Many Family Offices Increasing Allocations to CRE

A new report from Goldman Sachs says that the family offices they surveyed were largely maintaining or increasing their exposure to real estate.

This is part of a greater pattern of “risk-on” allocation planned increase over the next 12 months. On average, 9% of funds were being put into real estate and infrastructure.

The report was based on surveys of 166 institutional family offices with net worth of at least $500 million.

“With the flexibility to invest across the risk spectrum, family offices have maintained a largely consistent approach to more aggressive allocations as they seek superior returns,” Meena Flynn, co-head of global private wealth management and co-lead of One Goldman Sachs Family Office Initiative, said in the report. “Planned risk-on allocations tell us they see strong opportunities to capture added alpha. This patient, strategic, long-term orientation is often an advantage in managing and preserving generational wealth.”

“Within real estate, 30% of family offices reported that they plan on increasing exposure to the residential sub-sector over the next 12 months, with another 30% looking to maintain their exposure,” according to the report. Goldman saw a focus on multifamily because it has natural demand throughout business cycles and because it’s considered a good hedge against inflation. That is true particularly now when an undersupply of housing stock in the U.S. combined with higher interest rates makes it less likely people can purchase their own homes.

According to WealthManagement.com, many family offices have capital on hand to put to work, with real estate being one asset class that can have tax advantages while producing cash flow. They are, however, being cautious at the same time given the churning in the banking sector.

One way those two inclinations come together is bargain shopping. High-net-worth families and a few well-heeled developers have been bargain-hunting for Manhattan office-buildings and making an increasing share of purchases, according to Savills. Many are making snap decisions to purchase properties at significant discount. But that may be something of an anomaly.

Going back to the Goldman Sachs report, only 7% of family offices plan to invest more in office space and 4% in retail; 12% and 10% respectively plan to reduce their exposure. At the same time, there is “continued interest in warehouses and logistics centers that support the shift to e-commerce and onshoring” with 13% of family offices saying they plan to increase their exposure to industrial and 28% saying they wish to maintain it. “Other secular themes include towers and data-storage centers that enable digitization, assets related to renewables and sustainable food production, and lab facilities dedicated to biotech innovation.”