The old adage that real estate is a safe investment since “they aren’t making any more of it” was sorely tested by the credit crisis. Investors who bought at the top of the market may still not have fully recovered, whereas those brave enough to acquire at distressed valuations in the wake of the crash were rewarded handsomely.
Spurred by a desire for income-generating assets in an environment in which the Federal Reserve has kept rates at historic lows, wealthy families have shown increased interest in real estate investing even as commercial and multifamily property values have risen. Assisting these investors are an increasing number of multifamily offices and independent wealth managers with in-house real estate expertise.
“Our clients are entrepreneurial by nature,” says Greg Skidmore, president of Greenwich, Connecticut’s Belpointe Financial Group. “Our practice is structured to allow them to participate in the investment process to the degree they wish.” Belpointe grew from the Lacoff family office (Martin Lacoff is a successful financial and legal entrepreneur who founded Belpointe with his son, Brandon, now CEO). Currently, Belpointe provides financial, real estate and legal services to family offices, wealthy individuals and small institutions and oversees more than $500 million in assets.
The firm’s approach to real estate is multitiered. Family office clients, working with Belpointe’s professionals, analyze prospective investments. When an attractive opportunity is discovered, the individual family offices participate directly while a private fund managed by Belpointe provides access to the firm’s individual wealth management clients. Belpointe, which focuses on properties in Connecticut and the metropolitan New York region, also operates a development division with a proprietary portfolio focused on projects of 100 units or more.
“While our clients often need to have many of the financial investment products and strategies we deploy explained to them, they almost always already have a firm grasp on the value of bricks and mortar,” says Geoff Groat, a principal at Roadstead Real Estate Advisors. Charleston, South Carolina–based Roadstead is a group of businesses created specifically to integrate professional wealth management and real estate services. Formed in 2012, the company offers a multifamily office platform handling investment, tax and family wealth management along with property investment and management services. The company provides advice on more than $100 million in combined assets. Groat says the firm is selective in the investors it works with and currently has about 60 family clients.
Groat notes that the changing real estate environment presents opportunities and challenges. “With the cap-rate compression in single-tenant net-lease properties over the past 18 to 24 months, we have seen fewer and fewer small buyers entering the market,” he says. Despite the advantage that this provides Groat’s customers, he says attractive valuations are still difficult to identify. “We are primarily focused on off-market transactions. Even with fewer buyers, once it gets to the street, it typically isn’t worth it.
According to Jeffrey Hall, senior managing director of Manchester Capital Management, finding the right property starts with understanding each investor’s long-term objectives. “We sit down with our clients and put together investment plans that detail the markets, submarkets and leverage considerations,” he says. Hall, who operates out of the firm’s Charlottesville, Virginia, office, says that Manchester’s practice is currently skewed toward distressed commercial properties that present the greatest opportunities for capital gains, as opposed to income generation. Since entering the market in 2003, Manchester has executed 18 purchases representing $400 million in gross fair market value for clients across five primary markets: Northern California; Portland, Oregon; Seattle; central Virginia; and Denver. The firm, headquartered in Manchester, Vermont, has a total of $2.8 billion in assets under advisement.
One aspect that Manchester’s clients appreciate about this value-based approach is the ability to pursue gains while making a social impact. One specific property in San Francisco was recently given a LEED (for Leadership in Energy and Environmental Design) Gold designation by the U.S. Green Business Council. “These are legacy assets for our families that can make a real difference in the communities they are located in,” says Hall.
Manchester is not alone in turning real estate into an impact investment vehicle. Kensington Investment Co., the Boston-based real estate investment arm of the Lewis family office, managing the fortune of travel and real estate entrepreneur Alan Lewis, focuses on socially and environmentally responsible development. Similarly, Malloy & Co., a family office based in Cheraw, South Carolina, and La Jolla, California, and managing the fortune of textile heirs, has made significant investment in environmentally sustainable projects and residential developments.
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