Executives Say Rate Uncertainty Is Tightening Family-Office Real Estate Screens

Three investment executives described rate uncertainty as prompting some family-office investors to scrutinize real estate deals more closely, weighing discounted property prices and rent growth against debt and long commitments.

Rob Haugen, who oversees private capital investments and mergers and acquisitions at Michels Family Office and serves as chief investment officer of River1 Asset Management, said he typically targets potential yield on cost in the high single digits or double digits. He pointed to discounted office properties with known tenants as one possible way to pursue those returns.

Joel Houck, chief investment officer at HB Wealth, said he has seen increased interest among large family offices in real estate and other real assets, including industrial warehouses, farmland and timberland. He said a property’s potential to hedge inflation depends in part on whether rents can rise as leases reset. “Not all rents are reset at the same rate,” Houck said. Industrial properties and housing can offer more regular rent-increase opportunities and may also benefit from supply constraints, he said.

Houck said HB Wealth generally advises clients to avoid funds whose leverage exceeds 65% at either the property or fund level. The 65% threshold reflects HB Wealth’s approach.

On Sept. 16, the Federal Reserve announced a 0.25 percentage point increase in its federal funds target range, setting it at 3.75% to 4% effective Sept. 17.

Haugen said he was wary of data-center investments with lockups lasting 10 to 15 years. Mike Silverman, chief investment officer at Cresset, said his firm had not pursued such investments, citing the risk that technology changes could reduce a facility’s value despite a 15-year lease.