F. Scott Fitzgerald once wrote about the rich, “They are different from you and me.” This difference is especially evident as high-net-worth individuals and ultra-wealthy family offices increasingly dominate commercial real estate capital markets.
Traditionally composed of individuals and families with fortunes ranging from $150 million to $150 billion, these super-rich groups have become major players in the debt and equity markets of commercial real estate over the past two decades. Kevin Aussef, CBRE’s president of investment properties, notes that family offices are now leading bids on real estate assets, a role previously held by institutional capital.
In recent months, notable purchases by wealthy individuals and families include a 40-story office tower on Avenue of the Americas and 175 Water Street by Canadian billionaire Carlo Bellini. This trend is further highlighted by the acquisition of 780 Third Avenue by the Sakhai brothers’ family office, Sovereign Partners.
Wealthy families have historically been part of America’s financial landscape, but recent macroeconomic trends have significantly increased their numbers and wealth. Factors such as prolonged low-interest rates, tax cuts from various administrations, and economic disparities exacerbated by the COVID-19 pandemic have contributed to a surge in billionaires. According to JLL Capital Markets, the global wealth of billionaires reached $11.9 trillion in 2023, nearly tripling since 2008.
This rise in wealth has impacted commercial real estate, with wealthy individuals and families competing with large private institutions like Blackrock and KKR. Nicco Lupo from JLL explains that these family offices now operate similarly to institutions, with expertise in private credit, development, and cash-flowing assets.
Prominent figures like Larry Ellison and Michael Dell have family offices that manage real estate investments on their behalf, often through institutional structures. Bob Knakal of BK Real Estate Advisors points out that family offices have historically led investment waves during market downturns, a trend continuing today.
Family offices are not only buying distressed assets outright but also providing preferred equity in refinancing deals, becoming crucial rescue capital for distressed lenders and sponsors. The flexibility and speed of decision-making set family offices apart from traditional private equity funds.
In the lending arena, family offices are increasingly acting as direct lenders, sometimes with the intention of foreclosure to acquire properties. They also purchase loans secured by distressed properties, as seen with George Soros’s family office acquiring a delinquent loan for an office building on West 57th Street.
This phenomenon is global, with high-net-worth capital flowing from countries like China, Japan, and Germany. These investors are quick decision-makers, often outpacing traditional private equity groups.
Overall, the infusion of high-net-worth capital into commercial real estate represents a significant shift, with family offices leveraging their wealth and agility to capitalize on distressed opportunities and reshape the market landscape.
