The term family office (FO) is a hot buzzword in the financial services industry today
(Bowen Jr., 2004). As their wealth increases, families will at some point likely turn to
advisors to assist with the management and protection of their prosperity. These
professionals working under one roof are commonly referred to as family office
(Cestnick, 2011).
Like any business operating in the capital markets, family offices focus on the
achievement of superior performance and investment return maximization. Yet, in a
globalized world, markets have turned out to be fairly volatile during the past two
decades. In particular as a consequence of the 2008 financial crisis, markets have been
turbulent all around the world (Adair, Berry, Haran, Lloyd, & McGreal, 2009). Still
today, Europe - as an economic entity - appears to be sensible to the offshoots of the
financial and economic depression (Adair et. al., 2009).
During such times, the axiom for a family office may be contrasting: If only few
reputable investments turn out to be profitable, the primary objective rather has to be
the diversification and securitizing of assets and risks (Basel Committee on Banking
Supervision, 2011).
Hedging against inflation and economic disruptions, both gold and real estate, often
considered the classical alternative investments, have lately received increasing
attention by academic scholars and practitioners (Bond & Seiler, 1998; Enns, 1979;
Preston, 2011; Worthington & Pahlavani, 2007). Real estate, in particular, is
considered favorable by some as, unlike for gold, capital gains are not the sole source
of income and positive cashflows on income properties may be achieved on a
reoccurring basis (McKnight, 2010).
Table of Contents
1 Introduction
1.1 Problem Definition and Research Objectives
1.2 Course of the Investigation
2 Family Office Business
2.1 Family Offices
2.2 Scope of Services and Outsourcing Considerations
2.3 Asset Allocation for Family Offices
2.4 Synergy Considerations for Real Estate Investments
3 Real Estate Investments by Family Offices
3.1 General Real Estate Investment Strategies
3.2 Real Estate Market Entry Challenges
3.3 Geographical Diversification into Foreign Markets
3.3.1 Macro Perspective - Real Estate and Other Economic Forces
3.3.2 Micro Perspective - Market Particularities
4 Case Studies
4.1 Outsourcing Opportunities at Ernst & Young LLP
4.3 Club Deal Structure at Taurus Investment Holdings, LLC
5 Conclusion
4.1 Summarizing Reflection
4.2 Prospectus and Future Research Possibilities
Objectives and Scope
This project paper examines how family offices can effectively seek and execute profitable real estate investments in foreign markets. It evaluates the optimal structure for family offices, the strategic mix of insourcing versus outsourcing decisions, and provides a practical framework for entering foreign real estate markets while managing risk-return expectations.
- Analysis of family office structures and service scopes.
- Evaluation of real estate investment strategies and market entry barriers.
- Macro and micro perspectives on geographical diversification.
- Practical case studies on outsourcing to consultancy firms and club-deal investment structures.
Excerpt from the Book
3.2 Real Estate Market Entry Challenges
Before diversifying into any foreign market – may it be a real estate market or not - Moser (2012) suggests to first set expectations and clear objectives right from the outset: Family offices - as any other investor - have to be aware that they should think long-term, be willing to invest, and show persistence. Particular challenges investors face when entering a new real estate market have been summarized by Quan and Quingley (1991, p. 127) as follows:
(1) Participants in real estate markets often have incomplete information about the attributes of the purchase, and decisions to buy and sell must often be made based on this partial knowledge.
(2) Given the heterogeneity and fixity of real estate, some period of costly research must be incurred by potential buyers.
(3) Trades are decentralized, and market prices are the outcome of pairwise negotiations.
These real estate market entry challenges, building up the basis for further procedures, have to be understood and carefully respected during the entry process. With regards to entity selection and tax consequences, professionals explain that for any good investment, there will be a possibility to structure it accordingly (Reibling, personal communication, August 15, 2013; Zaret, personal communication, August 26, 2013).
Summary of Chapters
1 Introduction: Introduces the growing importance of the family office model in financial services and defines the research objective of analyzing real estate investment strategies for these entities.
2 Family Office Business: Defines different types of family offices (SFO, MFO, CFO) and explores the trade-offs between in-house management and outsourcing services.
3 Real Estate Investments by Family Offices: Examines strategies for real estate investment, entry challenges in foreign markets, and the necessary macro-economic and micro-market evaluations.
4 Case Studies: Presents practical examples of outsourcing to Ernst & Young LLP and the application of club-deal structures via Taurus Investment Holdings, LLC.
5 Conclusion: Summarizes the findings regarding optimal family office structures and provides a prospectus for future academic research in this field.
Keywords
Family Office, Real Estate Investment, Outsourcing, Asset Allocation, Foreign Market Entry, Club-deal, Risk Management, Wealth Management, Diversification, Macro Perspective, Micro Perspective, Investment Strategy, Capital Gains, Market Particularities, Private Equity
Frequently Asked Questions
What is the core focus of this project paper?
The paper focuses on the organizational and strategic aspects of family offices, specifically exploring how they can successfully navigate real estate investments in foreign markets.
What are the primary themes discussed in the text?
Central themes include the definition and evolution of family offices, the pros and cons of outsourcing versus in-house services, and the complexities of international real estate investment.
What is the main research objective?
The primary objective is to evaluate whether and how family offices can profitably enter foreign real estate markets and to identify the best operational structures to achieve this.
Which scientific methods were applied?
The author combines a review of existing academic literature and industry insights with qualitative research, including expert interviews and case studies of real-world transactions.
What is covered in the main body of the paper?
The main body covers family office business models, asset allocation theory, specific challenges of real estate market entry, and practical case studies involving consultancy services and co-investment structures.
Which keywords best characterize this work?
The work is characterized by terms such as Family Office, Asset Allocation, Real Estate Investment, Outsourcing, and Foreign Market Entry.
What is the "critical mass" for a real estate investment according to the experts?
According to the interview with Prof. Lorenz Reibling, a critical mass of $250M to $500M is generally recommended for entering a foreign real estate market to justify the associated overhead and risk.
Why is the "club-deal" structure considered beneficial for family offices?
It allows family offices to participate in larger, institutional-grade investments with smaller capital commitments, effectively splitting risk and utilizing professional management without needing extensive in-house infrastructure.
What role does outsourcing play for family offices?
Outsourcing allows family offices to increase the quality of their operations for complex tasks, such as due diligence and tax structuring, without incurring the high fixed costs of maintaining a large, highly specialized in-house team.
- Arbeit zitieren
- Florian Manz (Autor:in), 2013, Structuring the Family Office. Insourcing versus Outsourcing Decisions for Real Estate Investments into Foreign Markets, München, GRIN Verlag, https://www.grin.com/document/294248
