Legacy Wealth and Real Estate

Contributors

Will McIntosh
Global Head of Research

John Kirk
Senior Director, Research

Mark Fitzgerald
Senior Director, Research

February 2016

Commercial properties provide critical attributes for sustaining family fortunes

The U.S. commercial real estate market is the third largest asset class in America at more than $17 trillion, trailing only U.S. bonds ($40 trillion) and U.S. equities ($30 trillion). As a result, the asset class has become a staple in institutional portfolios, accounting for roughly 8 percent of total holdings. Family offices typically have an even larger allocation, as direct real estate constitutes 12 percent of the average investment portfolio. Yet, the strategies that drive family office investments often diverge from that of larger institutional stakeholders. For instance, family office portfolios generally overweight single-family residential properties, and when evaluating traditional commercial real estate (e.g., offices, industrial, retail and multifamily) they tend to focus on local assets within a specific region. They are also more apt to pursue higher risk opportunities while concentrating largely on the debt and tax benefits of real estate investments.

Certainly, there are numerous ways to approach commercial real estate investing, but the previously mentioned tactics ignore the attributes that have propelled real estate into the world’s most recognized alternative investment. Even though family offices and large institutional investors may have varying mandates, one of their shared goals is to create and sustain legacy wealth. Therefore, we think it is critical for all investors to grasp how commercial real estate’s most compelling characteristics can help accomplish this goal.

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