the purpose of the institute? 

The purpose and mission of the institute is to help family offices and industry professionals learn how to use real estate to help maintain a family’s legacy and generational wealth through research, education and community. With 70 percent of families losing their wealth by the second generation and 90 percent by the third generations, I believe real estate investing is the solution to the problem with the many benefits it provides — from being a tangible asset, to the appreciation, cashflow and tax benefits it provides, all of which can help families retain and grow their wealth through generations to come.

The institute today has many prominent family offices represented on its board, as well as having professors from Harvard, Wharton, the University of Denver and the University of Chicago. Professor and real estate industry veteran Glenn Mueller is the education program’s academic director. The institute also provides research, white papers, case studies, education and community around family offices and real estate.

What is unique about family office investing in real estate?

Prominent families and family offices have different issues than the average population due to their wealth. A vast majority of family offices come from real estate, either a real estate business they built or legacy assets that have been accumulated over time. For family members, the Family Office Institute can help provide a deeper understanding of real estate with regard to portfolio management, market cycles, due diligence, underwriting and how other families have successfully dealt with key issues, as well as how it ties into the overall family investment plan. We also provide information on important topics, such as governance, family councils, investment policy statements and investment committees. We are also introducing case studies that illuminate the challenges and obstacles that families have overcome in the past.

Families that created their wealth in real estate have another set of challenges to deal with, including how to transfer the business from one generation to the next. Many questions revolve around this issue, including: Is the family’s planning properly organized to execute the transfer? What happens if the patriarch or matriarch dies and surviving family members disagree whether to hold the real estate assets, buy-and-sell certain property types, or liquidate the real estate holdings altogether for their cash value?

The answers to such questions are also important for financial advisers who work with family offices so they can better understand family dynamics and priorities.

What constitutes a high-net-worth family office?

Our definition of a family office is a net worth of $250 million or more. However, for any high-net-worth family office, or individual for that matter, the fundamentals remain the same — being able to invest into larger properties and adding zeros to the family net worth. Real estate needs to be a significant portion of the investment portfolio for any high-net-worth family.

To what degree are family offices currently invested in real estate? 

Based on our annual family office real estate investing study, 24.5 percent of families invest in real estate, and it’s the second-largest category of wealth creation for most families, behind only their initial source of wealth. Every family holds some kind of real estate.

What is their average allocation to the asset class?

The average allocation to real estate among family offices is just shy of 25 percent. This number has held true for a number of years because of the strong returns that families have earned from their property investments.

What property types do they favor?

For the fourth year in row, family offices favor multifamily properties, followed by industrial. In fact, 70 percent of families invest into multifamily, in part because it’s a property type that’s easily understood and has performed well for years running. With the demand for multifamily continuing, I don’t see this trend changing.

Why wouldn’t a family office look to partner or do a club deal with a family office whose fortune was made in real estate?

When possible, I do think it would be a prudent decision to invest alongside a family whose fortune was made in real estate and has a demonstrated track record of success with the asset class. Be alert, though, to whether the party in question is truly a family office. Nowadays a lot of real estate companies falsely identify themselves as family offices. One key to deciphering if the organization is truly a family office is to identify if the investment checks written are coming from a personal checkbook or a business checkbook.

How is family office real estate investing trending, according to the organization’s research?

Real estate investing for family offices has continued to trend high within their family office portfolios. There has been concern about the market and the economy that has caused a lot of families to start accumulating dry powder for opportunities in the event of a real estate market downturn. Many family offices learned a lesson during the last recession, when the majority of families waited until there was an uptick before restarting their investments in real estate, thus causing them to lose out on some great opportunities.

Real estate has continued to be an important asset for families and will remain as such as the nation heads into the greatest generational wealth transfer in U.S. history over the next 10 to 20 years, with an estimated $65 trillion in total cash and assets moving from one generation to the next. With family offices already having a substantial stake in property investments, the institute sees family offices becoming a dominant player in the real estate space.

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