The Rise Of Hybrid Real Estate Solutions For Family Offices

by Seth Chadwell, Founder of Fire Tower Group.

Real estate needs within multi-generational families can become very complex very quickly, draining precious time from principals and their internal teams. Having a qualified, external partner on speed dial who can triage and solve these issues gets the family back to its priorities and doing what it does best.

The Case for Outsourcing Real Estate Needs

For many families, the initial discussion around engaging this type of partner begins with a transactional need. The family can engage a partner, like Fire Tower, who – unlike other transaction vendors - focuses on the family itself first and foremost. 

By bringing in an expert who serves multiple families in a particular niche, family offices can access better expertise at a significantly lower cost (and fewer headaches). Just as we see increased demand for outsourced and hybrid services in other family office roles (like OCIOs), we expect demand to increase for similar support in the real estate space.

Compared to a typical real estate transaction engagement, these family-focused conversations occur in three parts: Family, Real Estate, and Family + Real Estate. Focusing on the family first and last frames the family’s needs, desires, and goals for the real estate, not the other way around.

Here are three areas where working with a real estate partner in a hybrid model makes sense.

1. Transaction Advisory

Family Need: An emerging family office desires to allocate funds directly to real estate but lacks the internal team to do so and doesn’t want to “staff up.”

Solution: An outside trusted advisor ascertains the family’s perspective on the allocation and how it fits within its goals and needs. Second, the advisor and family have an objective conversation about what targets fit within their strike box: asset class, geography, risk profile, leverage, and purchase price, to name a few. Armed with the family’s goals and this strike box, the advisor sources the investment for the family and execute the transaction, working hand in hand with the family, its team, and advisors. 

Key insight: Much like buying a home, spending time on the front end to establish objective criteria and subjective preferences leads to a far more efficient process.

2. Managing Existing Portfolios 

Family Need: Families may lack the specialized expertise or bandwidth to oversee their assets effectively.

Solution: The three-step conversation applies to the asset management of existing portfolios as well. Understanding first the history of the real estate and its role within the family is crucial to determine the most effective forms of outside assistance.

Are family members currently spending time on the portfolio? Are there educational needs around real estate? Is the portfolio providing necessary income?

An outsourced advisor can then objectively analyze the portfolio: What is owned, where it is located, how it is performing, and whether the capital stack is optimal. From there, the trusted advisor designs a plan and team for the portfolio that optimizes family objectives and the real estate business.

Key insight: When neglected and not addressed, portfolios can become toxic day jobs for family members and make for awkward holiday conversations, sometimes even leading to portfolio sales at significant discounts. But at their best, we’ve seen families that involve future generations in the portfolio with site visits, budgeting meetings, and employee celebrations, all of which build a long-term relationship with the assets and produce better financial results

3. One-Off Real Estate Needs

Family Need: No family office real estate portfolio would be complete without the unique and family-specific request. This could be anything from acquiring warehouses for a new family startup, building workforce housing for the family’s OpCo or procuring a ranch or winery. 

Solution:  An outsourced real estate team can provide their expertise – and network – to discreetly solve these unique requests without the family office having to manage the day-to-day complexities or engage with multiple real estate vendors. Whereas scaling a team for investment allocations or existing portfolios is difficult and unwieldy, anticipating these unique needs over time is nearly impossible. Having resources on hand in the family office ecosystem can save time, money, and endless headaches. 

Key insight: When unique real estate challenges arise – and they will – there is rarely an off-the-shelf solution, much less one that prioritizes the family. Having an experienced real estate advisor in the space who can synthesize changing information, find and coordinate specialists, and provide a broad real estate-specific perspective can be invaluable.

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Seth Chadwell is the Founder of Fire Tower Group, an independent real estate firm serving family offices and ultra-high-net-worth individuals. Fire Tower specializes in overseeing existing real estate portfolios, transaction advisory, and family-specific mandates.

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