- Family offices are more selective on real estate as rates stay high, focusing on heavily discounted properties and assets that can reset rents, chief investment officers told CNBC.
- Inflation protection still draws large family offices to industrial, farmland and timberland, but HB Wealth tells clients to avoid funds with leverage above 65%.
- Data centers get a cautious reception, because long lockups at high rates and technology risk at lease end make family offices wary of the commitment.
Higher interest rates are making family offices more selective about real estate, with many chasing steep discounts and assets that can raise rents, chief investment officers told CNBC.
Rob Haugen runs private capital investments at Michels Family Office and is CIO of its spinout, River1 Asset Management. He told CNBC the firm needs to be convinced rates are heading lower before it does much beyond “the really special project.”
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Hunting for Discounts
Haugen told CNBC an office building bought cheaply, with a tenant already in place for much of the space, fits the bill. Big-box retail is another avenue.
The firm bought a Kohl’s outside Milwaukee alongside a group of investors roughly 18 months ago, Haugen said.
The Inflation Angle
Joel Houck, CIO of HB Wealth, told CNBC that large family offices have been asking more about real estate and wider real assets, including warehouses, farmland and timber. Inflation ranks near the top of their worries.
Taxes help too. A depreciation shield can push tax on distributions out until the asset sells, Houck said.
Not All Rents Reset Alike
Houck cautioned that the hedge only works if the property manager can reprice leases quickly. Multifamily, industrial and retail don’t reset at the same pace.
Industrial and housing can lift rents on a regular schedule, he said, and both gain from limited supply.
Data Centers Get a Pass
Family investors are curious about data centers, but Haugen balks at a 10- to 15-year lockup with rates this high. Mike Silverman, CIO at Cresset, told CNBC clients ask about them often, yet the firm hasn’t pursued any because of the risk.
He sees data centers as more of a tech bet than a property bet. A long lease to a major tenant looks safe until technology change erodes the building’s value. Big institutions see it differently, as CRE Daily reported when Blackstone’s $200B data center empire became the anchor of its AI strategy.
Why It Matters
Houck said higher rates can open the door to buying at a discount, but leverage is the guardrail. HB Wealth tells clients to avoid funds above 65% leverage, whether at the property or fund level.
Family offices are patient money, and their caution echoes what dealmakers see elsewhere. CBRE’s chair and CEO said on the firm’s Q3 call that rate uncertainty is repricing and delaying contracted deals, CRE Daily reported.
What’s Next
Watch the rate path. Haugen’s firm is waiting for conviction that rates will fall, and until then the deals that clear its bar will be the rare discounted ones.
