Passing the Keys: Managing Real Estate in The Great Wealth Transfer

Family office insights this week:

• How to solve succession-related real estate challenges

• Pitch decks that don’t get to the point

• Workplace dynamics and relationships in an environment of extreme wealth

• What some executive assistants are making at family offices

• Three new family office jobs

Passing the Keys: Managing Real Estate in The Great Wealth Transfer

The Great Wealth Transfer will put a vast amount of real estate into new hands, which comes with challenges.

Despite recent uncertainties in the market, wealthy families have long appreciated real estate for its yield and long-term capital growth.

The latest UBS Global Family Office Report showed that family offices allocate 10% of their assets to real estate and expect to increase that to 12%.

Family offices are set to control over $9.5 trillion in the next five years, and with The Great Succession in progress, a new generation is set to take over vast amounts of real estate.

This will create unique challenges for both family members and family offices.

Today we dive into this a little further, the first in a series of succession-related newsletters.

A truly unique asset

Aside from the financial intricacies, owning real estate is unique in both its tangible nature and how we all interact with it.

“A competent real estate owner is one that can navigate the physical aspects of the portfolio, manage daily human interactions, and address the complex financial elements of real estate,” says Seth Chadwell from Fire Tower Group, a specialist real estate advisory firm for family offices. “On any given day, a manager will face challenges in at least one of these areas, if not all three.”

A lot of families don’t want the hassle of buildings maintenance and managing tenants.

This complexity means many family offices choose to outsource their real estate strategy and ongoing management to specialists. 

Financial complexities 

Then there are the numerous financial considerations, from tax and leverage to sales and leasing.

“Few investment asset classes combine as powerfully as real estate’s blend of cash flow, tax benefits, appreciation, and inflation-hedging,” says Chadwell. “Strong advisors and managers have the vision to prioritize these attributes for the long term while executing a business plan along the way.”

They also understand the illiquid nature of real estate and deliver strategies measured in years, sometimes decades.

Get this wrong and the result can be anything from missed market opportunities and diminished values to unplanned (large!) capital needs, cash flow losses and unforeseen contract penalties.

Preparing next-gen owners

As a new generation takes the reins, they need to understand the assets in the portfolio, its financial structure and also the operational setup. 

Knowing the history of real estate is always a good place to start.

“For some families, real estate may be primarily a vehicle for creating tax-advantaged cash flow. For others, a real estate portfolio could be a defining legacy or inextricably tied to a family-owned business,” notes Chadwell. “This wealth transfer period is an ideal opportunity to reassess how the portfolio aligns with and serves the family’s core values and long-term vision.”

Understanding the asset 

At a fundamental level, next-gen members need to understand the assets they will inherit. 

They need to know what is in the portfolio, the locations, how it is operated and who manages the assets. These basics are critical to ensure informed decision-making.

“You’d be surprised at how many young family members are unaware of the specifics of their real estate holdings, let alone the financial intricacies like debt service, capital expenditures, or operating expenses,” says Chadwell. “Next-gen family members should engage directly with their real estate.”

He strongly recommends that next-gen members conduct site visits, attend conferences, even participate in industry events to increase their understanding.

When priorities change 

Understanding a real estate portfolio doesn’t guarantee ongoing success. Families need to have honest conversations with themselves and advisors about priorities.

Chadwell notes inheriting generations sometimes just aren’t interested in continuing a family real estate legacy, or have new priorities for their capital.

He points out that these situations require clear strategies that respect family relationships while meeting financial expectations. 

“We worked with a family whose next-gen members simply were not interested in keeping the portfolio intact. After discussing the family’s financial objectives and personal preferences, we built a plan to liquidate the portfolio in an orderly and tax-efficient manner, and structured to meet the family's goals.” 

“We created short term-liquidity for immediate use, but used seller financing to create a passive income stream for the family members.”

Supporting a legacy 

Whether newly formed, keen to build their expertise or looking to realize greater value from their real estate assets, family offices have options when it comes to managing real estate efficiently.

The ideal solution will depend on the size and complexity of a family’s real estate holdings, as well as their goals and values.

One option is to build an internal team, which can be hugely rewarding but also presents its own cost and recruitment challenges. 

Another is to partner with a national or regional real estate firm that has the resources and experience needed and provides a comprehensive array of services.

But Chadwell suggests a third, hybrid option, will become increasingly common.

“Given the proliferation of family offices and The Great Wealth Transfer that is underway, we expect more demand for hybrid solutions as families look for a real estate partner that is born from the family office world and understands their perspective”

“This is where tailored transaction advisory and asset management services are specifically customized for family offices, where firms compliment and partner with existing family members and staff to buy, sell, finance, and manage real estate.” 

Cost: the decider 

Real estate can be an emotional asset for families, one that can hold special memories and sentimental value. 

But real estate management is complex and can be a major expense and family offices are typically highly cost-conscious.

Given the unique complexity of real estate, the hybrid model looks one set to grow.

For any family office that holds significant real estate but no specialists in-house expertise, now is the time to assess and make a plan.

𝕏 highlights

Lately I’ve read too many pitch decks that never get to the point.

What some executive assistants are making at family offices (see books below for another account of a high-flying EA).

It’s the life we choose!

 💼 where to work

Three family office job opportunities currently open:

Finance and Accounting Specialist - Private Family Office (New York / Single Family Office)

Family Office Counselor - Rockefeller Capital Management (Saratoga Springs / Multi-Family Office)

Family Office Manager - Corient (Newport Beach / Multi-Family Office)

📚 what to read

This week I listened to Private Equity by Carrier Sun. It’s more like a memoir of Sun’s role as an EA and her relationship with her billionaire boss than a deep dive into the private equity industry, but the storytelling is vivid, personal and entertaining. It’s highly relatable for family office people!

📻 what to listen to

The Family Business Podcast with host Russ Haworth looks at the unique dynamics of family-run businesses. It offers practical advice on topics such as governance, succession planning, and family relationships, aiming to help family businesses thrive. Well worth a listen for family offices and family businesses.

📺 what to watch

Jerry Springer: Fights Camera, Action - a highly entertaining and disturbing documentary about the Jerry Springer show. It’s difficult to take your eyes off executive producer and show Svengali Richard Dominick.

And finally…

Next week’s newsletter will be a look at family office recruiting and the red flags in family office candidates. So let me hear your thoughts on famiy office job candidates:

The January Deals newsletter hit your inboxes this week. It’s been as popular as ever!

Family Office Buzz will be back on Monday (here’s the last edition if you missed it) with more of the best content on family offices and beyond.

That’s all for this week. Happy Friday!

Until next week, see you on 𝕏 or LinkedIn.

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