How Multi-Family Offices Play Commercial Real Estate

A version of this article was first featured in the CNBC Property Play Newsletter with Diana Olick. Property Play covers new and evolving opportunities for real estate investors, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. Sign up to receive future editions directly in your inbox.

The offices of families of wealthy investors are increasingly pouring money into alternatives, and real estate is on the list. For some, instead of going alone, they work together in multifamily offices.

The multi-family office model allows these investment departments of wealthy families to pool resources, share expertise and unlock large transactions. With over $12 billion in management, Realm is an apartment complex office investment platform specializing in commercial real estate. A typical family using the territory has an investmentable assets of around $200 million.

CNBC spoke with CEO Travis King. Below are some highlights of the conversation edited for length and clarity:

Travis King: We are more collective investors than we are personally. So what that means is not just capital, but also collective trust and industry knowledge to combine geographical knowledge to find and implement better investment decisions.

We’ve seen big allocations among institutions. They all grew their real estate allocations. In some cases, it grew from a single order of magnitude lower to an occasional 10% or more allocation. Many family offices haven’t seen it yet, but I’m hoping to do so.

So, I think the next horizon will find ways to access real estate directly with these families. They will allow them to diversify a little more and enjoy some of those benefits of a property that they actually want to buy that property for themselves.

TK: Real estate has evolved, right? You never want to concentrate on real estate. I think that’s part of what lifts us up. …I’ve heard the saying “place, place, place,” and that’s true. I think that remains a very true saying. What we found is unique in that we move across property types and geography. So, given the size we have as an organization, we can see many different trading flows in many different areas, considering that we are north of the north of $12 billion in investable assets within these families we work for.

In real estate, there is a macrocycle, and that cycle is always very important. You don’t want to swim with the tide. And they don’t want to fight the cycle. However, it is important to consider as there are microcycles that occur within different regions and within different property types.

TK: Looking at this point, what we find interesting is starting from the office. In many areas, I think we are beginning to see offices in areas where prices actually come at some kind of bottom. And you start to see some of these investment decisions, and as we’re now looking at it in Northern California, you start to get to where it’s not really a question anymore, “Hey, if it’s a little cheaper, would we like this?” It really is, “We know it’s cheap. It’s inherently cheap.” In some cases, we buy things at 15% of the replacement cost.

TK: What I’m trying to keep away from is a wide range of categories, right? For example, often tell them to end R&D and industry. These things cycle and there are various points of view. So I say that the market is generally… they look at things and say, “OK, data centers, you know, they’re overinvested, and now there’s too much capital in the data center.” We weren’t actually in the data center in a large way, especially as we focus on the middle market below.

TK: Yes, but that’s a big boy in the data center, right? I’m trying to find an angle where others have something they don’t. Looking at a big boy who has tens of thousands of dollars in his funds to be able to invest, he needs a lot of the dollars needed to do infrastructure in his data center. We really focus on the $50 million deal and below because we feel we have an advantage there. Yes, everyone is in the data center, and that’s one of the things that many people say, “Wow, there’s a lot of money to chase this.” That could be the second half of the cycle. “I’m probably inclined to agree with that, but it’s also just outside the realm of where we’re trying to invest.

TK: I think lowering interest rates will help real estate in most ways. First and foremost, I think it will support the volume of transactions. I think it only gives wind to the sails of the trade and it will increase the value of all the real estate.