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Family Offices and Direct Investments in Real Estate

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SAFEGUARDING YOUR RIGHTS By K r is Fer r anti, John L . Opar and M att Collins - Shear man & Ster ling Legal St r at egies Dir ect In vest m en t s in Real Est at e he last several years have seen a clear trend toward direct investm ent in real estate by fam ily offices, and away from indirect holdings through private fund investm ents and the public m arkets. An oft-cited reason for this shift is the desire of fam ily offices to assert direct control over their investm ents. However, such control can often prove illusory. This article explores the com m on pitfalls that fam ily offices encounter when structuring direct real estate investm ents and provides practical suggestions for obtaining and m aintaining a m eaningful level of control over such investm ents. THE TREND TOWARD DIRECT REAL ESTATE INVESTM ENT Fam ily offices represent a diverse array of interests, wealth and skill sets. As a result, the m otivations behind the trend toward direct investm ent in real estate am ong fam ily offices are not uniform . For instance, fam ily office investors m ay be seeking to diversify their portfolio or they m ay sim ply be aim ing to direct their investm ents to assets that they have actually vetted on a case-by-case basis, rather than leaving such decisions to the discretion of a fund m anager. An additional m otivation m ay be a desire to m inim ize their exposure to the fees that funds charge (e.g., the com m on fund m anagem ent fees of 2% of AUM and 20% of profits) or to m aintain their investm ent in an asset for longer than the typical fund tim eline of 5 years. While som e or all of these reasons m ay hold true for a particular FAMILY OFFICES AND DIRECT INVESTMENTS IN REAL ESTATE T Publishers insight: With direct investing into real estate being another significant portion of a family offices real estate allocation in 2019, it is that much more important to make sure your deals are properly structured. Here is some great insight! 25 Est at e M agazin e I Th e Fam ily Of f ice Real January 2019

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